In the past, the government and Nigerians rejoiced whenever there was a rally in the international price of crude, but the recent statement accredited to the Minister of State for Petroleum Resources, Timipre Sylva, that the country was not benefiting from the soaring oil prices seems to have changed that narrative; BENJAMIN UMUTEME reports.
In mid 2014, the price of oil crashed from a high of $114 per barrel to less than $30 causing Nigeria’s economy to go into recession as the country lost about 70 per cent of its income. Nigeria relies heavily on the sale of crude oil to power its economy.
Even though the economy was able to recover from the crunch, the federal government could not do much as it had to rely heavily on borrowing to perform its obligations. With the Covid-19 pandemic came another recession as businesses globally were shut down causing oil prices to go into negative territory.
And as businesses began to open up, it was obvious that crude demand would also rise leading to the rise of oil prices. Analysts were almost unanimous in their thinking that the oil rally may never hit the pre mid-2014 level, they never expected that it would come in the form it has done.
Speaking with journalists at a media parley last year in Abuja, the Minister of State for Petroleum Resources, Timipre Sylva, was asked at what price Nigeria’s economy would be comfortable. Replying, he noted that any price above $80 would not be good for the economy.
Little did he know that he was prophesying about a likely scenario that will likely play up. Fast forward to February 2022, following the invasion of Ukraine by Russia, oil prices once more have crossed the $100 mark, and this has got experts talking once more.
‘Soaring oil prices not good’
And in an interview with Bloomberg TV, Sylva insisted that soaring oil prices was not benefiting Nigeria. And like he did tell reporters last year, anything more than $70 to $80 per barrel was not good for the country.
“I’m hopeful the prices will move around, maybe $80, maybe $70. We are hoping it will come down to somewhere around $70 to $80, which will be sustainable for us by the end of the year,” he said.
Last year, Nigeria agreed to voluntarily cut its daily crude oil production by 939,000 barrels between January and March after a meeting with the Organisation of Petroleum Exporting Countries (OPEC) and its allies.
The minister said the inability of Nigeria to activate the oil wells it shut down when OPEC+ agreed to cut production as well as the lack of investment in the upstream sector is affecting the country’s ability to increase production. He said Nigeria was losing at least 300,000 bpd to its capacity challenge.
“A time of rising crude oil prices at the international crude oil market is not always a thing to celebrate too much for Nigeria, because when crude oil prices grow high above certain levels, it means there are other competing productions that would also start raving up the competition.
“We believe that crude oil prices should be at a certain point to be optimal for the country, but suboptimal for the shale oil producers. That is why Nigeria would always like to have that balance.
“It is not as if we are very happy with the crude oil prices being where they are, because we are taking from one side (exports of crude oil) and giving away from the other (imports of refined products), and at the end of the day, the country is not necessarily making a lot of gains, because Nigeria is taking from the high crude oil prices and spending on the importation on higher prices of refined petroleum products.”
World Bank’s warnings
Earlier in January at the launch of the Deloitte National Economic Outlook for 2022, World Bank’s Country Director for Nigeria, Shubham Chaudhuri, had warned that rising oil prices might have a negative impact on Nigeria’s revenues.
“Ironically, Nigeria is at a point now where rising oil prices might not be a good thing because although oil production might go up and crude oil revenue may increase, which in some sense is a good thing, the fiscal cost of PMS subsidy and gasoline subsidy will also go up,” Chaudari said.
According to Chaudari, oil price increase might have a net negative impact on the federation’s revenues.
“It is not guaranteed, we hope it will have a positive impact. It will help the broader economy but in terms of the direct impact on the fiscal situation or the balance of payment, it is a bit more complicated,” he said.
NNPC’s data
Data obtained from the Nigerian National Petroleum Corporation (NNPC) Ltd. put the amount spent on subsidy in 2021 at N1.03 trillion. According to the World Bank, Nigeria could end up spending N2.5 trillion or N3 trillion in subsidizing PMS in 2022.
With the government backtracking on its plans to remove subsidy, the Nigerian National Petroleum Company (NNPC) went ahead to request a total of N3 trillion from the federal government to fund fuel subsidy in 2022.
Experts’ views
The minister’s statement as usual elicited reactions from Nigerians with many alleging that the minister was only trying to prepare the ground for the looting of resources to prosecute the 20223 elections.
While others were of the opinion that embezzlement and fraud rather than the above stated reasons by the government was responsible for why the country will not benefit from soaring crude prices.
Lawal wondered why Sylva would make such a statement. According to him, “if during the previous administration’s Nigeria reaped the benefit of high prices of crude oil 2hy is the Buhari led administration different?”
For Adefolarin Olamilekan, a political economist and development researcher, the lackadaisical attitude of the country leaders is responsible for their inability to utilise the amount gotten from sales of crude. He said Nigerians should not be surprised by the statement credited to Sylva’s.
He said despite creating the Excess Crude Account (ECA) for saving some money from the crude earning, it was frittered away.
“If we may ask, is it not because of the uncertainty surrounding oil prices at the international market, the popular Excess Crude Account was created. However, in the wisdom of the managers of the Nigerian economy, they wasted such opportunity and the funds generated from it.
“The money would have been used to build new refineries and stop importation of refined crude products,” he said.
According to the World Bank, fuel subsidies and pipeline vandalism continue to pose major threats to Nigeria enjoying the benefits of soaring prices of crude.
The excesses on the part of our political elites to be selfless have only compounded the issue of subsidy. Adefolarin noted that there is mistrust of government officials as they believe the fuel subsidy regime in the country is riddled with corruption, embezzlement and misappropriation of funds meant for it.
“So, it is going to be difficult to agree that Nigeria will not benefit from the current high oil prices.
“Nigerians are already aware of how the ‘cabal’ is milking in the know of how the so called Cabal is milking the nations in the name of fuel subsidy.
“In this wise, this should be rule out rather the incompetency and the lackadaisical attitude to the welfare of the people as reverse the gains of high oil prices to the Nigerian economy and her people.”
Accountability
The political economist noted that governments at all levels must be accountable in the distribution of revenue accruing from oil.
“First, the Nigerian state must be accountable in the disbursement of excess accruing from the latest high oil prices. This will help to bridge the mistrust gap between the people and the government.
Secondly, the government must see the needs of people by addressing the challenge in our oil and gas sector, especially the encouragement to the state government to build refineries.
Lastly, it is high time the operation of the Petroleum Industrial Act 2021 became functional. This will go a long way to ease some of the domestic challenges confronting the economy of oil in Nigeria.
