*Approves N13.98trn for 2022 budget
*Pegs oil benchmark at $57, exchange rate at N410.15/US$, crude production at 1.88 mbpd
*Projected GDP of 4.20%, inflation at 13%
*Expert faults financial projections
*Oil industry operators list challenges to output target
*FG records N2.3trn deficit as expenditure, debt servicing rise
By Emma Ujah, Abuja Bureau Chief, Udeme Akpan, Nkiru Nnorom, Henry Umoru, Obas Esiedesa and Ediri Ejoh
The Senate yesterday passed the 2022-2024 Medium Term Expenditure Framework, MTEF, and Fiscal Strategy Paper, FSP, with the approval of N13.98 trillion as aggregate Federal Government expenditure for 2022, based on oil price benchmark of $57, exchange rate of N410.15 to the US dollar, and 1.88 mbpd crude output.
But oil industry operators and analysts have indicated that the sector may not deliver the stated projections for output, a situation which will put expected revenue in jeopardy.
The breakdown of the expenditure is made up of Total Recurrent (non-debt) of N6.21 trillion; Personnel Costs (Ministries, Departments and Agencies, MDAs) of N3.47 trillion; Capital expenditure (exclusive of transfers) N3.26 trillion; Special Intervention (Recurrent) amounting to N350 billion; and Special intervention (Capital) of N10 billion.
Total statutory transfers of N613.4 billion was approved, Debt Service estimate of N3.12 trillion also approved, a Sinking Fund should be to the tune of N292 billion, Pension, Gratuities & Retirees Benefits to stand at N567 billion.
The Senate pegged daily crude oil production at 1.88 million barrel per day (mbpd), 2.23 mbpd, and 2.22 mbpd for 2022, 2023 and 2024 respectively, in view of average 1.93 mbpd over the past three years and the fact that a very conservative oil output benchmark has been adopted for the medium term in order to ensure greater budget realism.
Oil benchmark pegged at $57
After the presentation of the report by the Chairman, Senate Committee on Finance, Senator Olamilekan Adeola (APC, Lagos West), the Upper Chamber pegged oil benchmark at USD $57 per barrel because of what he described as the clear evidence of wide consultations with key stakeholders and the age-long fiscal strategy of addressing oil price shocks by the adoption of a higher than forecast oil price benchmark for fiscal projections over the medium term.
The Senate also approved that the Federal Government should retain revenue projection of N8.36 trillion, with Fiscal Deficit of N5.62 trillion including the Government-owned Enterprises (GOEs), the Exchange Rate of N410.15/US$ as proposed by the Executive for 2022-2024, a projected Gross Domestic Product, GDP growth rate of 4.20% and a projected inflation rate of 13.00%.
According to the Senate, the approved fiscal deficit estimate of N5.62 trillion (including GOEs) should be sustained due to the Federal Government’s conservative approach to target setting and its determination to improve collection efficiency of major revenue generating agencies while it continues to enforce the implementation of the Performance Management Framework for GOEs by ensuring that they operate in more fiscally responsible manner whilst reviewing their operational efficiencies, and costs-to-income ratios, as declared.
The Senate equally approved a projected new borrowings of N4.89 trillion which include foreign and domestic borrowing, subject to the provision of details of the borrowing plan to the National Assembly, just as it approved that the USD$3.5 billion International Monetary Fund (IMF) loan should stand at the rate of 0.01% to 0.02% in order to shore up its internal borrowing and reduce external borrowing because of exchange rate risks.
Salary review for MDAs
The Senate, in the approved MTEF/FSP documents, asked the Salaries and Wages Commission to carry out a review of the salary structure of all the MDAs as that would enable the commission come up with a new salary structure for the MDAs that will reflect their true financial positions.
The Upper Chamber also approved that there should be a continuous review of the Fiscal Responsibility Act to ensure that all revenue are remitted to the Consolidated Renenue Fund, CRF as at when due, in order to curtail what it described as frivolous deductions and diversion of funds by the MDAs.
Mining laws up for review
According to the Senate, the Federal Government should as a matter of urgency, review all laws relating to mining businesses to ensure upward review of rates applied to royalties, ground rent and licenses renewal of all mining companies operating in Nigeria to ensure transparency in the collection of revenue by relevant agencies of government and also look into the issues of illegal mining activities by recommending stringent sanctions in the proposed new laws.
It said the Nigeria Customs Service should accelerate the process of installing scanners at all ports in the country to curb the issue of under-payment of Custom duties on imported goods which has resulted in huge loss of revenue to government and further improve its activities at all borders in order to curb smuggling.
The Upper Chamber called for implementation of the Petroleum Industry Act (PIA) that was recently assented to by the President in order to curtail the problems of smuggling and round-tripping of petroleum products imported into the country.
It approved that the proposed budget of Government Owned Enterprises (GOEs) should be reviewed upward to show the reflection of their capabilities to generate more revenue as a result of the findings of the joint committee.
According to the Senate, the offices of the Accountant-General (AGF), Auditor-General of the Federation (AuGF) and Fiscal Responsibility Commission (FRC) should be strengthened in the area of staffing and proper funding of their activities to ensure optimal performance of their duties in order to adequately monitor remittances of all government revenues.
The Upper Chamber said the Act establishing some MDAs should be reviewed and amended as a matter of urgency to evidence a more nationalistic interest, as these amendments will assist to generate more revenue to the coffers of the government.
It listed the Nigerian Investment Promotion Council (NIPC) Act, National Lottery Trust Fund Act, Bank of Industry Act, Bank of Agriculture Act, Energy Commission Act and Nigeria Nuclear Regulatory Commission ACT in this regard.
The Senate said the Federal government budget should be reviewed and purged of some agencies that demonstrated capacity to stand on their own without any recourse to Federal Government budget, listing the National Agency for Food and Drug Administration and Control (NAFDAC) and Nigerian College of Aviation Technology, Zaria, NCAT, in this regard.
Projections are wishful thinking – Investment expert
Mallam Garba Kurfi, Managing Director, APT Securities & Funds, described the projections as wishful thinking, saying that the projections require more fiscal and monetary policies to support the achievement.
He stated: “The projection of an exchange rate of N410/$ is wishful thinking, same as the inflation rate of 13 per cent. The 4.2 percent GDP may either be achieved, surpassed or fail. The projection is a mere guide but needs more fiscal policy and monetary policy to support it. If what is projected is achieved, it is good for the economy and may reduce the pain felt by the majority of the population. It is also a right step to reduce poverty since GDP growth will surpass the population growth of three percent.”
Challenges over oil projections
Reacting, the National President, Oil and Gas Service Providers Association of Nigeria, OGSPAN, Mazi Colman Obasi, said: “The Federal Government 2021 budget was benchmarked on the same parameters. This means that the National Assembly still believes that the market fundamentals which influenced such a decision have not changed.
“It will be interesting to wait and see how the volatile oil market would respond to the planned increase of output by the Organisation of Petroleum Exporting Countries, OPEC, in the last quarter (October – December) of 2021.”
Similarly, the Lead promoter, EnergyHub Nigeria, Dr. Felix Amieyeofori, said: “This year has been a mixed bag for the Nigerian upstream industry. Besides, the quota restrictions by OPEC+ which is gradually being eased with global easing of lock-downs with progress in COVID-19 vaccinations, the industry also suffered significant downtime and loss of production from major oil fields due to rise in pipeline sabotage, increased leakages, and other technical and maintenance issues.
“It is difficult to speculate where the output pendulum will swing to, though one would expect a positive swing given that most of the technical and maintenance issues have been resolved. However, how the sabotage would play out will be the deciding factor.
“Unfortunately, Nigeria did not benefit from the additional 400,000bpd increase by OPEC+ this August 2021: the country only enjoys an increase from its 1.4 million to 1.8 million by April 2022.
“Well, a fall in either the price and or the volume will adversely affect the cash flow of the country, since the country still earns about 60 per cent of its revenue from this sector.”
Similarly, the immediate past Chairman, Major Oil Marketers Association of Nigeria and Managing Director, 11 Plc, Adetunji Oyebanji, said: ‘’It seems reasonable under the circumstances; not over optimistic. Indications are that our capacity is currently limited, perhaps as a result of inadequate investment overtime. It is not clear if we can attain higher production levels even if our quota is increased.”
Also speaking, an energy expert and former head of British-funded Facility for Oil Sector Transparency and Reform (FOSTER), Mr. Henry Adigun, said huge cost of restarting a field, instability in fiscal terms and vandalism were responsible for Nigeria’s low production level in the past.
Adigun was however optimistic that with stable oil price and fiscal terms, production would improve in September.
According to him: “The challenge is that if you shut down most of the operations, restarting them is not straight forward. Our rig count was five a few months back and as at last week we were at eleven, so we have moved. A lot of factors affect rig count.
“One is price of oil in the market. When oil price is not very good and you shut down, it takes a lot of cost to recover. If you look at the cost and it doesn’t look good on your balance sheet then you don’t recover. In the last few weeks we restarted about three fields.
“The other issue is the damage and vandalism that is going on around. The level of vandalism is very high and is under-reported. Agip, Shell and some other companies have suffered serious damages in their areas, limiting their ability to contribute to production. This has led to shutdowns”, he stated.
He expressed optimism that future report will show increased production, projecting that Nigeria may be able to produce about 1.4mb/day in September.
“The good thing is that (with the Petroleum Industry Act) the fiscals are now out, so people now understand longer term planning, and can actually do better than they could do before when it was hazy.
“The key thing is that the environment about three months ago was not stable enough to get companies to restart production. So when the Department of Petroleum Resources (DPR) allocates you 40,000 barrels or 30,000 barrels and then you have capacity, restarting facility cost money”.
He also noted that Nigeria’s plan to hit over two million barrels per day production level by next “is also feasible because rig count is now eleven as at last Friday. The next report you will see, we will be doing at least 1.48/1.49mbp/day”.
He added that with oil price stabilizing and the fiscals known, Nigeria will in about nine month’s time attain 2.2mb/day production level with condensate.
OPEC’s market projections
However, in its September 2021 Monthly Oil Market Report, obtained by Vanguard, OPEC, had stated: “The increased risk of COVID-19 cases primarily fuelled by the Delta variant, is clouding oil demand prospects going into the final quarter of the year, resulting in downward adjustments to fourth quarter of 2021 estimates.
“As a result, 2H21 oil demand has been adjusted slightly lower, partially delaying the oil demand recovery into first half of 2022.”
FG records N2.3 trn deficit in Q1
Meanwhile, the Federal Government recorded a budget deficit to the tune of N2. 293 trillion in the first quarter of this year (Q1’21).
This is contained in the Q1’21 Budget Implementation Report (BIR) by the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed.
According to the report, “The revenue and expenditure turnout of the Federal Government resulted in a fiscal deficit of N2.293 trillion during the quarter (6.43 per cent of the 2021 quarterly GDP).
“The first quarter deficit was N1.070 trillion (87.51 percent) higher than the projected quarterly fiscal deficit of N1.222 trillion. The 2021 fiscal deficit was also higher than the N1.377 trillion deficit recorded in the first quarter of 2020. The deficit was partly-financed through domestic borrowing of N550.0 billion.”
N1.1 trn revenue
The Federal Government total revenue stood at N1.091 trillion in the period under review.
This comprises N299.33 billion (27.43 per cent) oil revenue and N792.09 billion (72.57 per cent) non-oil revenue.
The amount received was N905.19 billion (45.34 percent) below the quarterly budget projection but N99.17 billion (9.99 per cent) above the N992.25 billion reported in the first quarter of 2020.
N3.4 trn expenditure
On the expenditure side, the government spent the sum of at N3.384 trillion, representing N502.29 billion (17.43 percent) and N1.014 trillion (42.80 per cent) above the N2.882 trillion quarterly projection and N2.370 trillion reported in the corresponding quarter of 2020, respectively.
A breakdown of the expenditure indicated that a total of N1.096 trillion was spent on non-debt recurrent expenditure in the first quarter of 2021. This represents a decrease of N313.99 billion (22.26 per cent) and N50.79 billion (4.43 per cent) below the quarterly estimate of N1.410 trillion and N1.147 trillion recorded in the first quarter of 2020 respectively. Statutory Transfers was N124.13 billion during the review period
A total of N384.52 billion was released and cash backed in the first quarter of 2021 for the implementation of 2021 capital projects and programmes of MDAs.
N813b debt service
Total Debt Service in the first quarter of 2021 stood at N813.10 billion, indicating an increase of N32.01 billion (4.10 per cent) above the N781.10 billion projected for the quarter.
The sum of N581.27 billion was used for domestic debt servicing, while N231.83 billion was used for external debt service during the period under review.
The amount used for domestic debt servicing was N35.40 billion (6.48 per cent) above the projection for the quarter.
The BIR showed that average oil production and lifting (including condensates) in the first quarter of 2021 was 1.72 mbpd and 1.51 mbpd respectively.
It said: “Oil production was 0.14mbpd (7.53 per cent) below the 1.86 mbpd benchmark for the 2021 Budget. The volume of oil production in the period was also 0.12mbpd (7.69 per cent) above the 1.56m bpd reported in the fourth quarter of 2020 and 0.38 mbpd (18.45 per cent) below the 2.06mbpd recorded in the first quarter of 2020.”
N3.9b trade deficit
Nigeria’s total merchandise trade in the first quarter of 2021 stood at N9.757 trillion, representing 6.99 per cent and 14.13 per cent increase when compared to the values recorded in fourth and first quarters of 2020 respectively.
The export component of this trade stood at N2.907 trillion, representing 29.79 percent of the total trade, while import was valued at N6.850 trillion, representing 70.21 percent. The higher level of imports over exports resulted in a trade deficit (in goods) of N3.943 trillion.
Oil accounts for 66.38 % export
The value of crude oil export stood at N1.929 trillion (66.38 percent) of the total export while non–crude oil export accounted for 33.62 percent of the total export recorded in the review period.