Why $31m daily oil windfall may not benefit Nigerians

Nigerians may not benefit from the higher oil revenue the country is making due to the rising price caused by the raging face-off between the United States (U.S.) and Iran.

Based on yesterday’s Brent crude, the global benchmark, against which Nigerian crude oil is measured, the product gained 2.4 per cent to reach $71.34 per barrel. This is the first time prices have hit that amount in more than six months, and the country is already experiencing a windfall of about $31.26 million daily.

This means that the 2020 budget plan is now riding on over $14 excess crude oil price benchmark, going by $57 per barrel multiplied by the 2.18 million barrels per day (mbpd) approved for the year.

While the escalating tensions last and the price is sustained at the current level, the country would be gaining $31.26 million daily and capable of accreting more than $1 billion in a year, assuming that production estimate is maintained.

Still, some experts have expressed worry that the development may not really bring immediate relief to the country’s 2020 deficit plans put at about N2.3 trillion amid uncertain revenue projections, as the budget is already on auto-mode for borrowing.

This is because crude oil earnings above the budget benchmark are first pooled to the Excess Crude Account (ECA), and subjected to the protocols of the federal and sub-national before arriving at a decision. This again depends on the whims of the executive.

Besides, Nigerians may not benefit from the rising oil prices as experienced in the past have shown that even at above $140, the country still could not achieve something substantial with the oil price windfall, in terms of infrastructure development, and the money ended up mostly in private pockets.

In addition, as an import-dependent nation, especially of refined petroleum products, part of the gains from the current oil price hike will be lost to subsidy payments through higher landing cost.

As a result, analysts differ over expectations of a limited response that won’t significantly disrupt crude supplies, keeping a hold on oil prices, also an indication that Nigeria’s expected windfall may not last.

Already, the subsidy on Premium Motor Spirit (PMS), popularly known as petrol, has risen to N49 per litre as the expected open market price of the commodity hit N182.28 at the weekend, according to the latest data from the Petroleum Products Pricing Regulatory Agency (PPPRA).

The ex-depot price for collection of petrol, as captured in the templates, remained at N133.28 per litre, indicating that the Nigerian National Petroleum Corporation (NNPC) subsidised the commodity by an average of N49 per litre during the review period.

A fiscal governance expert, Eze Onyekpere, said the excess oil revenue could be used to finance supplementary budget if need be; reduce the level of borrowing and fiscal deficit; and increase foreign inflow.

“If only the excess inflows can be accounted for, it would benefit the country. As it is now, anything can happen with the public fund and you can only know what you are told. It is needless and too early for high hopes,” he said.

Oil prices have risen significantly since last Friday, after Qasem Soleimani, a top Iranian commander, was killed in a U.S. strike ordered by President Donald Trump. The killing may escalate tensions in the Middle East, which is home to major oil-producing countries, and a key energy supply route.

An economist with FSDH Merchant Bank Limited, Ayodele Akinwunmi, said the development, “though benefitting us financially now, is a cause for worry, particularly for the global economy, which may also revolve round to negatively affect us.
“Nigeria, for me, would be better off with improved productivity, than the influenced price of a commodity that we do not have control over. That is what the government said they wanted to wean the economy off. For the moment, the government should use the opportunity to strengthen its transparency and commitment to fiscal responsibility. There is the need to build buffers now, such that when the windfall is over, we can fall back on the savings.”

“This is an opportunity to channel the excess resources to priority projects, especially the implementation of the infrastructure investments in the budget,” he added.