The implementation of the nation’s 2014 budget has not yet started,
as stakeholders, especially legislators continue to debate it. Udeme
Akpan reports that developments in the global market and other factors
constitute serious threat to the key budgetary assumptions and
implementation of the budget.
Many nations, including Nigeria have come to over depend on their
crude oil as the Egyptians look up their River Nile for agriculture and
other purposes. Take the 2014 budget as an example. The Federal
Government of Nigeria has already projected to base the implementation
of its 2014 N4.77 trillion budget on oil reference price of $77.5 per
barrel.
The budget which ordinarily should have been passed for
implementation before now is still a subject of discourse at the
National Assembly. Many legislators have picked holes on the budget. For
instance, the government has been criticised for allocating more funds
to some issues, including former Niger Delta militants than others.
These and others are expected to be harmonised or resolved before the
budget is passed for execution.
Perhaps what is more worrisome about the budget is the realisation
that the 2.39 million barrels a day crude oil production has been
overstated. The Global rating agency, Standard & Poor’s, S&P
that made this observation stated that such a target may not be realised
as a result of a combination of factors. The agency which identified
Niger Delta militancy as one of the factors stated that the situation
could be worsened as the 2015 elections draw near.
An S&P analyst, Ravi Bhatia stated, “It’s a concern if they have a
big rise in pre-election expenditure and there’s a big revision on the
oil price or there is a production shortfall due to Niger Delta
tensions. High global oil prices are helping to sustain the picture as
it stands now.
Bhatia who noted that not much investment and production should be
expected in the nation until the controversial Petroleum Industry Bill,
PIB becomes a law stated that a $10 to $15 fall in the global oil price
might change the fiscal calculations for the 2014 budget.
These have attracted the comments of some analysts. For instance, the
Technical Director of Drill Bits, a Port Harcourt- based firm, Mr.
Zakka Bala stated in a telephone interview that the issues raised are
real and capable of affecting the ability of operators in the oil
industry to maximise output and export.
He said, “The Niger Delta restiveness has reduced considerably in the
past few years because of the Federal Government Amnesty programme and
other measures. But generally speaking, the socio-political environment
in the region is not yet very conducive for commercial oil exploration
and production.
Bala stated that the continued massive oil theft that goes on in
different parts of the Niger Delta is also another factor capable of
reducing output and export, thus constituting a bane on foreign exchange
generation in 2014.
He is not alone. The Shell’s Country Chair in Nigeria, Mr. Mutui
Sunmonu stated, “As a Nigerian, and one who has spent a great deal of my
career in the Niger Delta, my greatest immediate concern is the issue
of crude oil theft, which is an increasingly dangerous menace.
He stated, “The volume currently being stolen is the highest in the
last three years, with over 60,000 barrels per day from SPDC facilities
alone. This is a huge loss, and the effects of this industrial scale
theft are devastating for both the people and the environment. Most of
the stolen crude makes its way to the international market and a smaller
percentage is refined locally, with thick smoke from illegal refineries
lining the shore in many parts of the delta.
Sunmonu added, “The land, shorelines and water are heavily polluted
with oil as a result of these activities. This is a crisis situation
because the solution is beyond the capacity of any individual company.
Our concern is that, if these activities continue at this rate, the
effects would be devastating, not only to the social and environmental
structure of many areas of the Niger Delta, but also to Nigeria’s
economy.”
The firm also stated in its report that the Niger Delta continues to
be a challenging place to operate for many reasons. It stated that there
is a fundamental lack of basic infrastructure in many areas, with
poverty, lack of employment opportunities, widespread criminality and
other factors all contributing to the social and economic crisis in the
region.
The report stated, “Criminality has expressed itself in many forms
over the years – attacks on facilities, kidnapping, militancy and, most
worrisome in recent years, crude oil theft and illegal refining. In
2012, there were over 80 reported incidents of crude oil theft from the
facilities of the Shell Petroleum Development Company of Nigeria
Limited, SPDC, several accompanied by vandalism, spills and fire.
These are internal matters. But there are also external factors. For
instance, the Organisation of Petroleum Exporting Countries, OPEC stated
in its January market report that oil exports coming from many nations
would likely affect the fortunes of members states, including Nigeria.
The report stated, “ The forecast for the current year was also revised
higher, up 70 tb/d to 1.3 mb/d. Growth is seen coming mainly from the
US, Canada, Brazil and the Sudans, while Norway, UK and Mexico are seen
declining in 2014. … In 2014, demand for OPEC crude is forecast at 29.6
mb/d, a drop of 0.4 mb/d from last year.
The report also painted a clear picture of the global economy when it
stated, “Recent signs point at a continued acceleration in the OECD
economies, driven by improvements in North America as well as the UK,
while the Euro-zone continues its fragile recovery and Japan is starting
to adjust its stretched fiscal situation. As a result, growth in the
OECD is forecast to improve from 1.2per cent in 2013 to 1.9per cent in
2014.
It maintained that recent developments in China indicate growth
remaining stable at 7.8per cent in 2014, the same level as in the
previous year. For India, the economy is seen benefiting from the global
momentum and re-emerging investments, which may lift growth to 5.6per
cent this year from 4.7per cent in 2013. Global growth remains unchanged
at 3.5per cent in 2014 compared to 2.9per cent in 2013.
The report added, “Further advances throughout the year could be
possible, but some downside risk remains. The main challenges to global
economic growth in 2014 come from the risk of unexpected monetary
tightening in key economies, the ongoing fragility of the Euro-zone’s
recovery, the degree to which Japan is able to stimulate its economy
given its sovereign debt situation, emerging economies ability to
overcome structural issues, the risk of deflation in selected OECD
economies and potentially re-emerging geopolitical tensions in various
regions.”
The latest oil movements stated that OPEC is set to reduce shipment
following a reduction in the demand for oil. It stated that the
reduction will take place in February, 2014 as western demand falls with
the end of winter in the northern hemisphere.
The report has it that the cartel which suppliers about 40 percent of
the world’s oil will reduce sailings by 90,000 barrels a day, or 0.4
percent, to 23.72 million barrels in the four weeks to Feb. 15, 2014.
The report stated that global oil demand typically falls toward the end
of the first quarter with the end of winter in the northern hemisphere.
Middle Eastern exports will decline by 1 percent to 17.28 million
barrels a day in the month to Feb. 15, compared with 17.46 million in
the previous period, Oil Movements said. It stated that crude on board
tankers will drop 2.8 percent to 472.93 million barrels through Feb. 15
from 486.39 million in the previous period.
However, stakeholders, especially the National Assembly should not
limit their works to making changes in the 2014 budget. Concerted
efforts should be made to create to create a suitable environment for
its implementation. Specifically, the legislators should go beyond mere
pronouncements to passing the PIB into law. This is desirable in order
to attract serious operators into business, reposition the oil and gas
industry on the path of sustainable development and generate more
foreign exchange for future budget execution.
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