The challenges confronting the Nigerian
petroleum industry have started to take its
toll on the economy of the country, leading
to a massive decline in revenue to the
Federation Account.
Within the space of one year, Nigeria’s
crude oil revenue had dropped by N644.1
billion, while payments by the NNPC to the
Federation Account dipped by N58.8 billion.
Specifically, data obtained from the Central
Bank of Nigeria, CBN, showed that Nigeria’s
oil revenue from January to April 2016 stood
at N852.8 billion, compared to N1.497
trillion in the same period in 2015.
The earning from oil in 2016 represents
about 14.08 per cent of the Federal
Government’s N6.06 trillion budget
estimates for the 2016 fiscal year.
On the other hand, data obtained from the
Nigerian National Petroleum Corporation,
NNPC, also disclosed that within the same
period, January to April 2016, it paid
N313.652 billion into the Federation
Account, down by 15.79 per cent from
N372.443 billion recorded in the same period
in 2015.
In the preceding four-month period, from
September to December 2015, the CBN
disclosed that revenue from crude oil and
gas stood at N1.096 trillion, while the NNPC
remitted N320.934 billion to the Federation
Account in the same period.
A breakdown of the data obtained from the
CBN, however, revealed that compared to oil
revenue, non-oil revenue contributed N810.3
billion to the Federation Account from
January to April 2016.
Further analysis, according to the CBN data
showed that the country recorded N73.262
billion, N88.475 billion, N66.526 and
N92.671 billion oil revenues in January,
February, March and April respectively.
On the other hand, the NNPC data showed
that the corporation remitted N92.289
billion, N82.944 billion, N75.874 billion and
N62.545 billion to the Federation Account in
the months of January, February, March and
April 2016 respectively, this was in contrast
to N90.09 billion, N102.991 billion, N101.961
billion and N77.398 billion remitted in
January, February, March and April 2015,
respectively.
The CBN stated that at N186.65 billion or
47.7 per cent of the total revenue in the
month of April, gross oil receipts fell short
of the preceding month’s level of N227.69
billion by 18.0 per cent.
The CBN blamed the decline in oil revenue
on the fall in receipts from crude oil and gas
exports owing to shut-downs and shut-ins in
production arising from repair works at
some NNPC terminals and pipeline
vandalism as well as the persistent low
crude oil prices.
Nigeria had, over the last couple of months,
been faced with the challenges of pipeline
bombings, crude oil theft and low crude oil
price. These had helped in no small measure
in hurting the finances of the country,
leading to a significant decline in the
revenue of the country and plunging the
Nigerian economy into near chaos.
Specifically, few days ago, the International
Monetary Fund, IMF, warned that economic
activity in Nigeria is projected to contract in
2016 as the economy adjusts to foreign
currency shortages as a result of lower oil
receipts, low power generation, and weak
investor confidence. The IMF, in its World
Economic Outlook update, disclosed that
Nigeria’s economy would contract by 1.8
per cent this year, from 2.3 per cent earlier
projected in April, and also curb growth in
the entire region.
The IMF also reduced Nigeria’s growth
projection for next year to 1.1 per cent from
3.5 per cent earlier projected.
Lukman Otunuga, a research analyst at
FXTM, who was responding to claims by the
Federal Government that its first quarter
revenues reached a paltry 55 per cent of
what was targeted, stated that the decline
in global oil prices had already started to
weigh heavily on the biggest economy in
Africa and the diminishing government
revenues could rekindle concerns over a
technical recession in the second quarter.
According to him, sentiment is slowly
changing towards Nigeria and the ongoing
concerns over a slowdown in economic
momentum could trigger a wave of risk
aversion which punishes the Nigerian Stock
Exchange, NSE.
Also, PricewaterHouse Coopers, PwC, had
stated that since 2005 and until recently,
Nigeria has been securing its position as
one of the leading destinations for
investment in Africa, thanks to a
combination of a large and growing
population, robust macroeconomic policies,
strong commodity prices, demographic
growth, resilient institutions and high capital
inflows.
In addition, the global auditing and
consultancy firm, in its latest report titled,
‘Powering Nigeria for the Future,’ noted that
revenues and taxes from the oil and gas
sector had over the years been providing
substantial funding for critical public
programmes across infrastructure,
healthcare, education and agriculture.
However, PwC stated that in 2015, Nigeria’s
oil production as a percentage of OPEC
production fell, reaching a low of 5.8 per
cent as compared to seven per cent in
2010, while revenues from oil exports
dropped by more than 40 per cent to reach
$52 billion in 2015 – dealing a devastating
blow to government finances.
According to the company, a long history of
mismanagement across the oil sector and
the impact from the recent fall in oil prices
also resulted in limited funding for oil
exploration and modernisation technology,
further impacting the sector.
It also added that the considerable
reduction in oil exports also depleted
Nigeria’s foreign exchange reserves.
It said, “Furthermore, restrictions imposed
by the Central Bank to limit demand for
foreign exchange in the official market
resulted in a spill over to the parallel
market, widening the gap between the
official and parallel market exchange rate.
“Unemployment also grew from six per cent
in 2011 to 12.1 per cent in the first quarter
of 2016, as investors started to re-assess
their risk appetite. Real GDP growth, which
had a Compound Annual Growth Rate
(CAGR) of 5.3 per cent between 2011 and
2014, fell to 2.97 per cent in 2015 and
subsequently to – 0.36 per cent in first
quarter 2016.
“The most critical question now is whether,
and how, will Nigeria emerge from this
difficult situation?”
However, the Federal Government has
adopted a number of initiatives to survive
the difficult times. Particularly, Mr. Ibe
Kachikwu, Minister of State for Petroleum
Resources, disclosed the government had
decided that not all projects that are on the
table would see the light of day, especially
if the unit price of oil for such project does
not come below a certain threshold.
He further stressed that for oil companies
and oil producing countries in Africa to
survive the period of instability in the
industry, prominence should be given to a
lean and cost-cutting initiatives.
According to him, cutting cost is an
efficiency issue, adding that even when you
have very high prices, you should be cutting
your costs to increase your margins.
He said, “Unknown to all of us, every month
that you delay a project, you are adding
literally, between two to three per cent of
cost to the outlay. So we got to work in
such a parallel mix that things are being
done sequentially at the same time to be
able to bring that sort of cost. It is certainly
a focus area for us. “And different from
the oil majors cutting costs and we forcing
them to do that, our whole operational
network, how we manage the oil industry is
going to change. It takes something like
security. Every oil major, for example, has
their own security apparatus. We need to
have an integrated security model; we need
to increase on speed. There used to be a
lap time between what the NCDMB does and
what the NNPC does and the effect of that
are unnecessary delays in terms of approval
process.” Also commenting on the issue, Mr.
Seyi Gambo, former Public Relations Officer
of the Petroleum and Natural Gas Senior
Staff Association of Nigeria, PENGASSAN,
disclosed that the long-term measure to
surviving the volatility in the crude oil
market is to diversify the economy.
According to him, the decline in crude oil
prices in the short run will be a big positive
for countries that depend largely on oil
imports for their oil consumption, but for
Nigeria, the situation could plunge the
country into a dilemma.
Vanguard
petroleum industry have started to take its
toll on the economy of the country, leading
to a massive decline in revenue to the
Federation Account.
Within the space of one year, Nigeria’s
crude oil revenue had dropped by N644.1
billion, while payments by the NNPC to the
Federation Account dipped by N58.8 billion.
Specifically, data obtained from the Central
Bank of Nigeria, CBN, showed that Nigeria’s
oil revenue from January to April 2016 stood
at N852.8 billion, compared to N1.497
trillion in the same period in 2015.
The earning from oil in 2016 represents
about 14.08 per cent of the Federal
Government’s N6.06 trillion budget
estimates for the 2016 fiscal year.
On the other hand, data obtained from the
Nigerian National Petroleum Corporation,
NNPC, also disclosed that within the same
period, January to April 2016, it paid
N313.652 billion into the Federation
Account, down by 15.79 per cent from
N372.443 billion recorded in the same period
in 2015.
In the preceding four-month period, from
September to December 2015, the CBN
disclosed that revenue from crude oil and
gas stood at N1.096 trillion, while the NNPC
remitted N320.934 billion to the Federation
Account in the same period.
A breakdown of the data obtained from the
CBN, however, revealed that compared to oil
revenue, non-oil revenue contributed N810.3
billion to the Federation Account from
January to April 2016.
Further analysis, according to the CBN data
showed that the country recorded N73.262
billion, N88.475 billion, N66.526 and
N92.671 billion oil revenues in January,
February, March and April respectively.
On the other hand, the NNPC data showed
that the corporation remitted N92.289
billion, N82.944 billion, N75.874 billion and
N62.545 billion to the Federation Account in
the months of January, February, March and
April 2016 respectively, this was in contrast
to N90.09 billion, N102.991 billion, N101.961
billion and N77.398 billion remitted in
January, February, March and April 2015,
respectively.
The CBN stated that at N186.65 billion or
47.7 per cent of the total revenue in the
month of April, gross oil receipts fell short
of the preceding month’s level of N227.69
billion by 18.0 per cent.
The CBN blamed the decline in oil revenue
on the fall in receipts from crude oil and gas
exports owing to shut-downs and shut-ins in
production arising from repair works at
some NNPC terminals and pipeline
vandalism as well as the persistent low
crude oil prices.
Nigeria had, over the last couple of months,
been faced with the challenges of pipeline
bombings, crude oil theft and low crude oil
price. These had helped in no small measure
in hurting the finances of the country,
leading to a significant decline in the
revenue of the country and plunging the
Nigerian economy into near chaos.
Specifically, few days ago, the International
Monetary Fund, IMF, warned that economic
activity in Nigeria is projected to contract in
2016 as the economy adjusts to foreign
currency shortages as a result of lower oil
receipts, low power generation, and weak
investor confidence. The IMF, in its World
Economic Outlook update, disclosed that
Nigeria’s economy would contract by 1.8
per cent this year, from 2.3 per cent earlier
projected in April, and also curb growth in
the entire region.
The IMF also reduced Nigeria’s growth
projection for next year to 1.1 per cent from
3.5 per cent earlier projected.
Lukman Otunuga, a research analyst at
FXTM, who was responding to claims by the
Federal Government that its first quarter
revenues reached a paltry 55 per cent of
what was targeted, stated that the decline
in global oil prices had already started to
weigh heavily on the biggest economy in
Africa and the diminishing government
revenues could rekindle concerns over a
technical recession in the second quarter.
According to him, sentiment is slowly
changing towards Nigeria and the ongoing
concerns over a slowdown in economic
momentum could trigger a wave of risk
aversion which punishes the Nigerian Stock
Exchange, NSE.
Also, PricewaterHouse Coopers, PwC, had
stated that since 2005 and until recently,
Nigeria has been securing its position as
one of the leading destinations for
investment in Africa, thanks to a
combination of a large and growing
population, robust macroeconomic policies,
strong commodity prices, demographic
growth, resilient institutions and high capital
inflows.
In addition, the global auditing and
consultancy firm, in its latest report titled,
‘Powering Nigeria for the Future,’ noted that
revenues and taxes from the oil and gas
sector had over the years been providing
substantial funding for critical public
programmes across infrastructure,
healthcare, education and agriculture.
However, PwC stated that in 2015, Nigeria’s
oil production as a percentage of OPEC
production fell, reaching a low of 5.8 per
cent as compared to seven per cent in
2010, while revenues from oil exports
dropped by more than 40 per cent to reach
$52 billion in 2015 – dealing a devastating
blow to government finances.
According to the company, a long history of
mismanagement across the oil sector and
the impact from the recent fall in oil prices
also resulted in limited funding for oil
exploration and modernisation technology,
further impacting the sector.
It also added that the considerable
reduction in oil exports also depleted
Nigeria’s foreign exchange reserves.
It said, “Furthermore, restrictions imposed
by the Central Bank to limit demand for
foreign exchange in the official market
resulted in a spill over to the parallel
market, widening the gap between the
official and parallel market exchange rate.
“Unemployment also grew from six per cent
in 2011 to 12.1 per cent in the first quarter
of 2016, as investors started to re-assess
their risk appetite. Real GDP growth, which
had a Compound Annual Growth Rate
(CAGR) of 5.3 per cent between 2011 and
2014, fell to 2.97 per cent in 2015 and
subsequently to – 0.36 per cent in first
quarter 2016.
“The most critical question now is whether,
and how, will Nigeria emerge from this
difficult situation?”
However, the Federal Government has
adopted a number of initiatives to survive
the difficult times. Particularly, Mr. Ibe
Kachikwu, Minister of State for Petroleum
Resources, disclosed the government had
decided that not all projects that are on the
table would see the light of day, especially
if the unit price of oil for such project does
not come below a certain threshold.
He further stressed that for oil companies
and oil producing countries in Africa to
survive the period of instability in the
industry, prominence should be given to a
lean and cost-cutting initiatives.
According to him, cutting cost is an
efficiency issue, adding that even when you
have very high prices, you should be cutting
your costs to increase your margins.
He said, “Unknown to all of us, every month
that you delay a project, you are adding
literally, between two to three per cent of
cost to the outlay. So we got to work in
such a parallel mix that things are being
done sequentially at the same time to be
able to bring that sort of cost. It is certainly
a focus area for us. “And different from
the oil majors cutting costs and we forcing
them to do that, our whole operational
network, how we manage the oil industry is
going to change. It takes something like
security. Every oil major, for example, has
their own security apparatus. We need to
have an integrated security model; we need
to increase on speed. There used to be a
lap time between what the NCDMB does and
what the NNPC does and the effect of that
are unnecessary delays in terms of approval
process.” Also commenting on the issue, Mr.
Seyi Gambo, former Public Relations Officer
of the Petroleum and Natural Gas Senior
Staff Association of Nigeria, PENGASSAN,
disclosed that the long-term measure to
surviving the volatility in the crude oil
market is to diversify the economy.
According to him, the decline in crude oil
prices in the short run will be a big positive
for countries that depend largely on oil
imports for their oil consumption, but for
Nigeria, the situation could plunge the
country into a dilemma.
Vanguard
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