Oil benchmark battle may delay 2013 budget

The dispute over the oil benchmark for the 2013 budget may soon snowball into a big fight that could delay the passage and implementation of the budget.

President Goodluck Jonathan had presented the budget proposals to a joint session of the National Assembly explaining that his proposed $75 benchmark was expedient. The Senate had increased the benchmark to $78, arguing that the new benchmark would help government to reduce deficit and domestic borrowing, and increase spending. The House of Representatives insisted that it would not back down from its demand that the benchmark should be $80 per barrel of crude oil.

The aggregate value of the 2013 budget is N4.9tn. Out of the figure, N2.4tn is for recurrent expenditure. The sum of N1.5tn was voted for capital projects, while N591.7bn was earmarked for debt servicing. The balance of N380bn was set aside for statutory transfers.

Budget 2013: Oil benchmark pegged at $75

The Federal Government pegged oil benchmark price for $75 per barrel of crude oil in the 2013 budget proposal. This according to the Minister of Finance, Dr. Ngozi Okonjo-Iweala would shore up the economy and make for macroeconomic stability. Okonjo-Iweala, who spoke to journalists shortly after the presentation of the 2013 budget proposals to the National Assembly by President Goodluck Jonathan said $75 was the sensible price to fix the benchmark.

The National Assembly, however, is insisting on a benchmark of $80 per barrel, after backing down from $85 that its joint committee had earlier recommended. The minister said the budget was predicated on the assumption that the country would produce 2.53 million barrels of crude oil daily. According to her, another reason that makes the $75 benchmark attractive to the Executive arm of government is the need to ensure prudent management of finances.

Budget 2012: Oil production below projection

The Central Bank of Nigeria’s 2012 Q2 report has revealed that the volume of oil pumped in the second quarter of 2012 fell below the projected volume stipulated in this year’s budget. According to the CBN, Nigeria pumped 2.12 million barrels per day of oil in Q2, a volume that was  16.98 per cent below  the 2.48 million bpd,  which the government had projected in this year’s budget.

The report, which was published on the bank’s website, noted that oil production had risen from an average of 2.06 million bpd in the first quarter.

If the current figures by the apex bank are correct, then Nigeria may have to increase its output in the second half of the year to fund all the spending in this year’s budget without taking on more debt or lowering its oil savings rate.

The benchmark oil price in the budget was $72 a barrel, well below the market price and above which Nigeria is supposed to save extra revenues in the Excess Crude Account. But if production fails to meet projections, government will need to take more money back from the ECA to meet the shortfall.

The Nigerian National Petroleum Corporation said last month that crude oil production reached an all-time high of 2.7 million bpd. But industry experts have questioned these figures, which are at the top end of Nigeria’s capacity and come during a period when oil theft by criminal gangs was at record highs. The CBN’s oil output data usually comes in lower than figures from the NNPC and the oil ministry, who both have an interest in showing progress in the industry’s performance, although they also have the best access to the data.

Subsidy Fraud now N388.5 billion, 4 more firms indicted

The Presidential Committee on Verification and Reconciliation of Fuel Subsidy Payments has increased the number of companies indicted in its probe to 25 from an earlier 21. The four new companies indicted by the committee for a total sum of N6.49 billion, are Capital Oil Plc, Ceoti Limited, Heyden Petroleum and Master Energy Oil and Gas limited. This brings the total new fraudulent subsidy claims amount by the 25 indicted companies to N388.49 billion. This was contained in a letter written to President Goodluck Jonathan, by the chairman of the Committee, Aigboje Aig-Imoukhuede.

Twenty-one oil-marketing companies and importers had earlier been indicted by the committee, for making fraudulent subsidy claims which might have cost the nation N382 billion, out of the N403 billion verified by the Presidential Committee on Verification and Reconciliation of Fuel Subsidy Payments. The 21 companies earlier indicted by the committee are Conoil Plc, MRS Oil and Gas Ltd., Capital Oil and Gas Industry Ltd. Aluminnur Resources Ltd., Brilla Energy Ltd., Caades Oil and Gas Ltd., Downstream Energy Source Ltd., Eterna Plc and Eurafric Oil and Gas Ltd. Others are Lumen Skies Ltd., Majope Investment Ltd., Matrix Energy Ltd., Menon Oil and Gas Ltd., MOB International Services, Nasaman Oil Services Ltd., Natacel Petroleum Ltd., Ocean Energy Trading and Services, Pinnacle Contractors Ltd., Sifax Oil and Gas Company, Tonique Oil Services Ltd. and Top Oil and Gas Development Company Ltd.

The Federal Government has already spent N493.67 billion on fuel subsidy claims this year, with N451 billion out of the amount used, to settle the 2011 arrears. A total of N888 billion was earmarked for subsidy payments in the 2012 budget.