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.
Nigeria’s President Buhari
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.”
The Nigerian National Petroleum Company (NNPC) Limited has revealed the detection of more than 4,800 unauthorized connections on oil pipelines within the country, painting a troubling image of the nation’s primary source of revenue.
Mele Kyari, the Group Chief Executive Officer of NNPC Ltd, communicated this information to the Senate Committee on Appropriations last Friday.
He said, “We have over 4,800 illegal connections on our pipelines. That means in some lines, within 100 kilometres of pipelines, you have as much as 300 insertions.
“Therefore, even when you produce the oil, you cannot deliver them at the required pressure and therefore the volume will also be less.”
As per the NNPC Ltd chief, individuals from various regions enter the Niger Delta, inserting unauthorized connections on pipelines in Nigeria’s oil-producing area.
This recent revelation follows a prior discovery of 295 illegal connections to the pipelines by the firm a year ago, underscoring the escalating issue of crude oil theft in Nigeria.
Two years earlier, Kyari had highlighted the country’s daily loss of 200,000 barrels of oil, amounting to $13 million due to theft and vandalism.
He further stated “We have two sets of losses, one coming from our products and the other coming from crude oil. In terms of crude losses, it is still going on. On the average, we are losing 200,000 barrels of crude every day.”
After the discovery, Nigeria’s security forces pledged to enhance security around the country’s pipelines.
To bolster this, the Federal Government granted a multi-billion naira pipelines surveillance contract to Tantita Security Services, headed by former militant leader Government Ekpemepulo, also known as Tompolo.
Despite facing criticism for this decision, Senator Heineken Lokpobiri, the Minister of State for Petroleum, remains convinced that it was the appropriate course of action.
In August, following a tour of oil facilities in the Niger Delta, Senator Heineken Lokpobiri expressed gratitude to Tantita, commissioned by NNPC Ltd, for their ongoing work.
He also hinted at plans for further extensive endeavors in the future.
In 2021, after extensive debate and delays, the Petroleum Industry Bill was finally passed to attract increased foreign investment into the oil sector through amendments to regulations, royalties, and taxes.
Nigeria’s colossal $19 billion Dangote Refinery, after encountering several setbacks, is on the verge of kickstarting fuel production.
This achievement is heralded by the arrival of the first crude shipment, transported by the OTIS tanker carrying 950,000 barrels of Nigeria’s Agbami crude.
S&P Global, citing industry sources and tanker tracking data on spglobal.com, reported the tanker’s departure on December 6, en route to Lekki, the nearest land port to Dangote’s offshore crude receiving terminal.
Scheduled to reach its destination around 8 PM on December 7, the arrival of this shipment signifies the commencement of crude supplies for the refinery’s operations.
Chartered by the state-owned Nigerian National Petroleum Company (NNPC), the Suezmax tanker is an emblem of the initial crude supply to Dangote’s cutting-edge refinery, as disclosed by a West African oil trader familiar with the matter in the S&P report.
Even though the refinery was officially completed in May, the absence of domestic crude feedstock had hindered oil product manufacturing.
To address this, the NNPC, holding a 20% stake in the refinery, struck an agreement to provide 6 million barrels of crude oil as feedstock to the Dangote refinery in December.
This move aims to jumpstart operations and overcome the previous impediments.
Agbami, operated by Chevron, holds a prominent position among Nigeria’s major deepwater developments, producing around 100,000 barrels per day in the central Niger Delta.
Known for its light sweet crude qualities, with a specific gravity of 47.9 API and a low sulfur content of 0.04%, Agbami produces substantial amounts of naphtha and kerosene.
NNPC has chartered additional shipments from different Nigerian offshore fields to the refinery, marking the start of a sequence of planned crude supplies for the month, as mentioned by the oil trader.
Located on the outskirts of Lagos, Nigeria’s commercial hub, the Dangote Refinery encountered repeated delays since its 2013 announcement, despite significant installation progress in 2019.
The refinery, designed to handle multiple crudes simultaneously, targets three Nigerian crude grades—Escravos, Bonny Light, and Forcados. When operating at full capacity, it aims to produce 327,000 barrels per day (b/d) of gasoline, 244,000 b/d of gasoil/diesel, 56,000 b/d of jet fuel/kerosene, and 290,000 metric tons per year of propane/LPG.
Dangote’s operations starting signify Nigeria’s hopes to lessen its reliance on gasoline imports, addressing the deficiencies of its existing refineries undergoing repairs. This shift is poised to reshape Nigeria’s oil industry, potentially leading to gasoline self-sufficiency by the 2040s.
Dangote officials anticipate an initial output of 370,000 barrels per day (b/d), emphasizing jet fuel and diesel production.
Industry analysts, however, project the refinery to reach its full operational capacity by mid-2025, although potential delays remain a looming concern.
The Nigerian National Petroleum Company Limited (NNPCL) has announced intentions to cease importing refined petroleum products by December 2024, anticipating full operational functionality for all national refineries by that time.
Group CEO, NNPC Ltd, Mele Kyari, shared this at a meeting with Speaker Tajudeen Abbas of the House of Representatives, who advocated for the privatisation of Nigeria’s refineries on Thursday.
Projections indicated the national oil firm’s revenue could climb to N4.5 trillion by the conclusion of 2023. Moreover, the rehabilitation of the Port Harcourt Refining Company, managed by NNPCL, was slated for completion by December of the current year.
Meanwhile, Oil marketers verified on Thursday that the Port Harcourt refinery is set for operations, potentially starting in January 2024. They emphasized that once operational, this refinery could notably reduce the prices of refined petroleum products.
During the meeting in Abuja, Kyari asserted Nigeria’s intention to cease importing refined petroleum products by 2024, envisioning the country’s emergence as a net exporter of these commodities within the same year.
He outlined the plans for launching operations at the Port Harcourt, Warri, and Kaduna refineries.
Kyari reiterated that all refineries would operate at full capacity, ultimately paving the way for Nigeria to transition into a net exporter of petroleum products by the conclusion of 2024.
He attributed the inactivity of Nigeria’s refineries over the years to the petroleum subsidy, emphasizing that the removal of this subsidy was drawing significant private-sector investments into the sector.
Kyari said “I can confirm to you that by the end of December this year, we will start the Port Harcourt refinery; early in the first quarter of 2024, we will start the Warri refinery and by the end of 2024, Kaduna refinery will come into operation.
“This is the commitment we are giving today and you can hold us accountable for this. In 2024, many of the initiatives including the rehabilitation of our refineries and also the efforts of small-scale refineries, and the upcoming Dangote refinery, will make Nigeria a net exporter of petroleum products in 2024.
“We will no longer be talking about fuel importation by the end of 2024. I am very optimistic that this will crystallise.
Kyari promised that by the conclusion of 2023, the government’s anticipated revenue from the company would reach N4.5 trillion, emphasizing NNPCL’s adherence to the Petroleum Industry Act and its commitment to delivering value to shareholders.
Recall that in October 2023, it was reported that Nigeria’s monthly spending on the importation of Premium Motor Spirit, known as petrol, had reached approximately N843 billion due to NNPCL’s cessation of oil swaps.
In July of this year, the Nigerian Midstream and Downstream Petroleum Regulatory Authority reported that during the post-deregulation period, spanning June 1 to June 28, 2023, the country’s total petrol consumption amounted to 1.36 billion litres, with an average daily consumption of 48.43 million litres.
The average ex-depot price of petrol, sourced solely from NNPCL as the importer, stands at about N580 per litre.
However, both NNPCL and oil marketers declared on Thursday that this substantial oil import expenditure would soon diminish.
They anticipated a drop once the Port Harcourt refinery commences production of refined petroleum products from January 2024, barring any unforeseen circumstances.
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