Oil
Fuel subsidy to go next year, FG to sell petrol at N97 per litre
….FG to fund 2016 N6trn budget with IGR
LAGOS — Following increased pressure on revenue and the expenditure profile, the Federal Government has finally yielded to domestic and international pressures to remove fuel subsidy.
This is coming as crude oil prices hit a seven-year low with global reference crude, West Texas Intermediate and Brent trading yesterday at $34.7 and $36.7 per barrel respectively, effectively disrupting Nigeria’s $38 per barrel benchmark for 2016 budget.
The crash has resulted into about N1.45 trillion shortfall in the value of the projected oil output in the international market based on production target increased in the 2016 plan to 2.2 million barrel per day (mbpd), up from actual 1.9 mbpd in 2015.
On official exchange rate of N198/ $1 upon which the revenue projection was based, the value of the total budgeted oil output is $35.14 billion or N6.95 trillion but with the latest price development, the output would now yield $27.8 billion or N5.5 trillion.
The latest price shock is coming less than a week after the Federal Executive Council, FEC, approved the 2016 Medium Term Expenditure Framework, MTEF, which outlined government’s revenue as well as a deficit budget to be funded largely by the oil income.The 2016 budget is derived from the MTEF which is a three-year fiscal plan.
FG to introduce tougher economic measures
Also, the oil price crash was coming at the backdrop of a warning from ministers in charge of the economic ministries and chief executives of federal parastatals in the economy sector that Nigerians should prepare ahead for what it called more austere conditions in view of the strict economic policies being put in place by the President Muhammadu Buhari administration.
The federal executives, who gave the warnings when they appeared before the joint committees of the National Assembly on Finance to defend the 2016, 2017 and 2018 Medium Term Expenditure Framework and Fiscal Strategy Paper, MTEF & FSP, documents presented to the National Assembly by President Muhammadu Buhari are Ministers for Budget and National Planning, Udoma Udo Udoma; Finance, Mrs Kemi Adeosun and State for Petroleum Resource,Ibe Kachikwu; Governor, Central Bank of Nigeria, Godwin Emefiele and Executive Chairman, Federal Inland Revenue Service, FIRS, Babatunde Fowler.
To make the warning real, they disclosed that Federal Government would move fuel price from N87 to N97 per litre in 2016 while removing fuel subsidy, lamenting that excess of N1 trillion has been paid for fuel subsidy in 2015 alone.
2016 budget deficit to increase
With the latest crude oil price development, 2016 budget deficit would increase to about N2.7 trillion from N2.22 trillion, assuming government is able to meet its target of 2.2 mbpd, otherwise the deficit would be much higher.
Also, the development, according to economy analysts, would put more pressure on the external reserves and the exchange rate while forcing the government to resort to more borrowing, thereby increasing both its deficit-to-GDP ratio and debt-to-GDP ratio.
In the 2016 fiscal plan, deficit/GDP ratio was more than doubled to 2.2 per cent, from actual one per cent as at September 2015.
According to the 2016 fiscal plan, Federal Government would only have a marginally increased contribution from value added tax, VAT, at N67.7 billion in 2016, from N67.5 billion in 2015 while additional inflow of N350 billion is expected to come from misappropriated funds recoveries.
The deficit will necessitate borrowings worth N1.8 trillion of which domestic borrowing is fixed at N1.2 trillion while foreign borrowing is about N600 billion. If the oil price remains gloomy in the coming year borrowings would increase or the government would be forced to effect a further cut on expenditure.
Already, recurrent expenditure is projected to fall from 84 per cent in 2015 to 70 per cent in 2016 while capital expenditure is expected to increase from 16 per cent in 2015 to 30 per cent in 2016.
Harder times ahead, FG alerts Nigerians
The Federal Government had yesterday alerted Nigerians to prepare ahead for the tough economic conditions and policy responses it intends to roll out from next year just as it vowed to strictly monitor expenditure of all Ministries, Department and Agencies, MDAs to avoid wastes.
The Federal Government has also planned to reduce the personnel cost from N1.8 trillion to N100 billion as part of moves to reduce expenditure and save cost.
According to the minister, who appeared at the National Assembly, yesterday, attention would be given to Internally Generated Revenue, IGR, to fund the N6.1 trillion 2016 budget, adding that in 2016, it would remove fuel subsidy and reverse the earlier N10 per litre reduction effected by ex-President Goodluck Jonathan this year.
Speaking at the meeting, Udo Udoma, who noted that it was important that substantial reductions were made on the spending pattern if the expected change must come in, said: “In preparing the MTEF, we seek a dramatic shift from spending on recurrent to spending on capital aspect of the budget. It is going to be tighter for everybody. All non essential expenditure would be cut out. We will reduce the overheads by seven per cent.
“We are beginning a journey of change and change has to start with the clarity of purpose of where we are going.”
On the issue of N500 billion for Social Welfare Programme, Udoma said: “As at the time we were preparing the MTEF, we didn’t have the number and we didn’t want to put in anything that we are not 100 percent sure of. We are still going to relate with relevant agencies on the issue. We are making this arrangement because the NNPC and other stakeholders had advised against subsidy in 2016 although consultations are still ongoing in this regard.”
On sources of funding for the N6.1 trillion 2016 budget, the Budget and National Planning Minister, who disclosed that priority would be given to Internally Generated Revenue ,IGR, said: “We will also look at the accounts of agencies and sweep those surpluses that might not be on essential things that we want to focus on.”
Udoma, however, told the lawmakers that “ultimately we must borrow N1.8 trillion to fund this budget apart from all those adjustments we are trying to make.”
Strict monitoring of all MDAs
Also, Finance Minister, Kemi Adeosun, who told the joint committee of the National Assembly that expenditure of all MDAs would be strictly monitored to avoid wastes, said government would take steps to ensure that whatever money was being taken from the account of any MDA was done electronically.
The Finance minister, who noted that measures had been put in place to compel revenue generating MDAs to remit all funds they generated to the treasury, said: “The era when an agency generates money and spends 99 per cent of it is over.”
On strategy to reduce costs of governance, the minister said: “The country paid N1.8 trillion in 2015 as personnel cost but there is a strategy in place in the 2016 budget to reduce it by N100 billion. For instance, we are already working with banks so that we can go cashless, so that we could give debit cards to MDAs to procure items.
N1trn spent on subsidy in 2015
Also speaking, Minister of State for Petroleum Resources, Dr Ibe Kachikwu, who disclosed that with NNPC inclusive, Excess of N1 trillion was paid for fuel subsidy in 2015, with plans to move fuel price from N87 to N97 per litre in 2016 as well as total removal of fuel subsidy next year.
On the issue of daily oil production target, Kachikwu said, “From August this year, we have been exceeding two million daily production through stringent monitoring of our production by getting quick fixes to instances of pipelines breaking. The internal projection for our system next year is in excess of 2.4 million which is coming from enhanced and increased production from NPDC field.
“A lot of efficiency had really been applied in this regard. NPDC will for instance be producing 300, 000 barrels on its own while other partners would process at least 2.2m barrels. We would address issues of security and other impediments to the realization of our target. We are looking at a collective and holistic handling of security issues between the NNPC and the oil majors with us taking the lead.
On the oil price benchmark of $38, he said: “The projection at OPEC was along the line of the fact that once we do not interfere in term of production cost will lead to a southward movement in terms of pricing. We expect an increase as from early January when we expect it to go up by $45 to $50 per barrel in spite of OPEC projection. We expect it to hit $70 per barrel in 2017.”
Oil
FG Introduces New Incentives To Revitalize Nigeria’s Oil & Gas Industry
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.
Business
Tinubu set to approve ExxonMobil-Seplat oil deal, expands CNG bus initiative
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.
Oil
ExxonMobil To Invest $10bn In Nigeria’s Deep-Water Oil Operations
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.