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Oil Price Fall And Nigeria’s Economy

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At the 7th All Nigeria
Guild of Editors conference held in Benin, the Edo State capital on Thursday, September 22, 2011, the former minister of the Federal Capital Territory, Mallam Nasir el-Rufai, raised alarm that should oil  price drop below $80 per barrel in the international market, some state governments in Nigeria would not be able to pay salaries to their workers.
El-Rufai, who was speaking on the topic, “Perspectives on the Cost of Governance in Nigeria”, had strongly noted that pegging of oil price as high as $75 then in the national budget was unrealistic and not good for Nigeria’s economy.
The minister was being as prophetic as many individuals and organizations who believed that the nation’s economy which is oil dominated would be in a quagmire, should any unforeseen surprises affect the oil price in the global market.
Various experts had also, for too long been consistent in expressing strong need for drastic reduction in the high cost of Nigerian governance which gulps as high as 25% of the annual budget and one of the highest in the world.
They had equally suggested diversification of the economy from oil to other sectors particularly agriculture which hold high promises for food on the table of the average Nigerian, mass employment, raw material for industrialization and foreign exchange earning.
While most nations of the world had strategized to contain such possible economic fears, most African governments also took bold steps in preparations for the economic uncertainties, but some deaf-and-dumb governments had preferred what goes directly into the individual pockets of the leaders than the general good of the citizens. Billions of Dollars meant for constituency funds, furniture extravagant travelling allowances, amongst others find their ways to the law makers and their crowd of primal aides.
Today, the reality is not only knocking at our doors but is quite here with us. The present systematic drop in the oil price which experts predict could slide far below $50 per barrel benchmark before the end of 2015 has become Nigeria’s undoing.
Many state governments in Nigeria today are owing months of salaries arrears to their workers while contractors have abandoned projects execution because the oil price then predicted had fallen below budgetary calculations and states lack the funds to pay.
Some private schools in Port Harcourt have already given notice of increase in school fees, landlords are also threatening to raise rent, labour unions are ironically agitating for pay rise in view of recent devaluation of Naira occasioned by dramatic drop of oil price in global market even as state governments insist they would not review the $65 per barrel benchmark on which they proposed their 2015 budgets. Where would these excoriations take the nation to in the present economic situation determined by global economic reality?
An economist, George Clement, is of the view that time has come for Nigeria to elect leaders who have the capacity to proffer solutions to the socio-economic challenges confronting the nation as against empty promises for which most Nigerian political leaders are known.
“The era of touts aspiring for public offices should be over. It is time to look beyond sweet talks and empty promises now that campaign period in Nigeria is around the corner”, said Clement.
He said, “our leaders had since the oil boom of the 70s refused to do the right thing. Billions of Naira had consistently been swallowed up by the pockets of fraudulent leaders”, he remarked noting that the future generations may have nothing to be proud of about their nation if the real change is not effected.
Another respondent, Mrs Mary Jonathan, in her own reaction is challenging the Economic and Financial Crimes Commission (EFCC) to trace the loots of the nation wherever they might have been hidden.
“Yes, it  appears late but not too late. We cannot continue to wallow in poverty in a rich country while few persons in the name of politics continue to cart away our resources”, she stressed.
Jonathan appealed to the Federal Government to review the pump price downward to reflect the price of oil in the global market. “We cannot afford to pay more when actually the price has fallen. The N97 per litre of fuel is no longer realistic”, she maintained.
A civil servant, Makel Ndah, in his own reaction called for upward review of workers salary. “Since the Naira has been devalued, its exchange power has become weak, it is important that the government reviews workers salary upward to meet with the current market reality”.
A landlord in Port Harcourt Chief Clifford Nweke, said,” it is obvious that house rent would be reviewed since government has started to have a second look at the Naira.”
We are all Nigeirans, operating in the same market, so what affects one should equally affect the other. Yes some people will say landlords are wicked shylocks, but that is mere sentiment”, he maintained.
A private school proprietor who pleaded anonymity said, “we had our first Parent Teachers Meeting last week and the issue of increase of salaries was raised by the teachers and I told the parents to pray and watch because for me to pay higher workers salary means that the fees charged students would also be reviewed upward.
“Please don’t get me wrong, we have not increased school fees yet. What I am saying is that we in my school are studying the socio-economic variables. If workers salary goes up and other schools readjust to meet with the reality, we here would also adjust because we are part of the society”, he explained.
A Port Harcourt- based public analyst, Christian Nnamdi, said the issue calls for caution. “There is no need to panic yet. It is not a Nigerian thing but a global phenomenon. It does not affect only Nigeria but other nations of the world. Nigeria has many antidotes to the problem. So all we need to do is study the situation to know the dynamic nature of the change.
According to Nnamdi, the nation should not leave everything in the hands of politicians. “We need to protect the economy from the excesses of selfish Nigerian politicians and one way of doing that is to gather together some technocrats and experts in various fields especially economists. Let the think- tank develop an economic plan that should guide the policies and programmes.
Call it 25 years economic development plan. So that whichever political group that takes the mantle of leadership, will have to build whatever programme from the economic blue print.
Nnamdi blamed the woe of the nation on inconsistency of leadership, stressing that government should be seen as a continuation from where the former ends. “But you see, in Nigeria, any new administration is in the habit of abandoning the programmes of the previous administration at the detriment of so much fund sunk into such projects because they want to take credit.
“But with a long term economic development plan, new government can no longer abandon projects started by the former government. It has to inherit it and complete it for the people. This idea will make nonsense of the penchant for second term which is common in Nigeria,” he maintained.
It would be recalled that discovery of shale oil which increase supply in American oil market, a major importer of Nigeria’s oil has affected the oil supply in the global market. This high supply has reduced oil price in the global market and Nigeria, whose economy remains oil-driven is directly affected.
Nigeria whose budget depends on oil has been forced to review its oil benchmark resulting in austerity measures to contain the economic downturn.
Medium Term Expenditure framework which the Finance Minister, Dr. Ngozi Okonjo-Iweala, submitted to the National Assembly, scaled down the nation’s budgetary estimate for 2015 to N4.661 trillion as against an initial N4.817 trillion.

 

Chris Oluoh

Some Transformers donated by the lawmaker representing Oyigbo in the RSHA Hon. Okechukwu .A. Nwuogu

Some Transformers donated by the lawmaker representing Oyigbo in the RSHA Hon. Okechukwu .A. Nwuogu

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No Subsidy In Oil, Gas Sector — NMDPRA

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The Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) has said there are no subsidies in the oil and gas sector as Nigeria operates a completely deregulated market.
The Director, Public Affairs Department, NMDPRA, George Ene-Italy, made this known in an interview with newsmen, in Abuja, at the Weekend.
Reacting to the recent reports that the Federal Government has removed subsidies or increased the price of Compressed Natural Gas (CBG), Ene-Italy said, “What we have is a baseline price for our gas resources, including CNG as dictated by the Petroleum Industry Act”.
He insisted that as long as the prevailing CNG market price conforms to the baseline, then the pricing is legitimate.
 Furthermore, the Presidential –  Compressed Natural Gas Initiative (P-CNGI) had said that no directive or policy had been issued by the Federal Government to alter CNG pump prices.
The P-CNGI boss, Michael Oluwagbemi, emphasised that the recent pump price adjustments announced by certain operators were purely private-sector decisions and not the outcome of any government directive or policy.
For absolute clarity, it said that while pricing matters fell under the purview of the appropriate regulatory agencies, no directive or policy had been issued by the Federal Government to alter CNG pump prices.
The P-CNGI said its mandate, as directed by President Bola Tinubu, was to catalyse the development of the CNG mobility market and ensure the adoption of a cheaper, cleaner, and more sustainable alternative fuel and diesel nationwide.
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‘Nigeria’s GDP’ll Hit $357bn, If Power Supply Gets To 8,000MW’

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The Managing Director, Financial Derivatives Company Limited (FDC),  Bismarck Rewane, has said that Nigeria’s Gross Domestic Product (GDP) could rise to $357b  if electricity supply would increase from the present 4.500MW to 8,000MW.
Rewane also noted that Nigeria has spent not less than $30 billion in the power sector in 26 years only to increase the country’s power generation by mere 500MW, from 4,500 MW in 1999 to 5,000MW in 2025 though the sector has installed capacity to generate 13,000 MW.
In his presentation at the Lagos Business School (LBS) Executive Breakfast Session, titled “Nigeria Bailout or Lights Out: The Power Sector in a Free Fall”, Rewane insisted that the way out for the power sector that has N4.3 trillion indebtedness to banks would be either a bailout or lights out for Nigeria with its attendant consequences.
He said, “According to the World Bank, a 1.0 per cent increase in electricity consumption is associated with a 0.5 to 0.6 per cent rise in GDP.
“If power supply rises to 8000MW, from current 4500MW, the bailout shifts money from government into investment, raising consumption and productivity. And, due to multiplier effects, GDP could rise to $357 billion.”
The FDC’s Chief Executive said “in the last 30 years, Nigeria has invested not less than $30 billon to solve an intractable power supply problem.
“The initiatives, which started in 1999 when the power generated from the grid was as low as 4,500MW, have proved to be a failure at best.
“Twenty-six years later, and after five presidential administrations, the country is still generating 5,000MW. Nigeria is ranked as being in the lowest percentile of electricity per capita in the world.
“The way out is a bailout, or it is lights out for Nigeria”, he warned.
He traced the origin of the huge debts of the power sector to its privatisation under President Goodluck Jonathan’s administration, when many of the investors thought they had hit a jackpot, only to find out to their consternation that they had bought a poisoned chalice.
Rewane, who defined a bailout as “injection of money into a business or institution that would otherwise face an imminent collapse”, noted that the bailout may be injected as loans, subsidies, guarantees or equity for the purpose of stabilising markets, protect jobs and restore confidence.
He said, “The President has promised to consider a financial bailout for the Gencos and Discos. With a total indebtedness of N4.3 trillion to the banking system, the debt has shackled growth in the sector.”
Rewane warned that without implementing the bailouts for the power sector, the GENCOs and DISCOs would shut down at the risk of nationwide blackout.
Rewane, however, noted that implementing a bailout for the power sector could have a positive effect on the country’s economy if Nigeria’s actual power generation could rise from today’s 4,500 MW to around 8,000 and 10,000 MW.
The immediate gains, according to him, would include improved power generation and distribution capacity, more reliable electricity supply to homes and businesses as well as cost reflective tariffs.
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NEITI Blames Oil, Gas Sector Theft On Mass Layoff 

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The Nigeria Extractive Industries Transparency Initiative (NEITI) has blamed the increasing crude oil theft across the nation on the persistent layoff of skilled workers in the oil and gas sector.
The Executive Secretary, NEITI, Orji Ogbonnaya Orji, stated this during an interview with newsmen in Abuja.
Orji said from investigations, many of the retrenched workers, who possess rare technical skills in pipeline management and welding, often turn to illicit networks that steal crude from pipelines and offshore facilities.
In his words, “You can’t steal oil without skill. The pipelines are sometimes deep underwater. Nigerians trained in welding and pipeline management get laid off, and when they are jobless, they become available to those who want to steal crude”.
He explained that oil theft requires extraordinary expertise and is not the work of “ordinary people in the creeks”, stressing that most of those involved were once trained by the same industry they now undermine.
According to him, many retrenched workers have formed consortia and offer their services to oil thieves, further complicating efforts to secure production facilities.
“This is why we told the Nigerian Content Development and Monitoring Board (NCDMB) to take this seriously. The laying off of skilled labour in oil and gas must stop”, he added.
While noting that oil theft has reduced in recent times due to tighter security coordination, Orji warned, however, that the failure to address its root causes, including unemployment among technically trained oil workers would continue to expose the country to losses.
According to him, between 2021 and 2023, Nigeria lost 687.65 million barrels of crude to theft, according to NEITI’s latest report. Orji said though theft dropped by 73 per cent in 2023, with 7.6 million barrels stolen compared to 36.6 million barrels in 2022, the figure still translates to billions of dollars in lost revenues.
Orji emphasised that beyond revenue, crude oil theft also undermines national security, as proceeds are used to finance terrorism and money laundering.
“It’s more expensive to keep losing crude than to build the kind of monitoring infrastructure Saudi Arabia has. Nigeria has what it takes to do the same”, he stated.
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