By Yange Ikyaa
A combination of three factors, namely crude oil price increase, a rise in crude oil production volumes, and the removal of fuel subsidy have combined to heighten public expectations from President Bola Ahmed Tinubu’s government.
This is because of the logical assumption that higher crude oil prices, coupled with high production volumes and the cessation of government payments to subsidize fossil fuel consumption in Nigeria will make more money available to the government to deliver on its services to the citizenry.
Oil and gas remain critical to Nigeria’s economic and social performance, as oil alone accounts for 40 per cent of the country’s GDP, as well as 70 per cent of budget revenues and 95 per cent of foreign exchange earnings. As a result of this, the country’s dependence on petroleum is much greater than that of many other major producing countries, as taxation and state participation are both designed to deliver benefits from the petroleum sector to the state.
Recently, the Group Managing Director (GMD) of the Nigerian National Petroleum Company Limited (NNPC) Limited, Malam Mele Kyari, revealed that oil production in Nigeria surged to 1.6 million barrels per day from the previous figure of less than one million barrels per day just a few months ago.
Kyari made the disclosure during a media briefing organized by the Nigerian Minister of Finance and Coordinating Minister of the Economy, Olawale Edun. He also declared that there was a decline in petrol consumption in Nigeria, following the removal of government subsidy on the product, with a 30 per cent reduction recorded after the removal of the subsidy was announced by President Bola Ahmed Tinubu. According to NNPCL boss, this decrease in fuel demand has led to a corresponding 30 per cent reduction in the company’s foreign exchange requirements for fuel imports.
In his remarks, Edun unveiled the Federal Governments ambitious plan to attract Nigerian funds held in domiciliary accounts within the country and in offshore locations in order to reinvigorate the country’s economy.
There have been reports of NNPC having some arrangements with multinational lenders to ensure seamless liquidity flow into the Nigerian economy by way of financing petroleum projects and enhancing energy trade. In this vein, Kyari was quoted as saying that the $3 billion deal that his company had with the African Export-Import Bank (AFREXIM) was not a loan but a forward sale arrangement, and that the deal was still in force and had not collapsed as wrongly alleged in some quarters.
Commenting on the matter, the Finance Minister highlighted the substantial foreign exchange potential held by Nigerians, both within the country and overseas. He further stressed the need to create an environment that encourages the repatriation of these funds for investment in the Nigerian economy rather than foreign economies.
We need to provide the environment that brings those funds home for investment in the Nigerian economy, said the Minister.
Edun also touched upon the palliatives provided by the federal government in response to the petrol subsidy removal. He disclosed that only N2 billion out of the N5 billion grant/loan allocated to each state has been released. According to him, the funds were gradually released to prevent inflationary pressures and maintain economic stability.
Acknowledging the challenges faced by Nigerians due to the recent fiscal reforms, he assured that these difficulties are temporary and necessary for a brighter future. However, Nigerians may be losing patience over the hardships occasioned by the removal of petrol subsidy, especially when fossil fuel prices have risen in the international market at a time that local production in the country has been officially confirmed to be on the rise.
Since September 2, when Brent crude oil was trading at a remarkable price of over $88 per barrel, the upward trend has continued and the commodity is now trading at over $90 per barrel. A closer examination of crude oil price trends indicate that this marks the highest-level that crude oil prices have reached since January 2023. Worthy of note also is that, on September 1, Reuters reported a substantial 4.8% increase in Brent crude prices over the week, signifying the most significant weekly surge since late July. Also, within that period, the West Texas Intermediate (WTI) experienced a notable rise of 7.2% during the same week, marking its most substantial weekly gain since March 2023.
These price movements reflect a dynamic and rapidly evolving oil market, underlining the substantial fluctuations and influences impacting both Brent crude and WTI prices. While investors and analysts are closely monitoring these developments which carry significant implications for the global energy landscape and financial markets, oil prices have continued to experience noticeable increase, driven by a combination of various factors that have culminated in this recent surge. These factors encompass a spectrum of influences, ranging from Chinas economic slowdown to Saudi Arabia’s decision to curtail its oil production.
Recently, Saudi Arabia expressed its determination to prolong its reduction in crude oil production, which had initially commenced in July 2023, with the extension now slated to continue until the end of September 2023. Reports also suggest that Russia’s Deputy Prime Minister, Alexander Novak, confirmed an agreement between the worlds second-largest oil exporter and OPEC+ partners to reduce oil exports in the coming month. Additionally, the disruption caused by Hurricane Idalia has played a significant role in the recent uptick in crude oil prices on the global market, with investors expressing concerns about its potential impact on the oil market. Furthermore, supply concerns stemming from a recent coup in Gabon have also made a modest contribution to the recent increase in global crude oil prices.
These developments collectively underscore the complex web of factors influencing the current state of the oil market, making it a subject of keen interest and scrutiny for investors and analysts alike. In the approaching fourth quarter of 2023, it is anticipated that Chinese imports of Saudi crude oil will experience a significant upsurge. This expected rise in imports can be attributed to the increased purchasing activity of both state-owned and private-sector companies in China.
Concurrently, Saudi Aramco is in the process of finalizing several key partnerships with Chinese firms. This development highlights a burgeoning trend in the energy sector, where Chinese demand for Saudi crude oil is set to intensify, with serious global pricing implications also anticipated. But whatever the reasons behind oil price changes may be, for Nigerians, service delivery to the people is what they expect from the government, especially in terms of easing economic hardships and providing essential infrastructure. Already criticisms have started coming out about the handling of palliatives in relation to the fuel subsidy removal in the country.
For instance, Policy House International (PHI), a social enterprise that engages in strong advocacy on social accountability issues among state and non-state actors, has alleged that only 10 states out of the 36 states in Nigeria have been able to clearly account for the N2 billion so far released to each of them by the Federal Government as part of palliative measures to reduce the harsh impacts of petrol subsidy removal on Nigerians. The Executive Director of PHI, Taiwo Akerele, who disclosed this during an interview with journalists in Benin City on Monday, also said that these 10 states amount to only 27.7 per cent of Nigerian states, which should account for a total of N72 billion so far released by the Federal Government to them.
Akerele further advised President Bola Ahmed Tinubu to engage the governors on accounting for what they have received before releasing the remaining funds. According to him, the Federal Government has released N72 billion to all the 36 states of the country, which accounted for 40 per cent of the total pledged amount of N5 billion per state but unfortunately, out of the 36 states, only 10 states have come out with clear plans and ten states amount to only 27.7 per cent. So for us this is woeful, it is not a pass mark, so we need to have the plans of the state governors on what they want to do with the N2 billion that has been released so far.
From the 10 states, food and transportation is their focus, which is fine but they need to expand the windows and the basket of utilization that can reach out to more people in the states. The remaining 26 states are silent and this is not good for us and as we speak, the governors are agitating for the release of the balance of N108 billion but unfortunately, there is a gap because they have not accounted for what they have used the released N72 billion for. PHI is of the view that the President has to stand his ground to ensure that the resources are channelled to areas that affect majorly the poor in these states and before releasing the balance funds, he has to sit down with the governors to agree on fund utilization including what they want to use these funds for because the National Bureau of Statistics (NBS) revealed that over 130 million Nigerians are poor and this is an opportunity to reach out to them.
Based on our research, we are of the view that food production and its associated value chain is key so Mr. President has to stand his ground that most of these monies should go into food production, then mass transportation support services and then basic health services. The governors need to invest in primary healthcare and its support staff, then of course school feeding and then support to Micro, Small and Medium Enterprises (MSMEs).
“There has to be an agreement on the social register that will be used to make cash transfers and aides to the poorest of the poor. The president has to stand up, hold the governors accountable and ensure that there is accountability for the resources released.”
