FG approves new funding regime for oil, gas sector

Nigeria’s Federal Government has approved a new funding regime for the oil and gas industry, eliminating the arduous cash call regime which stalled growth in the sector.

Under the alternative funding regime, the technical cost of oil production in the country would also come down from about $27 per barrel to $18 as well as drive investment in the oil and gas sector. It will also expected boost production  and revenue significantly.

The Joint Ventures will become incorporated and source for their own financing, freeing-up the Federal Government from the budgetary obligations of coming up with the cash calls already put at $2.3billion in 2016. The alternative funding stream was earlier approved at the Federal Executive Council meeting on Wednesday.

Briefing newsmen at the end of the National Economic Council (NEC) meeting chaired by Vice President, Yemi Osinbajo, on Thursday, Minister of state for Petroleum, Emmanuel Ibe kachikwu explained that what this means “is that investments in excess close to $15billion is likely to be announced by the oil companies bringing back most of the project within couple of weeks.

“We are using this to save at  least $1billion from 2017. We will be looking at reducing the
cost of producing a barrel per of crude oil from the current $27 per barrel  which is one of the highest in the world to figures within the threshold  of $18 per barrel over the next two years and ultimately to about  $15 per barrel over the next four years . The production should  increase to about 2.5million per day by 2019 and potentially to about 3million   barrels per day by 2021. So there will dramatic effects.”

According to Kachikwu while the NNPC pays the entire Oil and Gas  revenues realised from the JV operations into the Federation account,  the production costs are appropriated, calendarized and paid monthly  as Cash Calls to the JV operations from the NNPC and IOCs.
Between January and November 2016 underfunding of the NNPC Cash Calls  is estimated at $2.3 billion besides inherited arrears estimated at  USD$6.8 billion for year ending 2015, he said.  However he disclosed that through negotiations the $6.8B past due Cash  Calls burden on the Federation has now been reduced to $5.1billion, which
would be paid based on improved oil production output.
For the first time the oil industry will take responsibility for  arranging their own funding and being able to produce oil and save the country from the whole nightmare of cash calls every year, the minister added.  More Presentations will be made to the National Assembly subsequently.

NEC, comprising of governors of all 36 states of the federation and  the Central Bank governor as statutory members, is a constitutional  body set up to advise the president on the economic affairs of the  federation.  The Economic Council also received briefing from the Minister of  Finance, Kemi Adeosun on the balance of the Excess Crude Account and
the budget support loan facility to states. The ECA currently stands  at at $2.4billion.
She told council that the sum of N1.1 billion was disbursed in the  month of October to 35 States and a total of N6.3 billion has now been  disbursed to each of the 35 States. Council also received a presentation from the Ministry of Industry, Trade and Investment and relevant agencies on Energizing the MSMEs  sector as a major Economic Growth Drive.
The Ministry informed the Council that there are  37,067,416 MSMEs in Nigeria, and their contributions to  employment is 84.02%, 48.47% to GDP, and 7.27% to export.  Of the total number, micro enterprises account for the majority,  (99.8%) of the MSMEs in Nigeria, with 36,994,578 enterprises, 68,168 small enterprises, and 4,670 medium enterprises.
According to the presentation, Lagos State has the highest number of  Micro Enterprises with 3,224,324; followed by Oyo and Kano States with  1,864,054 and 1,794,358 respectively, while Nasarawa State has the  least with 226.
Arising from previous Council deliberations on the matter, the Vice  President informed that the Federal Government is paying diligent  attention to the issue of abuses and excesses of certain Revenue  Generating Agencies, RGA.
He asked the Finance Minister to further brief the Council who then  detailed to Council certain activities of some Revenue Generating  Agencies (RGAs) that amounted to financial abuses of the revenue they  generate, meant to have been remitted to the Federation Account, but  diverted through several undue and illegal means and ploys.
This include paying salaries above specifications of the Revenue  Mobilization Allocation and Fiscal Commission, RMAFC, converting  official cars to personal ownership under 48 hours of purchase,  inappropriate and arbitrary monetization of medical allowances, undue  and excessive overseas travels, lavish training allowances and
conference spendings, excessive and personal loan approvals, including  unapproved mortgages among others.
The Ministry of Finance and RMFAC are working together to rein in  these abuses as this revenue agencies raise as much as N1.5 trillion yearly, and spend almost 90% of it on recurrent expenditure in  clear violation of due process and the constitution.
The Minister added that this financial abuses have been going on for a  decade, whereby the agencies hide revenues that ought to go into the  Federation Account. But assured Council that such activities will now  be exposed and terminated as directed by the President.
Governors also raised the issue of the alleged N2 billion said to have  been paid to some States by the last administration under unclear  circumstances and criteria.  There were complaints that state  governments did not have equal access to the Fund amid allegations of  political preferences.
Vice President Osinbajo assured the Council that the matter would be  properly investigated, broadly reviewed, and forthright counsel would be made to the President regarding the matter.