Oil
Poor petroleum contributions may threaten general elections in Nigeria
Analysts at FBN Capital Limited have bemoaned the negative correlation between Nigeria’s oil output and economic development, saying the oil sector has contributed negatively to the growth of the Nigerian economy.
They also dismissed hopes for any improvement, saying, “Given the seeming indifference of the executive and legislature to these constraints, we do not assume a recovery in the sector ahead of the elections.
”The analysts in their Economic Report for June 2014, stated that the oil sector share of the country’s Gross Domestic Product, GDP, contracted by an average of 0.8 per cent year-on-year, in the past eight quarters.
This, they said, is in contrast to the telecommunications and post, building and construction, hotels and restaurants, solid minerals, and real estate, which achieved double-digit growth in third quarter 2013.
The analysts, Gregory Kronsten and Chinwendu Egwim, also blamed the declining fortune of the oil and gas sector on faltering production, arising from reduced investment and leakages.According to them, underinvestment by the joint ventures, the vacuum created by the non-passage of the Petroleum Industry Bill, PIB, and the steep increase in production leakages/theft since 2013, have all contributed to the disappointing oil performance.The analysts linked the oil sector with a number of weaknesses in Nigeria’s fiscal policy.
They said, “Oil continues to generate a dangerously high proportion of Federal government revenue and of foreign-exchange inflows. Oil accounted for 76 per cent of federally collected revenues in 2012 and a provisional 70 per cent in 2013.
“The collection of dues from the non-oil economy is constrained by overly generous tax exemptions, inadequate pay for the officials and a poor culture of paying tax in the population at large.“Another weakness of fiscal policy is the inclusion of the Nigerian National Petroleum Corporation, NNPC in the federal budget.
The corporation cannot always meet its obligations to its joint venture partners (cash calls) because of delays in disbursements from the federation account. The arrangement also does not enhance accountability.
“We have already noted that the version of the PIB currently before the National Assembly does not change the financing arrangements for the corporation other than at the margins.
”In the long term, the analysts further stated that Nigeria can reduce its appetite for imports without sacrificing its dash for growth, adding that the country could make some inroads into its import bill by finally scrapping petrol subsidies and encouraging investments in refining.
In addition, Mr. Bismark Rewane, Managing Director/Chief Executive Officer, Financial Derivatives Company Limited, projected that oil export will remain the major source of revenue for Nigeria in the months ahead.
Rewane, in his monthly economic news and views, lamented the continued pilfering of Nigeria’s crude, noting, however, dwindling Nigerian shipments to the U.S. imply that disruptions to Nigeria’s oil supplies are unlikely to trigger oil price rallies.Despite claims of improved refining capacity in the country, he disclosed that Nigeria still imports about 50 per cent of its refined products from the United States.
On the outlook for August, Rewane stated that stock market sentiment will remain tepid pushing stock prices down, while slow external reserves replenishment will continue to $41 billion.
In a strategic move to revitalize Nigeria’s oil and gas sector, the Federal Government has unveiled two key fiscal incentives aimed at attracting investment and enhancing energy security.
The announcement was made by Mr. Wale Edun, the Minister of Finance and Coordinating Minister of the Economy on Wednesday.
The first initiative, the Value Added Tax (VAT) Modification Order 2024, introduces critical exemptions for essential energy products and infrastructure, including Diesel, Feed Gas, Liquefied Petroleum Gas (LPG), Compressed Natural Gas (CNG), Electric Vehicles, Liquefied Natural Gas (LNG) infrastructure, and Clean Cooking Equipment.
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These exemptions are designed to reduce living costs for Nigerians, promote energy security, and accelerate the transition to cleaner energy alternatives.
The second initiative, the Notice of Tax Incentives for Deep Offshore Oil & Gas Production, offers new tax relief options for deep offshore exploration projects.
This measure aims to position Nigeria’s deep offshore basin as a premier destination for international oil and gas investments, boosting the country’s appeal to foreign investors.
These reforms are part of a broader set of policy initiatives, known as Policy Directives 40-42, endorsed by President Bola Ahmed Tinubu.
The directives reflect the administration’s commitment to fostering sustainable development in the energy sector and enhancing Nigeria’s competitive edge in the global oil and gas market.
By Yemie Adeoye
NIGERIA’s President Bola Tinubu has announced that the protracted ExxonMobil-Seplat upstream oil divestment will be formally approved by the Minister of petroleum within a matter of days, just as he announced his government’s intention to expand the Compress natural Gas, CNG buses initiative.
The President who stated this during his Independence day nationwide broadcast stated that the move is in line with his administration’s commitment to free enterprise, free entry and free exit in investments which is the hallmark of his administration investment policy.
“Fellow compatriots, our administration is committed to free enterprise, free entry, and free exit in investments while maintaining the sanctity and efficacy of our regulatory processes. This principle guides the divestment transactions in our upstream petroleum sector, where we are committed to changing the fortune positively. As such, the ExxonMobil Seplat divestment will receive ministerial approval in a matter of days, having been concluded by the regulator, NUPRC, in line with the Petroleum Industry Act, PIA. This was done in the same manner as other qualified divestments approved in the sector.”
The President also seized the opportunity to plead with Nigerians to be patient with his administration’s reform policies. “As your President, I assure you that we are committed to finding sustainable solutions to alleviate the suffering of our citizens. Once again, I plead for your patience as the reforms we are implementing show positive signs, and we are beginning to see light at the end of the tunnel”.
“Our energy transition programme is on course. We are expanding the adoption of the Presidential Initiative on Compressed Natural Gas for mass transit with private sector players. The Federal Government is ready to assist the thirty-six States and FCT in acquiring CNG buses for cheaper public transportation.
Fellow Nigerians, while we are working to stabilise the economy and secure the country, we also seek to foster national unity and build social harmony and cohesion. Our economy can only thrive when there is peace”. he enthused.
As part of the administration’s push to improve Ease of Doing Business (EoDB), Nigeria’s Vice President Kashim Shettima has expressed support for ExxonMobil’s plan to invest $10 billion in the country’s deep-water oil sector.
Speaking on Wednesday, September 25, 2024, during a meeting with ExxonMobil executives at the 79th United Nations General Assembly (UNGA) in New York, Shettima called the investment “a clear testament to the administration’s economic reforms and investor-friendly policies.”
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This announcement follows news that international maritime company DP World intends to develop a multibillion-dollar port project in Nigeria.
Stanley Nkwocha, Senior Special Assistant to the President on Media and Communications, shared the development in a statement on Wednesday. He quoted Shettima as saying: “ExxonMobil’s potential investment aligns with the vision of President Bola Ahmed Tinubu’s administration for a more investment-friendly Nigeria.
We are committed to fostering an environment that supports such transformative projects.”Shettima also discussed the administration’s broader efforts to improve the ease of doing business, highlighting the “Renewed Hope Agenda,” which aims to simplify bureaucratic processes, enhance transparency, and offer fiscal incentives to attract global investors.
“Our administration has taken bold steps to unify the exchange rate, remove fuel subsidies, and implement tax reforms. These measures, though challenging in the short term, are intended to create a stable and predictable business environment in the long term,” he added.
On the oil and gas sector, Shettima mentioned that the government is revising the fiscal framework for deep-water operations to attract investment while ensuring fair returns for the Nigerian people.
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