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FG reviews oil benchmark to $65/bl, resubmits MTEF

By on December 5, 2014

Barely two weeks after it revised the 2015 budget oil benchmark price from $78 to $73, the federal government yesterday again resubmitted the 2015-2017 Medium Term Expenditure Framework (MTEF) with a revised oil benchmark of $65 a barrel, effectively slashing next year’s budget by another 12 per cent, in the face of dwindling oil prices.

Oil prices have fallen more than 30 per cent since June, although Light Brent crude rose 44 cents to $70.98 a barrel in yesterday’s trading, while the US’ West Texas Intermediate (WTI) rose by 67 cents to $67.55 a barrel.

Oil prices had tumbled by about $2 on Tuesday after Iraq announced plans to boost the country’s crude oil exports after striking a deal with the autonomous Kurdish region.

The Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, who disclosed the second revision of the 2015 budget benchmark in an interview with THISDAY Tuesday night, said the new benchmark price of $65 per barrel had been approved by President Goodluck Jonathan and a revised expenditure framework for the next three years was resubmitted on Wednesday to the parliament for its approval.

The minister said: “If you recall, I had said as recently as three, four days ago that we have a central scenario of a reduced budget benchmark of $73 because we talked to a lot of analysts. We got ranges of $60 to $85. And so, we took a mid-point and that was how we arrived at $73.

“But we have always been clear that the price could certainly fall lower, and that’s why we took this scenario-based approach. I have said openly that we have done scenarios around $70, we’ve done $65, we’ve done $60, and we will kick those scenarios in as the situation evolves.

“So, yes, we have looked at it and we decided that we are going to propose a lower benchmark than what we have. Mr. President has approved a price of $65 a barrel and we are sending a new MTEF to the National Assembly tomorrow (yesterday).

She explained the revision was nothing new, as her ministry and the budget office had considered a number of scenarios, adding: “As soon as we look at the situation, we kick the appropriate scenario in. We have been prepared, that’s why the turnaround has not been that long.”

On whether the revised MTEF will not delay the passage of next year’s budget with the elections around the corner, the minister said the National Assembly deserved commendation because of their collaborative disposition, adding that everyone was aware of the situation in the country and expressed optimism that the legislature would be cooperative.

“You recall that the other time when we had to revise, they were quite understanding and asked us to submit it. Similarly, what we are doing is that we’ve not been waiting to execute.

“To take the kind of approach we took, it means we were already preparing the budget… So we are hoping to send the budget to the National Assembly pretty soon,” she said.

The minister, who had recently announced a cocktail of measures to stem the shocks to the economy arising from the drop in the prices of oil, said as part of efforts to further boost revenue, the president recently personally met with the heads of the revenue generating agencies in the country, where he read the riot act to them.

According to her, the president did not mince words in telling them to sit up and deliver on their mandates by remitting 25 per cent of their revenues to the Consolidated Revenue Fund (CRF), and where they are unable to do so, they would get fired.

The minister said: “The agencies have been given targets as part of measures to boost revenue for the economy. They have been mandated to deliver 25 per cent of their gross revenues to the Consolidated Revenue Fund as opposed to the past practice of their net revenue.”

She added that the federal government would be liaising with the Central Bank of Nigeria (CBN) and commercial banks to monitor the revenue streams of the revenue-generating agencies to prevent them from reducing their remittances.

In June last year, the minister had mandated the Office of the Accountant General of the Federation to close the accounts of all federal agencies, which generated independent revenue totalling about N58 billion but had refused to remit the funds to the CRF, in contravention of the law.

Following that directive, about N34 billion was recovered barely two weeks later.

Okonjo-Iweala explained that this time her ministry intends to be serious about enforcing compliance by ensuring that all funds due to the CRF are paid by the relevant agencies of government.

On the need for the Nigerian National Petroleum Corporation (NNPC) to seek alternative markets other than China and India for Nigeria’s crude oil, the minister said NNPC and the Ministry of Petroleum Resources were already doing so, but insisted that the technicalities of finding new markets were not under her purview.

In a related development, the Petroleum Minister, Mrs. Diezani Alison-Madueke, has said that Nigeria needs to develop a new strategy to stay competitive in the dwindling crude oil market.

Alison-Madueke, who was elected President of the Organisation of Petroleum Exporting Countries (OPEC) last week, made the remark while speaking to State House correspondents yesterday, adding that the country could no longer afford to “do business as usual“ considering the prevailing decline in the global demand for the product.

“Nigeria has to become much more competitive at this time and going into the future. We cannot continue to do business as usual.

“We must ensure that we have the right enabling parameters and indices in this country to attract the right end user markets and end user demands for our products because there are so many other countries that would be competing for those end user markets to get that end user demand.

“So we will have to sit down and reformulate our entire approach immediately to make ourselves competitive in the market,” she said.

While acknowledging that the falling oil prices were proving to be a challenge for OPEC, she said the task before the cartel was to stabilise plummeting crude oil prices in the international market.

To that end, she said OPEC would watch the market closely and decide when it would convene an extraordinary meeting to consider the issues at stake.

“This is a very challenging time for OPEC and for the global crude oil sector wells as a whole.

“Quite clearly, there has been a battle of wills between certain OPEC countries – the big players, and certain non-OPEC countries who are big players in the world crude oil production markets at this time.

“So it is a challenging time to take over as OPEC president and our prayer of course is that we will be able to stabilise crude oil prices over this period because it is critical as many countries, both OPEC and non-OPEC are suffering immensely.

“Even as we speak, Venezuela has adopted austerity measures and is rationing food because the country is completely dependent on oil.

“Angola, Algeria, (and) Iran are all under duress, as is Nigeria, because (the fall in oil prices) has affected our budgetary benchmark. And even non-OPEC countries like Russia, which would not cut production, are already seeing a drop in the value of the rouble.

“And so we will be watching very closely, and as president of OPEC at this time, at what point we have to call OPEC extraordinary meeting and reconvene to see whether other strategies can be put into play,” Alison-Madueke stated.

On her recent election as OPEC president, Alison-Madueke gave the credit to President Goodluck Jonathan for his courage to appoint her Minister of Petroleum Resources.

“First of all it would not have happened if the president had not had the courage to appoint a woman as the Minister of Petroleum Resources, which meant that I now head the country’s delegation to OPEC.

“And I must say that that was quite a daunting thing, as three-and-a-half years ago, I went into a body which is completely male-dominated and mostly Arab-dominated as well.

“But I have found that they have come to respect me and respect Nigeria’s voice over the last three years in OPEC very highly,” she said.

Meanwhile, it has emerged that Saudi Arabia will only consider cutting oil production if other countries, including non-OPEC producer, Russia, joins in limits, former Saudi intelligence chief, Prince Turki bin Faisal has said.

“The Kingdom is not going to give up market share at this time for anybody and allow producers whether in Russia, Nigeria, Iran and other places to sell to Saudi customers because we cut our production,” Prince Turki was quoted by Reuters as stating during a visit to London yesterday.

“If there is a reasonably guaranteed oversight of production quotas – if they ever are agreed with and someone can definitively say there will never be under-the-table selling of the oil from these other countries – maybe then I think Saudi Arabia and other oil producers would be willing to cut down production,” he said.

“But we have tried that in the past and unfortunately other producers took advantage,” the prince added.

Prince Turki said the Kingdom had accumulated sufficient foreign reserves over recent years to finance requirements even if oil prices fell.

“I see no immediate crisis for Saudi Arabia in the coming couple of years or so,” he said.

 

[ThisDay]