Russia/Ukraine: Nigeria records over $5.6bn revenue shortfall despite rising oil prices

By Akin Irede
Posted on Thursday, 30 June 2022 10:45

A member of the task force on illegal crude oil bunkering and artisanal refinery takes part in the destruction of Bakana ii camp in Okrika
A member of the task force on illegal crude oil bunkering and artisanal refinery takes part in the destruction of Bakana ii camp, in Okrika, Rivers state, Nigeria January 28, 2022. Picture taken January 28, 2022. REUTERS/Afolabi Sotunde

Africa’s largest oil producer ought to be benefitting rising oil prices caused by the Russia/Ukraine conflict. But Nigeria has lost over $5.6bn in projected revenue since oil prices rose in late February.

When Russia invaded Ukraine on 24 February 2022, oil prices went through the roof. The price of Brent crude has remained at an average of $108 per barrel since early March.

For many, it presented the opportunity for oil-based economies like Nigeria to recover from the huge losses incurred at the height of the Covid-19 pandemic where oil prices hit a 17-year low of $23 per barrel.

However, despite the rising price of crude oil caused by the Russian war, Nigeria has not been able to fully make any gains. Africa’s largest economy has not been able to meet its daily oil production quota set by the Organisation of Petroleum Exporting Countries (OPEC). Data from OPEC shows that Nigeria has the highest deficit among all oil producing countries in the world.

Nigeria only managed to pump 1.238 million barrels per day in March despite its fixed 1.718 million barrels per day production quota from OPEC. This is a deficit of 480,000 barrels per day and 14.88 million barrels for the 31 days of March. With oil price at an average of $117.25 per barrel in March, Nigeria lost a projected $1.74bn in March alone.

What we need to do is to urgently address the problem of insecurity in the oil-producing areas. From all indications, oil theft is a big conspiracy among some key actors including security operatives because the scale of theft being reported cannot be done by small people.

Nigeria’s quota for the month of April was 1.735 million barrels per day. With oil prices averaging $104.58 per barrel, Africa’s largest oil producer could have generated $5.44bn for the 30 days of April. However, the country generated about $3.82bn from the 1.219 million barrels per day, losing projected revenue of over $1.61bn.

In May, Nigeria sold about 1.024 million barrels per day as against the 1.753 million per day quota. With oil prices at an average of $103 per barrel, Nigeria lost possible revenue of $2.32bn.

From March to May, Nigeria lost combined projected oil revenue of $5.6bn.

Sabotage

Experts have blamed Nigeria’s inability to meet OPEC quota on the destruction of critical oil infrastructure including pipelines in the oil rich Niger Delta where an amnesty programme was introduced over a decade ago to appease militants protesting environmental pollution and exploitation.

But Nigeria has continued to record losses despite spending billions of dollars on reforming repentant militants and interventions in oil communities through the Niger Delta Development Commission which itself has been enmeshed in corruption in recent times.

According to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), the country lost over $1bn directly to oil theft between January and March this year alone. The Nigerian National Petroleum Company adds that the country loses an average of 200,000 barrels of crude per day to oil thieves.

“What we need to do is to urgently address the problem of insecurity in the oil-producing areas. From all indications, oil theft is a big conspiracy among some key actors including security operatives because the scale of theft being reported cannot be done by small people. It cannot happen secretly. There is a small cartel doing this. So, we need a very strong political will,” Muda Yusuf, a former Director-General of the Lagos Chamber of Commerce and Industry, tells The Africa Report.

Subsidy palaver

Apart from the direct economic sabotage, Nigeria’s national oil company has not been able to remit any money into the government account this year because it spends over $23.8m daily on the payment of petroleum subsidy, a development which the World Bank has described as dangerous. The IMF estimates that subsidy payments could hit $11.9bn this year.

Despite signing the Petroleum Industry Act which stipulates the end to subsidy payment, President Muhammadu Buhari has refused to remove the subsidy, insisting that it protects Nigerians from high fuel cost. However, critics say Buhari’s decision is more political than economic as removing the subsidy ahead of a crucial Presidential election could spell doom for the ruling All Progressives Congress (APC).

With Nigeria importing all its refined products due to the absence of functioning refineries, the country now spends almost all the money from its oil proceeds subsidising petrol. Worse still, the opaque system of subsidy payment has seen public funds end up in private pockets.

“The subsidy one is also a tricky issue. The burden of subsidy is increasing. The oil prices are expected to remain high which means subsidy will remain high. What makes matters worse is that our daily domestic consumption seems to increase when oil price and subsidy are higher. There is no way Nigeria consumes 90 million litres a day. A portion of this is smuggled to neighbouring countries. This means Nigeria is subsidising its neighbours,” says Yusuf, who now heads the Centre for the Promotion of Private Enterprise

Drowning in debt

Nigeria’s total public debt stock comprising the debt obligations is around about $100.07bn, according to the country’s Debt Management Office. While Nigeria’s debt to GDP ratio remains relatively low at 22.47% as opposed to the 55% limit prescribed by the World Bank and the IMF for developing countries, the country’s debt to revenue ratio has remained relatively high, hitting almost 90% in 2021. This has remained a hot topic of discussion in the country ahead of a crucial election that takes place in less than eight months.

Nigeria was producing 2.2 million barrels per day. You would think Nigeria’s capacity would have increased but the opposite is the case.

Despite the debt problem, the Nigerian government plans to draw $2.2bn from the Eurobond it issued last September, and add to the proceeds of fresh domestic borrowing this year to fund subsidy payments, says Zainab Ahmed, the country’s finance minister.

“Rising oil prices has put us in a very precarious position … because we import refined products … and it means that our subsidy cost is really increasing,” Ahmed was quoted by Reuters as saying back in March.

Seun Onigbinde, co-founder of BudgIT, a think tank which monitors the flow of public funds and advocates public sector accountability, tells The Africa Report that Nigeria’s inability to exploit the rising oil prices stems from decades of corruption and decay in oil infrastructure.

Onigbinde adds: “Nigeria was producing 2.2 million barrels per day. You would think Nigeria’s capacity would have increased but the opposite is the case. There is no reason why Nigeria shouldn’t take advantage of this Russia situation.

“Why can’t we secure pipelines? Oil prices are high and the local currency is getting weaker. This defies economics. Clearly, there is no more governance in Nigeria.”

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