• Govt faces tough policy options as revenues worsen
• OPEC quota, local challenges undermine production despite rally
• Nigerians consume 2.113tr worth of petrol in one year
With N438.37 billion recorded as subsidy payments for the first six months of 2021, Nigeria’s revenue problems appear not to abate anytime soon as it continues to take a toll on contributions of the Nigerian National Petroleum Corporation (NNPC) to the Federation Accounts Allocation Committee (FAAC), undermining accruable revenue from oil.
In its latest funding performance, the NNPC recorded N281.97 billion as net revenue to FAAC between January and June 2021, leaving a deficit of N973.86 billion as against the projected revenue of N1.25 trillion for the period. The Corporation did not make any remittance in April.
With oil prices experiencing a rebound, the Federal Government might continue to find it difficult to sustain subsidy payments, or even borrow to fund subsidies to avoid a backlash from households dealing with poverty and inflation.
Subsidy payments have continued to rise, not just due to low production, but also as a result of the surge in consumption, especially smuggling.
Despite the new production allocation for 2022, Nigeria and other Organisation of the Petroleum Exporting Countries (OPEC) members are complaining about their low quota, stating that by late 2022, when OPEC+ expects to have fully unwound its 5.8 million b/d in collective production cuts, the five countries: Saudi Arabia, Russia, the UAE, Iraq and Kuwait, granted will have expanded their output considerably, while most, if not all, of the remaining members, will struggle to keep pace, ceding market share in the process.
The Minister of State for Petroleum Resources, Timipre Sylva, had called for synergy among agencies in the country to tackle the increasing smuggling of Premium Motor Spirit (PMS) across the nation’s borders, after he said the country’s daily petrol consumption stood at 102 million litres per day in the month of May.
Also, the Group Managing Director of NNPC, Mele Kyari, said the current situation has kept the country in a state of bleeding, as it cannot sustain the payment of subsidy that accompanies the volume put at 100 million litres.
According to Kyari, with the high volume of daily consumption, the country cannot sustain subsidy payment, adding: “As long as we don’t regulate volume until we are able to exit this current level, which I know so much work is going on, then we have to manage the volume that we are exposed to between this price of N162 and N256.
“The difference comes back to as much as N140 billion to N150 billion monthly. As long as the volume goes up, that money continues to increase and we have two sets of stress to face, the stress of supply and the stress of foreign exchange for the NNPC. We may not see foreign exchange cheque taking place for importation,’’ he said.
Indeed, despite rising oil prices and opportunities for improved earnings, Nigeria’s capacity to take advantage of the rally remains undermined by the OPEC’s quota and local challenges, as the country pumped 1.48 million barrels of crude in June.
According to the S&P Global Platts survey, Nigeria posted the heaviest drop in output in June, due to significant operational issues, compared to 1.55 million recorded in May.
The survey showed that the country produced 1.48 million of crude in June, its lowest level since January, as some of its large oil fields, especially those in the Niger Delta like Bonny, Escravos, Brass River and Qua Iboe, pumped well below their full capacity due to either technical problems or maintenance.
Nigeria’s production volume is below 2021 budget estimate for the year, thus, affecting the capacity to earn more, alongside subsidy challenges.
With the Federal Government affirming the fragility of the economy, in terms of low revenues, there are concerns as regards available policy choices without recourse to social unrest, especially now that the government is unable to sustain fuel subsidy payments at a time many households are dealing with high unemployment and rising inflation.
Indeed, from increased borrowing to tax net expansion measures, alongside managing rising unemployment and weakened currency, Nigeria’s economic managers are having a tough call in deciding the best policy options for economic survival and revival.
With N650 billion needed to sustain FAAC distributions comfortably, the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, described the country’s revenue situation as very weak.
At a webinar organised by the Lagos Business School, themed, ‘Nigeria in Challenging Times; Imperatives for a Cohesive National Development Agenda’, she said the government is concerned about the issues of insecurity, poverty and unemployment in the country.
“But there is also one issue, and that is, the lack of revenue to be able to do as much as we want. But maybe we would be able to do if we all realise that the revenue situation in the economy is very weak. It is fragile,” Ahmed explained.
At the event, the World Bank Country Director for Nigeria, Shubham Chaudhuri, noted that Nigeria spends more on PMS subsidy than it does on primary healthcare in a year, despite knowing the beneficiaries of such subsidy.
While a subsidy may benefit the direct recipient, the Director-General of Nigeria Employers’ Consultative Association (NECA), Dr. Timothy Olawale, stated that evaluating it in the light of dwindling revenues and a shrinking economy calls for prudence and a halt.
On its part, the Lagos Chamber of Commerce and Industry (LCCI) urged the Federal Government to leverage Petroleum Industry Bill to deregulate the downstream sector.
NNPC GMD, Mele Kyari, had said that oil prices were “very high” and had started to constrain both producers and consumers. “Producers are aware that when your prices are too high, you lose your customers. You have to bring it to a level that your customers can afford,” Kyari said during a television interview.
Oil prices have risen more than 50 per cent in 2021, amid a recovery in demand buoyed by vaccine rollouts and OPEC+ supply discipline. “The only way to pull down prices is to increase supply. So, that is what is going to happen. OPEC is going to intervene to see how we can bring down prices,” Kyari said.
Kyari said the rise in oil prices was hurting Nigeria, which relies heavily on fuel imports for its needs. Nigeria has four refineries with a combined nameplate capacity of 445,000 b/d, which are all offline after years of neglect, making the country fully reliant on refined product imports.
Head of Macro Economy; EFG Hermes, Mohamed Abou Basha, stated that the government needs to take some tough decisions, namely increasing its ability to generate revenues from the non-oil economy, which represents c90% of the country’s GDP.
“They then need to redirect these raised revenues for targeted social payments while also increasing investment in infrastructure to attract investments and create jobs. There are no easy ways out here with the country accumulating structural problems over the past six years with little done to resolve those problems.
“Government has little choice but to tackle the country’s structural problems on both the fiscal, monetary and infrastructure sides. It has so far chosen only to muddle through, yielding very limited positive impact for the economy.”
MEANWHILE, about 17.265 billion litres of PMS, translating to N2.113 trillion was consumed by Nigerians between March 2020 to March 2021.
Statistics by the NNPC has further shown that the nation’s total petroleum products consumption stood at 17.374 billion litres comprising of PMS and Automotive Gas Oil (AGO), which amounted to N2.129 trillion.
While the country paid about N120 billion subsidy in the month of March this year, Petroleum Products Marketing Company (PPMC), the national oil company agency in charge of sales recorded N234.63 billion revenue from the sale of white products for the month. The sales represented a 24.7 per increase from the N188.15 billion sales recorded in the previous month of February 2021.
Monthly Financial and Operations Report (MFOR) released yesterday also showed that the Corporation recorded 70 vandalised points across its pipeline network in the period, representing 29.63 per cent increase from the 54 points recorded in the previous month. While the Port Harcourt area accounted for 63 per cent of the vandalised points, the Mosimi area accounted for 21 per cent and the Gombe area accounted for the remaining 16 per cent.
A total of 222.74 billion cubic feet (bcf) of natural gas was produced in March 2021, translating to an average daily production of 7,183.33 million standard cubic feet per day (mmscfd). The report also showed that a total of 2,911.62bcf of gas was produced in the month, representing an average daily production of 7,409.60mmscfd during the period.
According to the report, production from Joint Ventures (JVs), Production Sharing Contracts (PSCs) and NPDC contributed about 63.23 per cent, 19.78 per cent and 63.99 per cent respectively to the total national gas production.
In terms of natural gas off-take, commercialisation and utilisation, out of the 210.55bcf supplied in March 2021, a total of 138.38bcf was commercialised, consisting of 45.42bcf and 92.96bcf for the domestic and export market respectively.
This translates to a total supply of 1,465.42mmscfd of gas to the domestic market and 2,998.26mmscfd of gas supplied to the export market for the month. This implies that 63.18 per cent of the average daily gas produced was commercialised while the balance of 36.82 per cent was re-injected, used as upstream fuel gas or flared.
Gas flare rate was 9.50 per cent for the month under review (i.e. 671.13mmscfd) compared to average gas flare rate of 7.25 per cent (i.e. 532.37mmscfd) for the period of March 2020 to March 2021.
On domestic gas supply to the power sector, a total of 844mmscfd was delivered to gas-fired power plants in the month of March 2021 to generate about 3,530mega watts (mw) compared with February 2021 where 825mmscfd was supplied to generate 3,580mw.