Mixed reactions have begin to trail the 2017 budget presented by President Buhari. The budget statement that no provision was made for Joint Venture, JV, cash calls from January, 2017, Chambers Oyibo, former Group Managing Director of Nigerian National Petroleum Corporation, NNPC, said it is in line with what the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, earlier stated about having alternative funding.
Oyibo, who is also Chairman, Prime Energy Resources Limited, said: “It is in line with what the Minister of State said earlier that there should be alternative means of funding in the sector. In fact, he talked about having incremental production agreement with the international oil companies, IOCs. The idea is to fast-tract the funding mechanism such that it does not have to go through the National Assembly for approval.
“As regards predicating the budget on oil price of $42.5 per dollar, I think it is realistic, based on the agreement reached between OPEC and non-OPEC members recently,” he added.
Dolapo Oni, Head Energy Research, Ecobank Development Company Limited, believes that the signing of the agreement with the IOCs, will ensure that Nigeria has no more cash call liabilities. According to him, “there’s a small payment that’s meant to be made first, I believe that must have been included in the budget to ensure the deal goes on. However, I believe it is a good deal for Nigeria to have the JVs able to self-fund and raise capital for their businesses. However, don’t forget we could potentially find that we earn lesser from our oil as the new structure will ensure that funding of repayment and future capital expenditure have first claim on revenues unlike before when we just get all the revenues.
President Muhammadu Buhari (M) presents the 2017 National Budget to a joint session of the National Assembly at the National Assembly Complex in Abuja on Wednesday.
On the budget assumptions, Oni said he had no issues with the oil price assumption. “However, I am concerned about the oil production assumptions. We are yet to fully resolve the issues in the Niger Delta. They still require urgent attention and conclusion of negotiations. We also need to invest more money for secondary recovery on many of our fields and bring more fields on-stream to reverse natural decline due to maturing fields aside the militancy problem.
“I also believe the exchange rate assumption of N305 may not truly reflect the real value of the Naira, going by rates in the parallel market or other financial markets. The argument of the parallel market not representing the real value of the Naira could be countered by the argument of how much volume now flows in the two markets. Thus, while it means we underestimate dollar earnings, it also means we are underestimating dollar expenses such as foreign loan repayments and the pressure of imports on our currency next year.
For the Chief Executive Officer, Community Energy Social Enterprise Limited, Patrick Tolani, the benchmark that is used is realistic taking into account the breakthrough that has been achieved on the production cut both by OPEC and Non-OPEC members.
“As a matter of fact, $45 per barrel could still have been a more appropriate benchmark; but I think at $42.5 per barrel, we can live with that conservative baseline. If the price goes up, the country can return to a regime whereby we start to save money in our Excess Crude Oil Account.”
Tolani continued: “My worry is definitely not much about the price; but the supply side of the equation. The handling of the Niger Delta problem continues to haunt us as a nation and if the elements in the region return to their destructive mode, then the expectations will become a mirage again.
“The question, therefore, is: Can we engage the Niger Delta in a more robust manner and also do concrete engagement in the area? Can the NNPC and the International Oil Companies be more serious about developing a Peace and Development Compact with the people? Can there be serious and genuine developmental strides taking place in the Nigeria Delta? That is the test we face and whether we will succeed or not depends on the level of sincerity of the government.”
As regards the projected oil production output of 2.2 million barrels per day, Tolani said: “We need to take into consideration that Nigeria might be asked to make a slight cut to achieve the OPEC and Non-OPEC production cut or production freeze. However, that is not so much the problem with Nigeria. The supply side of the equation is what should worry us most. At the international scene, we can see that Dr Ibe Kachikwu is pulling his weight; but are we doing enough locally? Are the International Oil Companies doing more to invest in the sector? Are we serious about the Petroleum Industry Bill (PIB) or whatever it has now become? The idea of Host Community Fund (HCF) is very encouraging, but we are not focusing on this bill and all other related legislation that can promote further investment into the sector.
Tolani who is also a Partner in the Law Firm, Vale Partners in Lagos, specializing in Energy Law, said: “Practice has shown that negotiation in the exploration for and exploitation of petroleum resources has typically resulted in four common types of contracts: Concession Agreements (CA), Joint Venture Contracts (JVC), Service Contracts (SC), and Production Sharing Agreements (PSA). “For each of these modules to work effectively, there must be a transparent system and when you talk of Joint Venture Contracts, both parties must be in control of the joint ventures.
“Cancellation of the JV partnerships might be a good idea and, of course, a way to admit failure. The other issue to look at is; Are the International Oil Companies in a position to cushion the effect of this development with respect to their cash-flow for existing projects? How do they treat existing Joint Venture contributions that government has failed to honour for some years now? My only fear is that the unilateral action on the part of the government might affect their operations. It is doubtful if they would lose much because government has actual honoured its obligations more in breach than in performance.”
Also reacting to the budget, Chief Executive Officer, Matrix Petro-Chem Limited, Dr. John Erinne said: “Benchmark price of $42.5/bbl looks sensible but the production level of 2.2m bbls/day sounds rather optimistic. The exchange rate of N305/ per dollar also points to a continued interest in an artificiality controlled exchange rate, which is unhelpful.”
He said that, it is clear that government can cope with the cash call responsibilities in the current JV arrangement, adding that, “a new model is, therefore, necessary and welcome. This must, however, be very well thought-out, for obvious reasons.
“The new arrangement being proposed is unfortunately not very clear yet and so is difficult to assess properly for now. Details need to be made available. For the long term, we must nevertheless seriously consider the option of incorporated JVs, with NNPC stake of less than 50 per cent as the enduring solution.”
Erinne explained that while the proposed funding mechanism could impact positively on the upstream petroleum operations, governmet must be cautious about the immediate derivable revenue to government and its ability to fund infrastructure development, in view of the attendant reduced commitment of government in funding the industry operations.
On his part, a renowned Petroleum Economist and President, Nigerian Association for Energy Economics, NAEE, Professor Wumi Iledare, said: “With respect to 2.2 million barrel daily, that is a little bit optimistic, in my opinion, if the price of oil should go in the range of $45 to $60 over the next year.
“If you look at the cost today in general, it is about $28 and 50 cent per barrel to almost $30 to $32 per barrel. Some of the capacity that can be able to sustain what it is asking for, is not going to happen. And then of course the capacity from the western Niger delta delusion because of some of the vandalism, also have some implications.
“In my opinion, I think that it’s highly optimistic going to have 2.2million barrel per day, when our current capacity is about 2.5 to 2.6. Assuming we have no vandalism, what we have been able to do is 2.5 to 2.6 million barrels per day. At 2.2 to 2.5 distributions, that is almost ninety percent capacity of 2.6mbpd, i think that is highly optimistic.
“But what I wish the government could do more is to put emphasis on what they are highly certain of and not all the optimistic values that are possibility. There is difference between possibility and not plausible.
Reacting to the 2017 budget where the Ministry of Education is expected to get N398.01billion in the recurrent expenditure, the Chairman of Academic Staff Union of Universities, University of Lagos chapter, Dr Laja Odukoya, described the education budget as budget of hatred for the sector.
He said: “Clearly this government has a pathological hatred for knowledge and education. What other evidence do we need to confirm that the government is not willing, ready nor capable of resolving the crisis in the education sector.
‘’A government in deficit to the tune of N800 billion to universities for NEED assessment revitalization funds and over N60 billion as Earned Academic Allowances to lecturers budgeting a N398.01 b for the whole education sector should not be taken serious. Am afraid, there is crisis ahead.’’
On his part, the Deputy Director, Distance Learning Centre, University of Ibadan, Prof Oyesoji Aremu lamented that education has not been given adequate attention in the budget every year.
He said: ‘’Generally, education sector has not been receiving the desired budgetary allocation in Nigeria annually. As a matter of fact, it is always below the UN benchmark of 26 %. What this portends is that the sector is again, underfunded.
‘’While one would be somehow cautious on this, given the state of economy and the fallen crude oil price in the international market, the fact remains that education sector should be accorded greater attention in budgetary allocation as obtains in less privileged African countries.
‘’It goes without saying therefore, that implications of the current budgetary allocation to the sector would rub up negatively in terms of overhead cost and infrastructural attention. Where these persist, it is the quality of education services that would be compromised.”
The President of Senate, Dr. Bukola Saraki, told President Buhari that there was much suffering across the country and that he should make solving the current economic hardship his priority.
He spoke at the 2017 Appropriation Bill presentation by the president at a Joint Session of the National Assembly, in Abuja.
According to Saraki, nothing else mattered to the suffering Nigerians who had put their fates in the hands of those currently in government than justifying the confidence reposed in them.
His words: “Mr. President, the feedback we get from our visits to our constituencies is that there is hardship in the land. We can see it. We can feel it. This recession, therefore, commands all of us as government to greater essence of urgency.
“We cannot work magic, we must continue to work the talk. Our people must see that the singular preoccupation of government is to search for solution for the current economic hardship and the commitment to ease their burden. They don’t want to know what political party you belong or the language you speak or the God you worship.
“They have trusted their fate in our hands and they need us now more than ever before to justify that trust they have reposed on us. The people of Nigeria will pardon us if we do something wrong but they will not forgive us if we do nothing.
“And that is why Mr. President, with the two chambers, have taken their position, whatever may be our differences, our opinions on the issues of the economy, we will work with one common purpose for this reason.
“I wish to reassure the President that the National Assembly will continue to seek opportunities to deepen this relationship because we are convinced that it is only by working together closely that our country can make the progress that we desire.
“It is in times like this, when we are challenged from all sides, that we need to develop new friendship, new relationships and cultivate more friends. No one can clap with one hand and expect to be heard. This is the time when compromise, engagement is too necessary for successful collaboration and corporation.”
“This is why I am encouraged that Mr. President continues with his engagement plan across all sectors of stakeholders in the country particularly with our brothers in the Niger Delta and other parts of the country where stability is a part in our collective economic and security aspiration.
“Mr President you could remember in 2015, I made a clarion call while receiving your Excellency budget for that the 2016 budget needed to be bold and pragmatic to drive local production and promote made in Nigeria goods.
“Today permit me, your Excellency to reiterate this call, the only way we can cut down on our foreign exchange needs is to create jobs, and stimulate entrepreneurship in this country is to promote local manufacturing investment.
“And this is why the National Assembly injected the made-in-Nigeria amendment into the Public procurement Act and we are expecting that with your leadership, we will achieve even much more in this area.
“It is the hope of the National Assembly that the 2017 budget will continue to proactively pursue this policy objective.
Dr. Saraki said that the NASS has listed 11 Economic Reform Bills for passage and that the federal legislature would pass these Bills along the 2017 Appropriation Bill.
“We believe that the core elements of these Bills require that private capital be introduced into our economy and that “in the thinking of the 8th National Assembly, our economy can no longer rely on the public sector alone to get us out of recession. It is therefore critical that we mainstream private business and investment economy.
“To achieve this we must make it much easier and efficient for people to invest and do business in our country.”