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Nigeria’s 2017 budget may suffer revenue shortfall of $9.18bn

Budget

Nigeria could suffer a revenue shortfall of US$9.18 billion in 2017 budget, if the country is unable to boost crude oil exports above 1.6 million barrels per day (mbpd)  that is scheduled for exports in January 2017, according to loading cargoes seen by Reuters.

The January 2017 loading  figure is 600,000 barrels below Nigeria’s target production of 2.2 mbpd, which the 2017 budget is based on.

Consequently, if the country is not able to ramp up production as from February, then revenue projections in the 2017 budget could be jeopardised even before the budget is presented to the National Assembly on December 1.

At full production capacity, crude oil sales contribute about 70 percent of Nigeria’s revenues and about 90 percent of the country’s foreign exchange earnings. This also means that a lower than target production in 2017 would ensure that the current foreign exchange scarcity continues into 2017.

A total of 55 cargoes or 1.64 mbpd is scheduled for loading in January, compared to the initial export plans of 1.63 mbpd in December, which was planned before militants attacked pipelines which disrupted exports from the 285,000 bpd Forcados export terminal.

According to Reuters, the January loading plans were still missing some smaller grades, but they included twice the number of Agbami cargoes, for a total of eight in January, as planned maintenance cut into December exports for the grade.

    Exports of Qua Iboe, the largest stream, and Usan included two more cargoes each, compared with December, while Bonga and Brass River programmes each had one more cargo than in December. The loading programme shows that no exports are expected from the Forcados terminal, which has come under consistent attacks from militants in the Niger Delta.

The highest volume of exports is expected from the Qua Iboe field with 10 cargoes exporting 306,000 bpd. This is followed by the Agbami field with  eight cargoes offering 252,000 bpd and then the Bonga field with 215,000 bpd.

The projected December and January loading figures are far below recent claims by the Deputy Minister of Petroleum Resources, Ibe Kachikwu, that Nigeria’s crude oil production is currently about 1.9 mbpd.

Onshore and Shallow water assets, where government take is high, have been the worst hit by the militant attacks, significantly affecting Nigeria’s crude oil revenues.

Resolving the Niger Delta militant attacks has become one of the biggest issues in the Nigeria oil and gas industry, besides the lack of a fiscal and regulatory framework which sources in the sector say is depriving the country of approximately US$15 billion in new investments per annum. It is also depleting Nigeria’s crude oil reserves which has dropped from 37 billion barrels to just 28.2 billion barrels in the last five years.

Baru Maikanti, group managing director of the Nigerian National Petroleum Corporation (NNPC ) recently  said the chronic Joint Venture (JV) funding shortfalls being experienced in the industry have resulted in declining JV Oil production from about1million barrels of oil per day 3-5 years ago, to about 800,000 barrels of oil per day.

  In addition to this, Maikanti said is the vandalisation of critical production infrastructure that have to be repaired as emergency cases at exorbitant costs, which further compounds the utilisation of the available funds.

“The truth is that it is difficult to deliver the volumes without adequate funding. With an average JV cash call requirement of about $600 million a month, coupled with flat low budget levels over the past years, this had led to underfunding of the industry by government which has stymied production growth. Consequently, managing these funding issues is part of our most immediate challenge”.

In contrast, he said production from the Production Sharing Contracts (PSCs) Arrangements where the NNPC does not provide the funding for the production has increased almost proportionately to the JV production decline over the same period, thereby making the nation’s oil production relatively flat. Unfortunately, unlike the PSC arrangements, the JV system provides more revenue to the government through equity liftings and higher royalties and taxes, due to the higher fiscal take from onshore and shallow waters fiscal terms. The low crude oil price regime further amplifies this anomaly.

To address this structural funding problem which is further compounded by the security challenges in Niger Delta, he said  government is exploring an alternative funding mechanism that allows the Joint Venture Business finance itself by retaining its Operating Costs and Capital Allowances (Fiscal Costs) in order to sustain and grow the business.

“The import of the above is that the Joint Ventures will relieve government of the cashcall burden by sourcing for funds for their operations (estimated at $7-$9billion annually). In 2016 alone, underfunding of NNPC Cash Calls is estimated to be about US$2.5 billion. This is aside the inherited arrears estimated at over US$6 billion”.

Olusola Bello with agency report