BY Udeme Clement
The budget for 2011 fiscal year, presented to the National Assembly by President Goodluck Jonathan, shows aggregate expenditure of N4.226 trillion, which represents 18.1 per cent reduction from the N5.159 trillion appropriated by the 2010 amendment and supplementary budgets.

Mr. Ayobami Odetola and Mr. Femi Olawore

The budget benchmark is based on the projection of $65 per barrel of crude oil, optimum production rate of 2.3 million barrels per day (bpd) and an exchange rate of N150 to a dollar.  The budget details further revealed that Nigeria ’s economy is mono-cultural, depending mostly on the oil and gas sector for revenue generation to run the entire economy. Looking at the budget and economic prospects for 2011, Sunday Business spoke with relevant stakeholders in the oil sector about the budget benchmark on crude oil export and the economic implications.

Government needs to deregulate the downstream sector and encourage investments in  refineries-Executive Secretary, Major Oil Marketers Association of Nigeria, Mr. Femi Olawore.

Once the downstream sector is deregulated and people are encouraged to invest in refineries to prevent capital flight, all problems associated with scarcity would disappear one after the other. Initial difficulty may arise, but it would only have a very short life span and within two to three years the challenge would be over. The oil prices would continue to rise and that means more income for the government.

The economy would be more productive this year, because from the oil perspective more revenue would likely be accruable to government. The big economies are recovering from recession and are likely going to demand for more oil, meaning that more revenue would come to Nigeria ’s economy in 2011.

However, because local production capacity is not meeting the consumption demand, it means we would continue to import petroleum products. And because government has not fully deregulated the downstream sector, it means government would continue to pay heavily for fuel subsidy.

The end result is that, as we are getting more income from crude exports and paying it out as subsidy for refined petroleum products.

The economic implication would be capital flight from the nation’s economy as a result of income out-flow from the economy, unless government urgently address the issue of deregulation. Again, the government has to keep to its promise of increase in the production, generation and distribution of electricity. If this is done, there would be less consumption of diesel. Once power generation is increased and distribution network is efficient, it means less reliance on diesel for generators, which means some amount of diesel would be reserved for export.

What is happening in the power sector in terms of increase in electricity tariff is exactly the situation in oil and gas. For instance, government wants to deregulate the sector, but labour is saying no. There is politics in the power sector because this is an election year.

So, any withdrawal of the statement on increase in electricity tariff should be seen in that light. I personally do not believe in subsidy in the oil and gas industry. The only area of subsidy I believe in is agriculture. The reason is that farm produce are subject to the conditions of the weather, any inclement weather means that farmers would run at losses, so they need assistance by means of subsidy during such period.

Looking at the 2011 budget, I would advise government to be consistent with its economic policies. Inconsistency in economic policy does not allow proper planning even in the real sector. Aside from that, government should diversify the economy into other sectors for holistic growth.

An economy that is mono-culture, depending on only one sector for revenue generation to run the entire system is not good enough. Government should encourage the manufacturing industry to thrive and must ensure that the proposed bail-out for that sector is fully utilised for the intended purpose.

That is not all. Government should also encourage the oil and gas sector either by full deregulation or increase in margin for all stakeholders. Our margin is very low. For every litre, we get only N4.60k, which is definitely not enough.   Labour is right to say that government should put certain infrastructures in place before deregulation.

The economy loses over N200billion annually on base oil importation —Lube Operations Manager, MRS Oil Nigeria Plc, Mr. Ayobami Odetola.

Nigeria’s economy loses over N200billion annually due to influx of adulterated lubricants and the fact that most people patronise road side engine oil dealers.  The economy also records a huge loss of over $250million as outflow that is not necessary to import base oil yearly.

Nigeria is the largest importer of used cars and about N100billion is incurred as unnecessary spending on adulterated lubricants, while over N30billion goes into treatment of respiratory infections caused by environmental hazards of fake engine oil. Base oil is not treated and has a lot of water and impurity, which easily cause damages for car engines and environmental pollution through dangerous gas emission into the atmosphere.

At present, we are embarking on nationwide public enlightenment campaign on lubricants market sanitisation across Nigeria. The initiative is in line with the ministerial directive by the Federal Ministry of Petroleum Resources to regulate sale of lubricants in the country.

Also, DPR has already approved a standard kiosk for the small scale lubricant dealers and the agency would soon begin granting them licenses for about N5,000. The initiative is to ensure that they sell good lubricants from authorised sources and stay afloat in business.

For instance, over 1,500 trucks are loaded in Lagos alone on daily basis and about 80 per cent of the trucks are owned by small scale entrepreneurs, so the business must be well regulated for them to continue without damaging the environment. Also, over 4million motorcycles (okada) operate in Kano State alone, and 95 per cent of the motorcycles at the moment are using bad oil, which poses serious threat to people’s health and the environment.