Between January and July 2022, Nigeria’s oil production fell by 28 million barrels, threatening the Federal Government’s N9.37tn oil and gas revenue target for the year.
The Federal Government blamed oil production shutdowns on pipeline vandalism, crude oil theft, and high petrol subsidy costs in the 2023-2035 Medium Term Expenditure Framework & Fiscal Strategy Paper recently presented by Dr Zainab Ahmed, Minister of Finance, Budget, and National Planning.
The majority of industry experts blamed the decline on oil theft, which appears to have defied solutions.
Nigeria’s crude oil production fell from 1.399 million barrels per day in January 2022 to 1.084 million barrels per day in July.
By dropping from 1.399mbpd in January to 1.084mbpd in July, the country lost approximately 315,000 barrels of crude oil per day, totaling 28.4 million barrels of oil over the six-month period.
According to data obtained by our correspondent on Sunday from the Organization of Petroleum Exporting Countries’ monthly oil production reports, Nigeria increased its output from 1.197 million barrels per day in December 2021 to 1.399 million barrels per day in January 2022.
However, this could not be sustained, as the country’s oil production began to decline in February, falling to 1.258 million barrels per day (mbpd), before dropping further in March to 1.238 million barrels per day (mbpd).
The drop continued in April and May, when the country produced 1.219mbpd and 1.024mbpd, respectively.
The country’s oil production increased marginally in June, rising to 1.158 million barrels per day, but this was short-lived, as it fell to 1.084 million barrels per day in July of this year.
The crude oil production figures, according to OPEC, were based on direct communication. According to data from the global oil group, Nigeria’s quarterly oil production increased from 1.26 million barrels per day in the fourth quarter of 2021 to 1.299 million barrels per day in the first quarter of this year.
However, it fell to 1.133mbpd in the second quarter of 2022, a drop that industry operators and government officials blamed on massive crude oil theft.
Mele Kyari, Group Chief Executive Officer of Nigerian National Petroleum Company Limited, stated on Friday that the NNPC was collaborating with security agencies and other stakeholders to combat the threat.
The NNPC boss also warned refineries outside Nigeria against patronizing dealers of stolen crude oil, claiming that the commodity was not refined in Nigeria due to the country’s non-functional refineries.
“We are also developing a platform where end-users, particularly refiners and traders, can validate whether the crude they are handling from Nigeria is genuine, and whenever they have a non-validated product, they have an obligation to report to the appropriate authorities around the world,” Kyari said.
“If they don’t do this, then the culprits are international,” he added. That means they’re a part of the ring, and if we find out, we’ll take the appropriate action against them.
“And I’m confident that our partners will work with us to ensure that this happens.”
According to Kyari, this was due to the fact that such massive oil theft could not be carried out without international cooperation.
“It is impossible for any refinery to accept crude oil from which they do not know the source.” “It’s not possible,” he said flatly.
“Refineries are designed to process a specific grade of crude,” said the NNPC CEO. They are aware of the crude being processed. If it comes from Nigeria, every refinery is aware of it.
“And it is their (refineries’) responsibility to ensure that they validate this because every cargo that leaves this country has a unique number.”
Inadequate revenue performance
Despite claims by the Federal Government that it had launched a number of revenue-generating initiatives, the Federal Government failed to meet its oil and gas revenue target of N3.12 trillion for the first four months of the year.
According to the 2023-2035 Medium Term Expenditure Framework & Fiscal Strategy Paper recently presented by Dr Zainab Ahmed, Minister of Finance, Budget, and National Planning, the government expects to earn N9.37 trillion in oil and gas revenue in 2022.
This appears unlikely now, as oil, Nigeria’s main source of revenue, is experiencing a drop in production, according to experts.
The government was expected to earn N3.12 trillion between January and April.
However, the government only achieved a 39% performance, generating only N1.23 trillion in the first four months of the year, falling short of its target.
“The gross oil and gas federation revenue for the full year 2022 was projected at N9.37tn; as of April 30, 2022, N1.23tn was realized out of the prorata projection of N3.12tn, representing a mere 39% performance,” according to the document.
The government blamed the poor performance despite higher oil prices on pipeline vandalism, crude oil theft, and high petrol subsidy costs in the document.
Non-oil revenue also fell short of its target but had a 92.6 percent average performance.
The government also expressed optimism that revenue performance would improve as it claimed to be making concerted efforts to combat oil theft and pipeline vandalism.
The document also indicated that the government intended to collect more taxes in the second half of the year.
“There is also seasonality to some of the non-oil taxes,” it said, “which means we expect to collect significantly more in the second half of the year.”
The Federal Government launched the Strategic Revenue Growth Initiative in 2020 to increase revenue generation and sustainability.
Last year, the finance minister stated that the government was working on the second phase of the SRGI to achieve a revenue-to-GDP ratio of 15% by 2023.
In addition, when presenting the 2022 budget last year, the finance minister admitted that the country was having difficulty raising revenue.
She went on to say that, in addition to the SRGI, the government was taking steps to ensure effective revenue measures.
“However, revenue remains our primary fiscal challenge,” the document stated. The government is still committed to putting the Strategic Revenue Growth Initiatives into action.
“Along with the SRGI, we are leveraging technology and automation to plug fiscal drainers and ensure more effective Independent revenue monitoring.”
The finance minister also stated that the government intends to address revenue leakages by completing the service-wide implementation of IPPIS, eliminating regressive subsidies on gasoline and electricity tariffs, and imposing a cost-to-income ratio cap on government-owned enterprises.
However, the Federal Government has yet to eliminate gasoline subsidies, which have been a significant financial burden on the government, draining its revenue.
According to a recent report, the cost of fuel subsidies is expected to rise by 369.93% between 2021 and 2023.
The NNPC reported that fuel subsidies consumed N1.43 trillion in 2021, despite the fact that there was no record of under-recovery in January.
According to the finance minister, the Federal Government plans to spend N6.72 trillion on gasoline subsidies in 2023.
However, Ahmed noted that the subsidy payment projection was based on two scenarios: spending an estimated N6.72 trillion for the entire year and removing subsidies by June 2023, with the government spending N3.36 trillion rather than the full estimated N6.72 trillion.
She went on to say that both scenarios had implications for net federation account accretion and projected deficit levels.
Following threats of protests from the Nigerian Labour Congress and other interest groups, the Federal Government decided to keep the controversial fuel subsidies in place for another 18 months in January, despite warnings from economists and multilateral agencies such as the World Bank and International Monetary Fund.
Furthermore, despite other claims of revenue generation efforts, the government has yet to meet its revenue target.
This failure appears to be driving the government to incur more debt and impose additional taxes.
According to the Debt Management Office, Nigeria’s total public debt stock increased to N41.60 trillion in the first quarter of 2022, up from N39.56 trillion in December 2021, an N2.04 trillion increase in three months.
The total borrowing of the Federal Government from the Central Bank of Nigeria through Ways and Means Advances increased from N17.46 trillion in December 2021 to N19.91 trillion in June 2022.
According to CBN data, the Federal Government borrowed N2.45 trillion from the apex bank in six months.
The Federal Government’s N19.91tn debt to the apex bank is not included in the country’s total public debt stock, which stood at N41.60tn as of March 2022.
Only the debts of the Federal Government of Nigeria, the 36 state governments, and the Federal Capital Territory are included in the public debt stock.
Ways and Means Advances is a loan facility that the CBN uses to finance budget shortfalls in the government.
Aside from continuing to borrow, the government has decided to impose new taxes.
For example, the government revealed through the Federation’s Budget Office that it would begin implementing proposed excise duties on telecommunications services and beverages in 2023.
This is despite criticism from Isa Pantami, Minister of Communications and Digital Economy, and the Manufacturers Association of Nigeria.
This could mean that the country will not only face rising debt service costs, but also rising call, data, and beverage prices, as inflation rises to 18.6 percent in June, according to the National Bureau of Statistics.
Nigeria’s current inflation rate has reached its highest level in 65 months (more than 5 years), with the fifth consecutive monthly increase.
Nigeria is stumbling.
Dr Sam Nzekwe, former President of the Association of National Accountants of Nigeria, commented on the development, saying that the continued drop in oil production and Nigeria’s inability to meet its revenue target could lead to bankruptcy.
“Massive oil theft on an industrial scale in the Niger Delta has continued to prevent Nigeria from meeting its OPEC production quota,” he said. The ramifications are obvious. The finance minister informed you that the government was having difficulty meeting its obligations due to a lack of funds.
“Because banditry has stifled progress in other sectors such as agriculture, etc., your main source of revenue is not delivering.” Despite this, the country’s expenses have increased. As things stand, Nigeria appears to be gradually collapsing.
“That’s what it now appears to be because if you can’t meet your obligations, you’re talking about going bankrupt.” We must tread carefully in this situation lest we become a bankrupt nation.”
On possible solutions to the current crisis, Nzekwe stated that the first step was to halt the continued decline in crude oil production by halting its massive theft.
“The number one solution is for the government to ensure that the massive oil theft in the Niger Delta is stopped so that we can meet our crude oil export quota,” he said.
“Secondly, they should reduce recurrent expenditure, which is excessive. What the government spends on recurring expenses is simply enormous. We complain about a lack of funds, but recurrent expenditure accounts for roughly 80% of the budget. This should be decreased.”
In addition, a petroleum expert, Bala Zaka, stated that the operating environment in Nigeria’s oil and gas sector was too hostile and that it needed to be made more welcoming to investors.
He noted that many operators, such as international oil companies, were leaving the country due to hostilities and widespread oil theft in the industry, and he urged the government to provide security.
“Crude oil sales account for roughly 80% of Nigeria’s foreign exchange earnings.” What prevents you from providing first-rate security to safeguard the oil production process and ensure that you receive the necessary revenue from oil sales?” Zaka stated this.
Production of crude oil
Dr Diran Fawibe, former Group Chairman/CEO of International Energy Services Limited and a doctorate in Petroleum Process Economics from the University of Ibadan, stated that Nigeria’s continued low crude oil production would have a significant negative impact on the economy.
“This means that the country will have less to export and thus less income,” he explained.
He advised the Federal Government to develop a medium-term strategy for increasing the country’s crude oil output.
Olalekan Olafuyi, Chairman of the Society of Petroleum Engineers’ Nigeria Council and a professor of Petroleum Engineering at the University of Benin, expressed his displeasure with the country’s crude oil production slump. He blamed the low output on oil theft, adding that his group was already discussing potential solutions with the Nigerian Maritime Administration and Safety Agency.
“We are already in discussions with NIMASA about how we can share with them the strategies for monitoring production because crude oil theft is quite large.” Consider that the country is losing 500,000 barrels per day. One barrel holds approximately 160 liters. A truck/tanker holds 250 barrels. So, if we’re losing 500,000 barrels per day, that equates to 2,000 trucks per day. As a result, law enforcement agencies are in charge of this task.
“However, we will propose a solution to the NIMASA DG, and we hope that it will be taken into account, and oil theft will be eliminated as soon as possible,” he said.
Nigeria, according to a Nigerian economist and professor of Economics and Public Policy at the University of Uyo in Akwa Ibom State, needs to diversify its economy.
“Because oil revenue is no longer reliable, Nigeria must diversify its revenue sources.” “Oil prices remain volatile, and we must consider alternative revenue sources,” he said.
Salaries pose a threat
Prof. Pat Utomi, a political economist and former presidential candidate, believes that the government’s revenue target for this year will be hampered by the ongoing decline in oil production.
According to Utomi, if the government fails to meet its target, it risks continuing to owe contractors, squeezing the foreign exchange market, and failing to pay salaries, all of which would harm Nigerians.
He also warned against raising taxes, which would harm production and create a hostile business environment.
Utomi urged the government to crack down on oil theft and provide adequate security.
“We must dramatically reduce oil theft so that we can get more returns from crude oil,” he said, “because huge amounts are being stolen.” Simply improving security and reducing oil theft will increase crude oil revenue.”
He advised the government to sign new contracts and change revenue generation strategies, demonstrating that the government could exploit hydrogen.
Dr Muda Yusuf, Chief Executive Officer of the Centre for the Promotion of Private Enterprise, warned that the government was on the verge of bankruptcy due to the state of government finances.
“The figures released by Finance Minister Mrs Zainab Ahmed during the presentation of the 2023-2025 Medium Term Expenditure Framework painted a gloomy and disturbing picture of the state of government finances, implying that the government is on the verge of bankruptcy,” he said.
Prof Adegbemi Onakoya, a Professor of Development Economics at Babcock University, stated that Nigeria has a revenue problem, which has forced it to rely more on debt financing.
He also urged the government to focus on revenue generation and sustainability.
Meanwhile, Emeka Akabogu, a maritime lawyer who specializes in oil and gas, believes that one of the major causes of declining oil output is oil theft.
“As a result, we are in a situation where oil theft has reached alarming proportions and has the potential to define the oil and gas industry.” So there you have it. The second section is directly related to investments. Is there any significant investment in comparison to what we should have? As a result, when investments should be increasing, they are decreasing. If the output is as expected, Nigeria’s quota should have been around 1.8 million barrels. However, we are unable to meet that quota because a significant portion of our output is stolen. Investments, which should be the industry’s mainstay, are not taking place.”