By Michael Eboh
The challenges confronting the Nigerian petroleum industry have started to take its toll on the economy of the country, leading to a massive decline in revenue to the Federation Account.
Within the space of one year, Nigeria’s crude oil revenue had dropped by N644.1 billion, while payments by the NNPC to the Federation Account dipped by N58.8 billion.
Specifically, data obtained from the Central Bank of Nigeria, CBN, showed that Nigeria’s oil revenue from January to April 2016 stood at N852.8 billion, compared to N1.497 trillion in the same period in 2015.
The earning from oil in 2016 represents about 14.08 per cent of the Federal Government’s N6.06 trillion budget estimates for the 2016 fiscal year.
On the other hand, data obtained from the Nigerian National Petroleum Corporation, NNPC, also disclosed that within the same period, January to April 2016, it paid N313.652 billion into the Federation Account, down by 15.79 per cent from N372.443 billion recorded in the same period in 2015.
In the preceding four-month period, from September to December 2015, the CBN disclosed that revenue from crude oil and gas stood at N1.096 trillion, while the NNPC remitted N320.934 billion to the Federation Account in the same period.
A breakdown of the data obtained from the CBN, however, revealed that compared to oil revenue, non-oil revenue contributed N810.3 billion to the Federation Account from January to April 2016.
Further analysis, according to the CBN data showed that the country recorded N73.262 billion, N88.475 billion, N66.526 and N92.671 billion oil revenues in January, February, March and April respectively.
On the other hand, the NNPC data showed that the corporation remitted N92.289 billion, N82.944 billion, N75.874 billion and N62.545 billion to the Federation Account in the months of January, February, March and April 2016 respectively, this was in contrast to N90.09 billion, N102.991 billion, N101.961 billion and N77.398 billion remitted in January, February, March and April 2015, respectively.
The CBN stated that at N186.65 billion or 47.7 per cent of the total revenue in the month of April, gross oil receipts fell short of the preceding month’s level of N227.69 billion by 18.0 per cent.
The CBN blamed the decline in oil revenue on the fall in receipts from crude oil and gas exports owing to shut-downs and shut-ins in production arising from repair works at some NNPC terminals and pipeline vandalism as well as the persistent low crude oil prices.
Nigeria had, over the last couple of months, been faced with the challenges of pipeline bombings, crude oil theft and low crude oil price. These had helped in no small measure in hurting the finances of the country, leading to a significant decline in the revenue of the country and plunging the Nigerian economy into near chaos. Specifically, few days ago, the International Monetary Fund, IMF, warned that economic activity in Nigeria is projected to contract in 2016 as the economy adjusts to foreign currency shortages as a result of lower oil receipts, low power generation, and weak investor confidence. The IMF, in its World Economic Outlook update, disclosed that Nigeria’s economy would contract by 1.8 per cent this year, from 2.3 per cent earlier projected in April, and also curb growth in the entire region.
The IMF also reduced Nigeria’s growth projection for next year to 1.1 per cent from 3.5 per cent earlier projected.
Lukman Otunuga, a research analyst at FXTM, who was responding to claims by the Federal Government that its first quarter revenues reached a paltry 55 per cent of what was targeted, stated that the decline in global oil prices had already started to weigh heavily on the biggest economy in Africa and the diminishing government revenues could rekindle concerns over a technical recession in the second quarter.
According to him, sentiment is slowly changing towards Nigeria and the ongoing concerns over a slowdown in economic momentum could trigger a wave of risk aversion which punishes the Nigerian Stock Exchange, NSE.
Also, PricewaterHouse Coopers, PwC, had stated that since 2005 and until recently, Nigeria has been securing its position as one of the leading destinations for investment in Africa, thanks to a combination of a large and growing population, robust macroeconomic policies, strong commodity prices, demographic growth, resilient institutions and high capital inflows.
In addition, the global auditing and consultancy firm, in its latest report titled, ‘Powering Nigeria for the Future,’ noted that revenues and taxes from the oil and gas sector had over the years been providing substantial funding for critical public programmes across infrastructure, healthcare, education and agriculture.
However, PwC stated that in 2015, Nigeria’s oil production as a percentage of OPEC production fell, reaching a low of 5.8 per cent as compared to seven per cent in 2010, while revenues from oil exports dropped by more than 40 per cent to reach $52 billion in 2015 – dealing a devastating blow to government finances.
According to the company, a long history of mismanagement across the oil sector and the impact from the recent fall in oil prices also resulted in limited funding for oil exploration and modernisation technology, further impacting the sector.
It also added that the considerable reduction in oil exports also depleted Nigeria’s foreign exchange reserves.
It said, “Furthermore, restrictions imposed by the Central Bank to limit demand for foreign exchange in the official market resulted in a spill over to the parallel market, widening the gap between the official and parallel market exchange rate.
“Unemployment also grew from six per cent in 2011 to 12.1 per cent in the first quarter of 2016, as investors started to re-assess their risk appetite. Real GDP growth, which had a Compound Annual Growth Rate (CAGR) of 5.3 per cent between 2011 and 2014, fell to 2.97 per cent in 2015 and subsequently to – 0.36 per cent in first quarter 2016.
“The most critical question now is whether, and how, will Nigeria emerge from this difficult situation?”
However, the Federal Government has adopted a number of initiatives to survive the difficult times. Particularly, Mr. Ibe Kachikwu, Minister of State for Petroleum Resources, disclosed the government had decided that not all projects that are on the table would see the light of day, especially if the unit price of oil for such project does not come below a certain threshold.
He further stressed that for oil companies and oil producing countries in Africa to survive the period of instability in the industry, prominence should be given to a lean and cost-cutting initiatives.
According to him, cutting cost is an efficiency issue, adding that even when you have very high prices, you should be cutting your costs to increase your margins.
He said, “Unknown to all of us, every month that you delay a project, you are adding literally, between two to three per cent of cost to the outlay. So we got to work in such a parallel mix that things are being done sequentially at the same time to be able to bring that sort of cost. It is certainly a focus area for us. “And different from the oil majors cutting costs and we forcing them to do that, our whole operational network, how we manage the oil industry is going to change. It takes something like security. Every oil major, for example, has their own security apparatus. We need to have an integrated security model; we need to increase on speed. There used to be a lap time between what the NCDMB does and what the NNPC does and the effect of that are unnecessary delays in terms of approval process.” Also commenting on the issue, Mr. Seyi Gambo, former Public Relations Officer of the Petroleum and Natural Gas Senior Staff Association of Nigeria, PENGASSAN, disclosed that the long-term measure to surviving the volatility in the crude oil market is to diversify the economy.
According to him, the decline in crude oil prices in the short run will be a big positive for countries that depend largely on oil imports for their oil consumption, but for Nigeria, the situation could plunge the country into a dilemma.