Experts raise concerns over FG’s plan to fund deficit from privatization
Zainab Ahmed, Nigeria's Finance Minister


The Nigerian economy is on the verge of collapsing over the twin-problem of crude oil theft and rising subsidy payments on petroleum products by the Nigerian National Petroleum Corporation (NNPC), Business Hallmark findings have revealed.

The Minister of Finance, Budget and National Planning, Zainab Ahmed, had during the presentation of the 2023-2025 Medium Term Expenditure Framework and Fiscal Strategic Paper (MTEF and FSP) Public Consultation in Abuja last week, confirmed what economic and financial experts have long warned of, when she warned that urgent action is required to fix revenue underperformance and expenditure inefficiency at the national and sub-national levels.

A detailed analysis of the 2023-2025 Medium Term Expenditure Framework and Fiscal Strategic Paper (MTEF and FSP) Public Consultation document by the minister done by BH showed that the Federal Government spent N1.93 trillion on debt servicing, compared with the N1.63 trillion revenue generated in the same period under review.

The N310 billion difference represents about 20 percent more than the total revenue generated.
Further analysis of the document showed that retained revenue was 51% short of the prorated target for the first quarter as per the 2022 Appropriation Act, which targeted N3.32 trillion.
While revenue dipped sharply, actual spending recorded a massive rise. For instance, the Federal Government spent N4.72 trillion, representing four-fifth of the N5.77 trillion spending estimate for the period.

While actual spending fell below the N5.77 trillion spending estimate for the period under review, it represents about 190 per cent more than the earned revenue.

The document also indicate that debt servicing alone took 41 per cent of the total spending, followed by personnel cost (including pensions) at N1.26 trillion (27%).

Meanwhile, a meagre N773.6 billion (16%) was spend on capital projects.

According to checks by our correspondent, revenue underperformance and expenditure inefficiency could be traced to the twin-problem of crude oil theft and the huge amount used to subsidise the price of petrol sold in the country.

For instance, while petrol subsidy is projected to gulp around N5trillion by the end of 2022, the stealing of the nation’s black gold had continued unabated, with government sources putting the figure at 80 million barrels a year (460,000 barrels per day).

However, independent sources painted a more dire picture of the stealing spree.

The Chairman, United Bank for Africa (UBA) and Heirs Holdings, Mr Tony Elumelu, had during a recent public event, cried out that the nation was losing over 95 per cent of its oil production to thieves.

“This morning, I was listening to my colleagues at the office bemoan the very pressing issues that they face every day in this country, and how things have been getting worse and worse – no electricity for five days, hikes in the price of diesel, frightening food inflation, etc.

“How can a country so rich in natural resources have 90 per cent of its citizens living in hardship and poverty? I have often said that access to electricity is critical for our development, alleviation of poverty and hardship. And speaking of security, our people are afraid! Businesses are suffering.

“How can we be losing over 95 per cent of oil production to thieves? Look at the Bonny Terminal that should be receiving over 200,000bpd barrels of crude oil daily, instead it receives less than 3,000 barrels, leading the operator, Shell to declare force majeure.

“Why are we paying taxes if our security agencies can’t stop this? It is clear that the reason Nigeria is unable to meet its OPEC production quota is not because of low investment but because of theft, pure and simple!

“Meanwhile, oil producing countries are smiling as their foreign reserves rising. What is Nigeria’s problem? We need to hold our leaders more accountable.

Also, Crude Oil, an internationally renowned energy news site focusing on oil and gas, alternative energy and geopolitics, puts Nigeria’s stolen oil wealth at 61%. In other words, the country is only enjoying about 39% of its oil wealth.

“Despite crude oil trading at highs not seen in years, oil-rich Nigeria, unlike other crude oil producers, had found it impossible to reap the benefits of today’s high oil prices, with oil revenues coming in 61% below target during the period”, the platform noted.

At the close of trading on Saturday, July 23, Brent Crude traded at $103.2, while WIT Crude closed at $94.70.

The Organisation of Petroleum Exporting Countries (OPEC) in its latest Monthly Oil Market Report, explained that Nigeria’s oil revenue problem did not stem from a drop in production, but the massive theft of the product.

According to the cartel, Nigeria’s crude oil production was relatively steady at 1.376 million bpd in the first quarter of 2022, compared to the previous quarter and 34,000 bpd below the same quarter last year
The OPEC’s Monthly Oil Market Report further reported that though Nigiera’s production slipped further in June 2022 to 1.238 million bpd, her oil revenue problem was not as a result of a drop in production but other factors like oil theft, pipeline vandalism, and most critically, high gasoline prices, which the country subsidizes.

Also, another report released last month during a meeting on crude oil theft between the Nigerian Upstream Petroleum Regulatory Commission and Oil Producers Trade Section, as well as the Independent Petroleum Producers Group, indicate that between January 2021 and February 2022, Nigeria lost $3.2billion to crude oil theft.

According to the report, oil theft rose significantly between 2021 and 2022, with over 90 percent of total crude produced at the Bonny Terminal stolen in January 2022.

Oil experts who spoke to our correspondent on the development projected the country loses to be in the region of $7.3billion – $10billion a year to oil thieves and vandals.

While OPEC pegged the nation’s production quota at 1.8 million barrels per day, the country has only been able to produce 1.6 million barrels per day (made up of over 450,000 barrels of condensate which is outside OPEC quota).

The other twin problem that is threatening to push the nation over the cliff is the huge amount voted year after year to subsidising petroleum products.

The subsidy conundrum is exacerbated by the country’s lack of refining capabilities. Nigeria, unlike other top oil producing countries currently benefitting from rising crude oil prices, import all the petrol it consumes owing largely to the non-functioning of its four refineries in Port Harcourt, Warri and Kaduna.

The Federal Government had initially budgeted about N2trillion for the payment of petrol subsidy in 2022 but was forced to review it upward to N4.7trillion after crude prices ballooned.

In anticipation of a sustained crude oil price rise, the Federal Government planned to spend N6.7trillion on fuel subsidy in 2023.

Justifying the huge figure during the MTEF and FSP presentation, the finance minister blamed it on the continuous rise in energy costs in the global market which she claimed could pushed subsidy on Premium Motor Spirit (PMS) for 2023.

However, experts argue that the final cost of Nigeria’s petrol subsidy will be much more than the budgeted amount.

According to them, the value of Nigeria’s petroleum imports far outweighs the value of its petroleum exports—to the tune of $43 billion.

Meanwhile, experts have predicted hard times for the Federal Government and the nation over falling revenue.

They maintained that the severe revenue shortfall will not allow the nation to service its local and foreign debts, finance essential capital projects and pay her workers huge wages.

The minister of finance, while stating that the government has projected fiscal outcomes in the medium term (2023 to 2025) under two scenarios based on the underlying budget parameters/assumptions, warned that both scenarios have implications for net accretion to the Federation Account and projected deficit levels.

“The subsidy on PMS is estimated at N6.72 trillion for the full year 2023. This amount, will remain and be fully provided for by the Nigerian National Petroleum Corporation Limited on behalf of the Federation.

“The second scenario is that PMS subsidy will remain up to mid-2023 based on the 18-month extension announced early 2021, in which case only N3.36 trillion will be provided for.

While adding that NNPC had not remitted revenue into the Federation Account for eight months, because it has been paying subsidies on behalf of the Federal Government, warned that both scenarios have implications for net accretion to the Federation Account and projected deficit levels.

“The new arrangement has indicated that NNPC will not be contributing monthly to the Federation as it used to in the past,” Ahmed warned.

In his own comment, the Minister of State for Budget and National Planning, Clem Agba, insisted that subsidy has to go.

“I think that the time to remove the subsidy was yesterday. We are only eating away at our future and that is what some people call a consumption economy.

“It is difficult to understand a situation where citizens say that they want an omelet and then when the government wants to break eggs so that they can produce, they say don’t break the eggs.

So, it’s a decision that Nigerians will have to take because if you look at scenario one, it means that we will not have any capital expenditure in 2023.

“All those who agree with us in-house that we should remove the subsidy – all the political parties, governors and labour unions – when they come out to the public, they will say, ‘don’t remove the subsidy’, but behind the scene when they see the books they understand that it has to be done. But maybe out of lack of patriotism or to promote themselves or their parties, they say it’s the government that wants to punish the people.

“So, Nigerians really need to decide, because if we must have a future, the subsidy has to go now,” Agba noted.

Nigerians, meanwhile, should be prepared for more harrowing times as Ahmed and Agba, meanwhile, seems to be fighting a lost battle.
President Mumammadu Buhari, BH learnt, had made up his mind not to end the subsidy regime any time soon.

The president, it would be recalled, had during an interview he granted Bloomberg, defended his government’s decision to keep paying fuel subsidies, while insisting that the effects of removing fuel subsidies would be too harsh on the Nigerian people.

“Most western countries are today implementing fuel subsidies. Why would we remove ours now? What is good for the goose is good for the gander!” Buhari had said.
Reliable source in the Presidency disclosed that the president, advised by some close aides from the northern part of the country, has not changed his position on the matter.

“I will just advice Nigerians to prepare to a rough ride as the impacts of continued fuel subsidy, huge debts and crude oil theft would continue to render impotent all the good efforts of the few technocrats in the government”, said a source in the Presidency who did not want his identity disclosed.

An oil an gas expert, Engineer Rotimi Togun, said oil theft has become a huge crisis, as all the major multinational oil companies exiting the country linking their divestments in many onshore assets to the continued oil theft and vandalisation of their equipment.

“The attacks on oil and gas installations have really slowed down the gains the Petroleum Industries Act (PIA) was supposed to bring about in the area of investment.
“Potential investors now ask how they can recoup their investment when crude oil is stolen. While we daily lose those on ground, we are not gaining others.

“With an annual budget close to N20trillion, revenue of N4trillion and sovereign debt of N39.556 trillion, the Nigerian economy is in serious trouble.

“In fact, it is presently in coma and on life support. The most worrying part of it is that all indices point to the fact that the situation could get worse.

“State governments, even the Federal Government won’t be able to pay workers salaries, or the much needed execute projects”, Engr. Togun stated.

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