Prof. Wumi Iledare, former President Nigerian Association of Energy Economics (NAEE), has advised the Federal Government to spend prudently to avoid breakdown of the nation’s economy as global oil price continues to crash.
Iledare said in an interview with News Agency of Nigeria (NAN) in Abuja on Tuesday that the economy was already in an abysmal situation.
NAN reports that West Texas Intermediate (WTI), the North American Benchmark, on Monday fell to the negatives in trading.
Also, Western Canadian Select (WCS), was below zero at one point but has recovered to around eight dollars a barrel.
The Nigeria Bonny light also fell to 11 dollars in the market on Monday.
“Eleven dollars per barrel is about 50 per cent of the unit technical cost and the 11 dollars does not cover the unit operating cost of a deepwater barrel.
“ It is really producing a barrel at a loss. At low oil prices, gross revenue at the same production level is dismal, meaning low royalty revenue, low tax revenue implying a significant budget deficit.
“Government of states like the federal government are major employers of labour, wages or salaries may not come on time if they come at all.
“Capital budget for infrastructure would have to be shelved. Nigeria is certainly in an abysmal situation.
“Recession is inevitable and perhaps, it may take two to three years to reverse it.
“The way out in the short run is prudent spending targeted at local consumption and putting on hold in the short run spending that will take a while to generate economic output for the national economy,’’ he said .
Iledare, a Professor of Petroleum Economics and Policy Research, said that the situation required gradual opening up the economy without jeopardising safety.
He also suggested that unnecessary foreign spending should be suspended unless absolutely necessary.
According to him, government must avoid borrowing to support pre-bendalistic life style.
“Bloated budget overhead must be rationalised if not eliminated.
“It is okay to borrow money to sustain access to energy but not for free energy consumption that benefits elite who are able to pay for it.
“The low oil price provides a means to bury subsidy for ever. But this must be by an act of National Assembly and not Executive order on the pages of newspapers,’’ he added
He noted that if NNPC remained the sole importer of Premium Motor Spirit (PMS) – petrol – the price at the depot must be regulated but pricing at the retail end must be deregulated.
He added that there should be no guaranteed or equalised margin at the distribution stations.
“In the long run, this is to think of diversifying sources of government revenue and downsising government economic activity.
“This is why I continue to advocate the passing of the Petroleum Industry Governance Bill (PIGB).
“It is almost a year since the new administration started, nothing has come to fruition on Petroleum Industry reform,’’ he said
Iledare said that the backbone of Nigeria’s economy remained the oil and gas industry, noting that the effect of its collapse would be worse in the long run on the economy than the Coronavirus pandemic.
“ Venezuela is a good learning experience,’’ he said