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Nigeria’s N9tn oil revenue threatened, FG blames theft

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Monday, August 15th, 2022
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By Okechukwu Nnodim, Anozie Egole, Akintayo Opeoluwani and Sami Olatunji

Nigeria’s oil production slumped by 28 million barrels between January and July 2022, threatening the Federal Government’s N9.37tn oil and gas revenue target by the end of the year.

The Federal Government, in the 2023-2035 Medium Term Expenditure Framework & Fiscal Strategy Paper recently presented by the Minister of Finance, Budget and National Planning, Dr Zainab Ahmed, blamed oil production shut-ins due to pipeline vandalism, crude oil theft and high petrol subsidy cost.

Most industry experts who spoke with The PUNCH on Sunday also attributed the decline to oil theft, which appears to have defied solutions.

After posting a high crude oil production figure of 1.399 million barrels per day in January 2022, Nigeria’s production crashed to as low as 1.084mbpd in July.

By dropping from 1.399mbpd in January to 1.084mbpd in July, it means the country lost about 315,000 barrels of crude oil daily, amounting to 28.4 million barrels of oil during the six months interval.

Findings by our correspondent on Sunday from various monthly oil production reports of the Organisation of Petroleum Exporting Countries indicated that Nigeria actually stepped up its output from 1.197mbpd produced in December 2021 to 1.399mbpd in January 2022.

But this could not be sustained, as the country’s oil production commenced a descent in February, dropping to 1.258mbpd and crashed further in March to 1.238mbpd.

The plunge continued in April and May, as the country produced 1.219mbpd and 1.024mbpd in the respective months.

The country’s oil production moved up marginally in June, rising to 1.158mbpd, but this was short-lived, as it eventually dropped to 1.084mbpd in July this year.

OPEC explained that the crude oil production figures were based on direct communication. Data from the global oil group further showed how Nigeria’s quarterly oil production moved up from 1.26mbpd in the fourth quarter of 2021 to 1.299mbpd in the first quarter of this year.

But it dropped to 1.133mbpd in the second quarter of 2022, a development that operators in the sector and government officials repeatedly attributed to massive crude oil theft.

The Group Chief Executive Officer, Nigerian National Petroleum Company Limited, Mele Kyari, stated on Friday that the NNPC was partnering with security agencies and other stakeholders to tackle the menace.

The NNPC boss also cautioned refineries outside Nigeria that patronised dealers of stolen crude oil, insisting that the commodity was not refined in Nigeria due to the non-functional refineries across the country.

“We are also creating a platform where end-users, particularly refiners and traders, can validate if the crude they are handling from Nigeria is from genuine sources and whenever they have a non-validated product, they have an obligation to report to the necessary authorities in the world,” Kyari stated.

He added, “If they don’t do this, then the culprits are international. That means they are part of the ring and whenever we discover this, we will take necessary actions against such culprits.

“And I’m sure our partners will cooperate with us to make sure that this is done.”

This, according to Kyari, was because such massive oil theft could not succeed without international collaboration.

“It is impossible for any refinery to take crude oil that they don’t know its source. It is not possible,” he stated.

The NNPC helmsman added, “Refineries are designed to process a certain specific grade of crude. They know which crude they are processing. If it is from Nigeria, every refinery knows that it is from Nigeria.

“And it is their (refineries) duty to ensure that they validate this because we have a unique number for every cargo that leaves this country.”

Poor revenue performance

Despite claims by the Federal Government that it had initiated a number of revenue generation programmes, it failed to hit its oil and gas revenue target of N3.12tn for the first four months of the year.

The 2023-2035 Medium Term Expenditure Framework & Fiscal Strategy Paper recently presented by the Minister of Finance, Budget and National Planning, Dr Zainab Ahmed, showed that the government projected to make N9.37tn oil and gas revenue in 2022.

However, this seems unlikely now, as oil, which is Nigeria’s biggest revenue earner, is experiencing a dip in production, experts have said.

It was expected that between January and April, the government should have earned N3.12tn.

However, the government attained merely a 39 per cent performance as it generated only N1.23tn within the first four months of the year, failing to meet its target.

The document read in part, “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 realised out of the prorata projection of N3.12tn, representing a mere 39 per cent performance.”

In the document, the government blamed the poor performance despite higher oil prices on oil production shut-ins due to pipeline vandalism, crude oil theft and high petrol subsidy cost.

Non-oil revenue

Non-oil revenue also failed to meet its target but had an average performance of 92.6 per cent.

The government further expressed hope that it would improve revenue performance as it claimed to be making concerted efforts to address the oil theft and pipeline vandalism.

The document also showed that the government looked to get more taxes in the next half of the year.

It read in part, “There is also seasonality to some of the non-oil taxes, which means that we expect to collect significantly more in the second half of the year.”

In 2020, the Federal Government initiated the Strategic Revenue Growth Initiative to boost revenue generation and sustainability.

Last year, the finance minister said that the government was working on the second phase of the SRGI to achieve a target revenue to Gross Domestic Product of 15 per cent by 2023.

Also, while presenting the 2022 budget last year, the finance minister admitted that the country was struggling with generating revenue.

She added that apart from the SRGI, the government was taking certain measures to ensure effective revenue measures.

The document read in part, “However, revenue currently remains our main fiscal challenge. The government remains committed to the effective implementation of the Strategic Revenue Growth Initiatives.

“In addition to the SRGI, we are leveraging technology and automation, plugging fiscal drainers and ensuring more effective Independent revenue monitoring.”

The finance minister also said that the government was planning to address revenue leakages by concluding the service-wide implementation of IPPIS, eliminating regressive subsidies on petrol price and electricity tariffs, as well as enforcing a cost-to-income ratio cap for government-owned enterprises.

However, the Federal Government has yet to remove subsidies on petrol, which have been a heavy fiscal burden on the government, draining its revenue.

In a recent The PUNCH report, it was disclosed that the cost of fuel subsidy was estimated to increase by 369.93 per cent from 2021 to 2023.

In 2021, the NNPC said fuel subsidy gulped N1.43tn, although there was no record for under-recovery in January.

The finance minister said that the Federal Government had projected to spend N6.72tn on petrol subsidy payments in 2023.

However, Ahmed noted that subsidy payment projection was based on two scenarios, with the first being spending an estimated N6.72tn for the entire year and the second, removing subsidies by June 2023, with the government spending N3.36tn rather than the full estimated N6.72tn.

She further noted that both scenarios had implications for net accretion to the federation account and projected deficit levels.

In January this year, the Federal Government ignored warnings from economists and multilateral agencies such as the World Bank and International Monetary Fund, deciding to retain the controversial fuel subsidies for another 18 months following threats of protests by the Nigerian Labour Congress and other interest groups.

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