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Budget: FG slashes projected oil revenue by N1tn

By on December 25, 2014

The intense pressure on oil global oil prices may have forced the Federal Government to scale down the projected oil and gas revenue for 2015 by N1.1tn to N6.05tn from N7.16tn approved in this year’s budget.

The drop in projected revenue is contained in a document entitled: ‘Analysis of the 2015 FGN budget’ prepared by the Director-General, Budget Office of the Federation, Dr. Bright Okogu.

The N6.05tn projected oil and gas revenue is N777bn lower than the N6.83tn initially provided for in the Medium Term Expenditure Framework when the oil benchmark for the budget was pegged at $73 per barrel.

A copy of the document, which was obtained in Abuja by our correspondent on Tuesday, showed that the cut in oil revenue was one of the adjustments made to the budget proposal in the light of current economic realities.

Another adjustment, according to the document, is the reduction of subsidy budget on petrol and kerosene by N680bn to N291.03bn from N971bn in 2014.

According to the document, while the sum of N200bn is projected to be paid for subsidy on petrol, that of kerosene is estimated to gulp N91.03bn.

The 2015 subsidy budget of N291.03bn is N167bn lower than the N458bn, which the Minister of Finance, Dr. Ngozi Okonjo-Iweala, had announced on November 27 when she first unveiled the austerity measures put in place by the government to deal with dwindling revenue from oil.

But Okogu, in his analysis, attributed the drop in the oil subsidy budget to the fact that declining international crude oil prices would reduce the landing cost and thus the implied subsidy.

The 2015 budget has an oil production figure of 2.27 million barrels per day, with a benchmark price of $65 per barrel and an exchange rate of N165 to a dollar.

Figures obtained from the website of the Organisation of Petroleum Exporting Countries on Tuesday put the price of crude oil at $56.90 per barrel.

But the Budget Office document stated that recent developments in the international oil market, including increasing global supplies, weakening demand in major economies as well as geo-political developments necessitated the review of the projected revenue.

For instance, it stated that while Saudi Arabia was interested in keeping its market share, thus prepared to allow prices to fall through the production of shale oil; Russia’s political standoff with the West as well as OPEC’s decision to sustain the current production levels were some of the external challenges facing the country.

It stated, “Intense pressure on oil price in recent weeks led to a careful re-consideration of the initial proposal vis-a-vis alternative scenarios, design and implementation of adjusted measures. A scenario-based approach was adopted. Scenarios of $60 to $75 were considered as oil price fell to around $80 per barrel, and recently to about $65 per barrel.

“Some key adjustments were made in the light of current realities, including provisions for subsidy. This is based on the fact that declining crude oil prices would reduce the landing cost and thus their implied subsidy.”

The document stated that while the proposed 2015 budget would be affected by oil price decline in the form of lower oil revenue, this had presented the country with an opportunity to reposition the economy from an oil dependent to a non-oil driven economy.

It said, “Nigeria is part of the global economy and, therefore, susceptible to developments in the rest of the world economy.

“The challenge is how we respond. The proposed 2015 budget will clearly be affected by the oil price decline in the form of lower oil revenue and, therefore, reduced expenditure and other forms of adjustments.”