Oil Prices Rise To $39, Beat Budget Benchmark Of $38

Global crude oil prices finally surpassed Nigeria’s budgetary benchmark, yesterday, trading above $39 per barrels.

This came as experts on the economy have cautioned the Federal Government to be frugal with the revenue accruing from the rise in oil price, so as to steer the country from the current economic downturn.

The price of Brent crude, the global oil benchmark, rose to an all-year high of $39.50 on yesterday, from $27.10 on January 20, the lowest for Brent in 2016.

The price of Nigeria’s crude has not been quoted by the Central Bank of Nigeria (CBN), but sources say the price may surge to the budget benchmark region of $38.

Nigeria’s 2016 budget was benchmarked at $38 per barrel against major criticism across the nation, following December 2015 prices of about $34 per barrel.

Experts caution Wilifred Iyiegbuniwe, professor of finance at the University of Lagos, said though the increase will have a positive impact because the inflow of foreign currency will improve, the benchmark should not be reviewed.

He said: “Any recovery of the oil proceeds should go to a special fund. The economic team and the Federal Government should determine what should be done with it.

“Such excess revenue should be used to diversify the economy into such areas as agriculture, solid minerals and manufacturing. However, the benchmark should not be reviewed.”

Also, Henry Boyo, an economist, said: “What happened every time the price was high above the benchmark? Was there greater employment? Was there relief in exchange rate? Was there improved productivity? We should think collectively as Nigerians, who are stakeholders in the polity.”

Udoma Udo Udoma, Minister for National Planning, had initially said low crude oil prices would not affect the 2016 budget, insisting that the budget is achievable.

“Our budget is achievable; we have ongoing reforms targeted at diversifying our revenue base away from single oil commodity economy,” Udoma said in January.

A week ago, Udoma said the country may have to review the budget benchmark as early as June, based on the recurrently low crude oil prices.

“The benchmark of $38 per barrel of price of oil is not sacrosanct because of the subsisting global environment,” he had said.

“If at mid-year there is no improvement, we will come back to you for mid-term review. The review may come as quickly as June this year.”

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NNPC Asks FG To Stop Fixing Prices Of Fuel

The fixing of petroleum products’ prices is denying the country investment in the downstream sector of the oil and gas industry and depriving Nigerians certain benefits from the country’s petroleum resources, industry stakeholders said on Thursday.

The Federal Government currently regulates the prices of Premium Motor Spirit, otherwise known as petrol, and kerosene, and subsidises their prices to enable Nigerians to get the products at the regulated prices.

The regulated price of petrol is currently N87 per litre while that of kerosene is N50 per litre. But the products are sold above the regulated prices in parts of the country, despite government’s subsidy.

The Group Managing Director, Nigerian National Petroleum Corporation, Dr. Emmanuel Kachikwu, in his address at the National Association of Energy Correspondents’ conference in Lagos, said, “Subsidy creates distortions in government revenue distribution as a result of round-tripping and unnecessary carry-over of expenditures every year in a way that is difficult for government to control or sustain.”

He noted that subsidy accounted for 20 per cent of the Federal Government budget in 2013.

Kachikwu, who was represented by the acting Managing Director, National Engineering and Technical Company Ltd, Mrs. Bola Ashafa, said, “Deregulation policy is essential to the transformation and growth of the downstream sector of the oil and gas industry.

“Speedy implementation of this policy in Nigeria would go a long way in encouraging inflow of private sector and international investment; ensure that Nigerians derive fair deal from the abundant petroleum resources in the country through fair product prices for consumers and full cost recovery and reasonable margins for operators.”

He said the implementation of the policy would entrench efficiency in product usage; product availability and effective competition among investors, hence putting an end to product shortage.

He, however, said critical enablers such as security of the product and distribution infrastructure must be assured to guarantee the availability of the petroleum products at affordable prices.

The NNPC boss said, “We are fully committed to reforming the existing refineries and boosting domestic petroleum product supply. Currently all the refineries have been re-streamed but are yet to attain optimal capacity.

“Removal of price control mechanisms is deemed imperative to ensure full growth of the sub-sector by allowing private stakeholders to complement the government efforts in developing the industry.”

He said the NNPC would continue to maintain stability in the supply and distribution of petroleum products nationwide to avoid energy crisis.

According to him, the corporation has enough stock of petrol to service the country for 25 days at a national consumption rate of about 40 million litres per day.

“Unfortunately, the stock is not immediately available across the 21 depots in view of the challenges facing the distribution pipelines facilities,” he said.

The Chairman and Managing Director, Mobil Oil Nigeria Plc, Mr. Tunji Oyebanji, said, “What we are talking about is deregulation of the prices; for the prices to be determined by market forces,” but that “there has to be government regulation in terms of standard and quality.”

He noted that there was a time in the country where prices were not fixed by the government.

According to Oyebanji, the lack of full deregulation generates uncompetitive climate and lack of investment and innovation.

He said, “We are looking for a sustainable industry where pricing is liberalised, leading to steady supply, increased profitability, large-scale investment in refineries, increased competition, and an industry where technology plays a role. But currently there is no incentive.”

He said the government had yet to pay them their subsidy arrears.

On his part, the Director-General, Lagos Chamber of Commerce and Industry, Mr. Muda Yusuf, decried what be called the absence of clear policy direction from the government with respect to the oil and gas industry.

According to him, there are people who want to invest in the industry but who are being discouraged by lack of a clear policy direction.

“It is important that we quickly deregulate the downstream sector to attract investment,” Yusuf said.

The Managing Director, NIPCO Plc, Mr. Venkataraman Venkatapathy, said the move from a regulated market to deregulation should be done in a phased manner, adding, “We must take a holistic approach rather than one pre-determined solution.”

The President, Petroleum and Natural Gas Senior Staff Association of Nigeria, Comrade Francis Johnson, said, “As a labour union, we are not averse to deregulation but that the focus of deregulation should be based on local production rather than importation.

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Drought in Northern Nigeria and Stability of Food Prices in Nigeria in 2015

Drought is generally referred to as a delay in the onset of rain or its conditions. Technically, drought is an extended period when a region receives a deficiency in its water supply whether atmospheric, surface or ground water (Wikipedia 2015).

Experts have argued that although droughts can persist for several years, even a short intense drought can cause significant damage. A drought may occur for a myriad of reasons, however a common factor which causes drought is a consistently below average precipitation or rainfall.

Over the years a consistent shift in the climatic and weather conditions in Nigeria and particularly northern Nigeria has become noticeable. This may be attributed to the general change in the global climatic conditions as a result of global warming. For instance, the onset of the rainy season on the average is often expected to commence in Northern Nigeria between late March and April, but the current weather conditions shows a deviation from this trend particularly in 2015.

The implication of this on the general price stability and even availability of food/agricultural products in the entire country can be predicted. This is consequent upon the fact that the geographical Northern region of Nigeria to a large extent is the ecological zone were vegetable crops such as tomatoes, pepper, spinach, carrots and others are grown. Cereals/grains such as maize, rice, beans, sorghum and others are also exensively cultivated within this ecological zone.

The type of agriculture practised in this zone is still to a large extent rain fed or rain dependent. Hence it is important for policy makers to take note of the positive corelation between annual rainfall and annual crop yield within this ecological zone.

Its trite to repeat that most of the crops within this zone constitute the staple diet for most Nigerians. Hence as the year progresses, it might not be unusual to begin to notice a mismatch between crop (food) demand and crop (food) supply in the country as a result of the current drought conditions being faced. This in the long run is expected to lead to an increase in prices of food stuffs because the supply might not match or meet the demand for food stuffs.

This emerging or anticipated scenario calls for a concerted, integrated and proactive approach on the part of policy makers in this important sector. Because as we know, food is indeed a strategic issue
of national interest.

Babs Iwalewa
@babsiwalewa (twitter)

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