When the idea for a Petroleum Industry Bill (PIB) was conceived nearly 20 years ago, Norway’s energy fund started in 1990 had risen to over $150 billion. Today, it is over $1 trillion, but Nigeria’s revised PIB has no provision that will ensure oil funds are accumulated.
The revised PIB like the ones that preceded it ignores the fact that the world is moving away from fossil fuels and the opportunity to prepare for energy transition and make the most from crude oil is slipping away.
The Nigerian Extractive Industries Transparency Initiatives (NIETI) has consistently warned that constant oil price volatility exposes oil-dependent countries like Nigeria to regular economic crises.
One way to address this limitation is to set up a rainy day fund. “A healthy minerals savings fund, the size of which should reflect not only the volume of revenues from mineral resources but also the size of the national economy, is usually recommended for resource-rich countries,” said NEITI in a recent policy brief.
While Nigeria has a fund to save oil windfalls above budgetary benchmarks, NEITI however, said the funds are mostly inadequately ring-fenced and are too tiny to fully serve the intended purpose. As oil income dwindles and any hope of windfall dims, the fund will get increasingly smaller.
During the lockdown last year, Nigeria’s three ‘rainy day’ funds – Stabilisation Fund, Excess Crude Account, Nigeria Sovereign Investment Authority (NSIA) – with about $2.25 billion, was able to fund about 7.7 percent of the revised 2020 federal budget.
This compares poorly with Norway, with a sovereign wealth fund worth more than $1 trillion. To assuage the impact of COVID-19 on the government’s earning, Nigeria withdrew $150 million but Norway cashed $37 billion. Norway’s withdrawal ($37bn) is about 25 percent higher than the Federal Government’s N10.5 trillion 2020 budget.
The revised PIB has no provision to compel government agencies to deepen funding for these funds or ring-fence them against abuse.
“While the PIB has some commendable provisions, a few issues such as financial savings are not dealt with,” said Ayodele Oni, an energy lawyer,
Although, there is the NSIA Act, “the PIB could do more to specifically complement the NSIA Act as regards oil wealth savings. Also, more could have been done in the PIB relating to transparency of revenues,” Oni said.
To compliment a progressive PIB, analysts say lawmakers would have to amend Section 162 (1) of the 1999 Constitution which prescribes that government income, apart from personal income tax, should be placed in the Federation Account and shared among the federal, state, and local governments.
Former President Olusegun Obasanjo began the Excess Crude Account in 2004 to save oil revenues above income benchmarks and state governors balked. In reality, apart from spending patterns often accused of being frivolous, many states are challenged by today’s problems so the country needs to earn more money.
NEITI also recommended abolishing the 0.5 percent Stabilisation Fund and the ECA then transferring the balance in those accounts to the NSIA.
Experts have advised Nigeria to abolish the Oil Price-based Fiscal Rule (OPFR) where revenue in excess of oil price benchmark is saved and replace it with a mandatory saving of a percentage of daily oil production like Angola does, saving proceeds from 10 percent of its daily production.
This ensures savings at all times, whether prices are high or low. Nigeria can save proceeds of between 5 percent and 20 percent of its daily oil production. With this, Nigeria could easily save between $1 billion and $3 billion every year even in periods of low oil prices.
The proceeds from the percentage of daily oil production to NSIA could be invested in easily convertible instruments as well as raising the NSIA’s Stabilisation Fund from 20 to 40 percent and sharing dividends from NSIA’s earnings every year to troubled states.
Oil sector operators and analysts warn that the current PIB prioritised improving government earnings through a hydrocarbon tax and new royalty rates but did not provide enough safeguards to ensure they are of more ensuring value for Nigerians.
