Nigeria’s oil production slumped by 28 million barrels between January and July 2022, threatening the Federal Government’s N9.37tn oil and gas revenue target by the end of the year.

The Federal Government, in the 2023-2035 Medium Term Expenditure Framework & Fiscal Strategy Paper recently presented by the Minister of Finance, Budget and National Planning, Dr Zainab Ahmed, blamed oil production shut-ins due to pipeline vandalism, crude oil theft and high petrol subsidy cost.

Most industry experts who spoke with The PUNCH on Sunday also attributed the decline to oil theft, which appears to have defied solutions.

After posting a high crude oil production figure of 1.399 million barrels per day in January 2022, Nigeria’s production crashed to as low as 1.084mbpd in July.

By dropping from 1.399mbpd in January to 1.084mbpd in July, it means the country lost about 315,000 barrels of crude oil daily, amounting to 28.4 million barrels of oil during the six months interval.

Findings by our correspondent on Sunday from various monthly oil production reports of the Organisation of Petroleum Exporting Countries indicated that Nigeria actually stepped up its output from 1.197mbpd produced in December 2021 to 1.399mbpd in January 2022.

But this could not be sustained, as the country’s oil production commenced a descent in February, dropping to 1.258mbpd and crashed further in March to 1.238mbpd.

The plunge continued in April and May, as the country produced 1.219mbpd and 1.024mbpd in the respective months.

The country’s oil production moved up marginally in June, rising to 1.158mbpd, but this was short-lived, as it eventually dropped to 1.084mbpd in July this year.

OPEC explained that the crude oil production figures were based on direct communication. Data from the global oil group further showed how Nigeria’s quarterly oil production moved up from 1.26mbpd in the fourth quarter of 2021 to 1.299mbpd in the first quarter of this year.

But it dropped to 1.133mbpd in the second quarter of 2022, a development that operators in the sector and government officials repeatedly attributed to massive crude oil theft.

The Group Chief Executive Officer, Nigerian National Petroleum Company Limited, Mele Kyari, stated on Friday that the NNPC was partnering with security agencies and other stakeholders to tackle the menace.

The NNPC boss also cautioned refineries outside Nigeria that patronised dealers of stolen crude oil, insisting that the commodity was not refined in Nigeria due to the non-functional refineries across the country.

“We are also creating a platform where end-users, particularly refiners and traders, can validate if the crude they are handling from Nigeria is from genuine sources and whenever they have a non-validated product, they have an obligation to report to the necessary authorities in the world,” Kyari stated.

He added, “If they don’t do this, then the culprits are international. That means they are part of the ring and whenever we discover this, we will take necessary actions against such culprits.

“And I’m sure our partners will cooperate with us to make sure that this is done.”

This, according to Kyari, was because such massive oil theft could not succeed without international collaboration.

“It is impossible for any refinery to take crude oil that they don’t know its source. It is not possible,” he stated.

The NNPC helmsman added, “Refineries are designed to process a certain specific grade of crude. They know which crude they are processing. If it is from Nigeria, every refinery knows that it is from Nigeria.

“And it is their (refineries) duty to ensure that they validate this because we have a unique number for every cargo that leaves this country.”

Poor revenue performance

Despite claims by the Federal Government that it had initiated a number of revenue generation programmes, it failed to hit its oil and gas revenue target of N3.12tn for the first four months of the year.

The 2023-2035 Medium Term Expenditure Framework & Fiscal Strategy Paper recently presented by the Minister of Finance, Budget and National Planning, Dr Zainab Ahmed, showed that the government projected to make N9.37tn oil and gas revenue in 2022.

However, this seems unlikely now, as oil, which is Nigeria’s biggest revenue earner, is experiencing a dip in production, experts have said.

It was expected that between January and April, the government should have earned N3.12tn.

However, the government attained merely a 39 per cent performance as it generated only N1.23tn within the first four months of the year, failing to meet its target.

The document read in part, “The gross oil and gas federation revenue for the full year 2022 was projected at N9.37tn; as of April 30, 2022, N1.23tn was realised out of the prorata projection of N3.12tn, representing a mere 39 per cent performance.”

In the document, the government blamed the poor performance despite higher oil prices on oil production shut-ins due to pipeline vandalism, crude oil theft and high petrol subsidy cost.

Non-oil revenue

Non-oil revenue also failed to meet its target but had an average performance of 92.6 per cent.

The government further expressed hope that it would improve revenue performance as it claimed to be making concerted efforts to address the oil theft and pipeline vandalism.

The document also showed that the government looked to get more taxes in the next half of the year.

It read in part, “There is also seasonality to some of the non-oil taxes, which means that we expect to collect significantly more in the second half of the year.”

In 2020, the Federal Government initiated the Strategic Revenue Growth Initiative to boost revenue generation and sustainability.

Last year, the finance minister said that the government was working on the second phase of the SRGI to achieve a target revenue to Gross Domestic Product of 15 per cent by 2023.

Also, while presenting the 2022 budget last year, the finance minister admitted that the country was struggling with generating revenue.

She added that apart from the SRGI, the government was taking certain measures to ensure effective revenue measures.

The document read in part, “However, revenue currently remains our main fiscal challenge. The government remains committed to the effective implementation of the Strategic Revenue Growth Initiatives.

“In addition to the SRGI, we are leveraging technology and automation, plugging fiscal drainers and ensuring more effective Independent revenue monitoring.”

The finance minister also said that the government was planning to address revenue leakages by concluding the service-wide implementation of IPPIS, eliminating regressive subsidies on petrol price and electricity tariffs, as well as enforcing a cost-to-income ratio cap for government-owned enterprises.

However, the Federal Government has yet to remove subsidies on petrol, which have been a heavy fiscal burden on the government, draining its revenue.

In a recent The PUNCH report, it was disclosed that the cost of fuel subsidy was estimated to increase by 369.93 per cent from 2021 to 2023.

In 2021, the NNPC said fuel subsidy gulped N1.43tn, although there was no record for under-recovery in January.

The finance minister said that the Federal Government had projected to spend N6.72tn on petrol subsidy payments in 2023.

However, Ahmed noted that subsidy payment projection was based on two scenarios, with the first being spending an estimated N6.72tn for the entire year and the second, removing subsidies by June 2023, with the government spending N3.36tn rather than the full estimated N6.72tn.

She further noted that both scenarios had implications for net accretion to the federation account and projected deficit levels.

In January this year, the Federal Government ignored warnings from economists and multilateral agencies such as the World Bank and International Monetary Fund, deciding to retain the controversial fuel subsidies for another 18 months following threats of protests by the Nigerian Labour Congress and other interest groups.

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Also, despite other measures claimed to be made towards revenue generation, the government has still failed in meeting its revenue target.

It appears that this failure is driving the government towards accumulating more debts and introducing more taxes.

The Debt Management Office recently disclosed that Nigeria’s total public debt stock increased to N41.60tn in the first quarter of 2022, from N39.56tn as of December 2021, showing an increase of N2.04tn within a period of three months.

The PUNCH recently reported that the Federal Government’s total borrowing from the Central Bank of Nigeria through Ways and Means Advances rose from N17.46tn in December 2021 to N19.91tn in June 2022.

According to data from the CBN, this shows that the Federal Government borrowed N2.45tn from the apex bank within six months.

The N19.91tn owed to the apex bank by the Federal Government is not part of the country’s total public debt stock, which stood at N41.60tn as of March 2022.

The public debt stock only includes the debts of the Federal Government of Nigeria, the 36 state governments, and the Federal Capital Territory.

Ways and Means Advances is a loan facility through which the CBN finances the shortfalls in the government’s budget.

Aside from persistent borrowing, the government has also decided to introduce new taxes.

For instance, the government, through the Budget Office of the Federation, revealed that it would begin the implementation of its proposed excise duties on telecommunication services and beverages in 2023.

This is despite backlashes from the Minister of Communications and Digital Economy, Isa Pantami, and the Manufacturers Association of Nigeria.

This may mean that the country will not only suffer increasing debt services,  but Nigerians may also suffer the increasing cost of calls, data and beverages, amid rising inflation, which was at 18.6 per cent in June, according to the National Bureau of Statistics.

Nigeria’s current inflation is at its highest level in 65 months (over 5 years), and the fifth consecutive monthly rise.

Nigeria tottering

Commenting on the development, a former President, the Association of National Accountants of Nigeria, Dr Sam Nzekwe, said the continued plunge in oil production and Nigeria’s inability to meet its revenue target might eventually lead to bankruptcy.

He said, “The massive oil theft in the Niger Delta, which is on an industrial scale, has continued to stop Nigeria from meeting its OPEC production quota. The impact of this is very clear. The finance minister told you that the government was finding it difficult to meet its obligations because of a lack of funds.

“This is because your major source of revenue is not delivering, as banditry has stalled the progress in other sectors such as agriculture, etc. And despite this, the country’s expenses have continued to rise. So, as it is now, it seems Nigeria is crashing gradually.

“That is what it now looks like, because if you are not able to meet your obligations, you are talking of being bankrupt. We have to be very careful about this situation before we end up as a bankrupt nation.”

On the possible ways out of the current quagmire, Nzekwe stated that the first thing was to halt the continued slide in crude oil production by stopping its humongous theft.

He said, “The number one solution is for the government to make sure that the massive stealing of oil in the Niger Delta is stopped so that we can meet our crude oil export quota.

“Secondly, they should cut recurrent expenditure, it is too much. What the government is spending as recurrent expenses is just so high. We complain about lack of funds but about 80 per cent of the budget goes to recurrent expenditure. This should be reduced.”

Also speaking, a petroleum expert, Bala Zaka, stated that the operating environment in Nigeria’s oil and gas sector was too hostile and must be made conducive to investors.

He noted that many operators, such as international oil companies, were leaving the country because of the hostilities and massive oil theft in the industry and urged the government to deliver in terms of security.

“Nigeria gets about 80 per cent of its foreign exchange earnings from crude oil sales. What stops you from providing top-notch security to guard the oil production process and ensure that you get the required revenue from oil sales?” Zaka stated.

Crude oil production

Former Group Chairman/CEO, International Energy Services Limited, who holds a doctorate degree in Petroleum Process Economics from the University of Ibadan, Dr Diran Fawibe, said Nigeria’s continuous low crude oil production would have a significantly negative impact on the economy.

“What this means is that the country will have less to export and then less income too,” he said.

He advised the Federal Government to provide a medium-term solution on how to increase the country’s crude oil output.

On his part, Chairman, Society of Petroleum Engineers, SPE Nigeria Council, and a professor of Petroleum Engineering at the University of Benin, Olalekan Olafuyi, expressed displeasure at the slump in the country’s crude oil production. He blamed the low output on oil theft, adding that his group was already discussing with the Nigerian Maritime Administration and Safety Agency for possible solutions.

“We are already in talks with NIMASA to see how we can share with them the strategies that can be employed in monitoring production because crude oil theft is quite huge. Imagine the country losing 500, 000 barrels per day. One barrel is about 160 litres. One truck/tanker is 250 barrels. So, if you say we are losing about 500, 000 barrels, you can imagine that we are losing about 2,000 trucks every day. So, this is the job for the law enforcement agencies to handle.

“However, we will suggest a way out to the NIMASA DG, and we hope it will be taken into consideration, and oil theft will come to an end in the shortest time,” he said.

A Nigerian economist and professor of Economics and Public Policy at the University of Uyo, Akwa Ibom State, told The PUNCH that Nigeria needed to diversify its economy.

“Nigeria needs to diversify its revenue sources because oil revenue is no longer reliable. Oil prices are still volatile, and we need to think of other ways to boost revenue,” he said.

Salaries threaten

A political economist and former presidential candidate, Prof. Pat Utomi, said that the constant decline in oil production would hamper the government from meeting its revenue target this year.

According to Utomi, if the government failed to meet its target, there was a possibility that it would continue to owe contractors, squeeze the foreign exchange market, and fail to pay salaries, which would have adverse effects on Nigerians.

He also warned against increasing taxes, which would negatively affect production and create a vicious business environment.

Utomi urged the government to curb oil theft and ensure adequate security.

He said, “We must cut, dramatically, the stealing of oil so that we can get more returns from crude oil because there are huge amounts being stolen. Just getting security right and cutting down oil theft will increase revenue from crude oil.”

He advised the government to sign new deals and change strategies for revenue generation, illustrating that the government could exploit hydrogen.

The Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, warned that the government was on the brink of bankruptcy based on the state of government finances.

He said, “The figures released by the Finance Minister, Mrs Zainab Ahmed, during the presentation of the 2023-2025 Medium Term Expenditure Framework, painted a gloomy and disturbing picture of the state of government finances, suggesting that the government is on the brink of bankruptcy.”

A Professor of Development Economics at Babcock University, Prof Adegbemi Onakoya, said that Nigeria had a revenue problem, which had made it rely more on debt financing.

He further urged the government to ensure effective revenue generation and sustainability.

Meanwhile, a maritime lawyer who specialises more in oil and gas, Emeka Akabogu, said one of the major reasons for declining oil output was oil theft.

“So, we are in a situation where oil theft is at an alarming proportion and could actually define the oil and gas industry. So that is one. The second part really is related to investments.  Are we having any significant investment compared to what we should be having? So, when we should have investments increasing, they are decreasing. If production is what it should be, Nigeria’s quota should have been about 1.8 million barrels. However, we are not able to make that quota because a large portion of our production is being stolen. Investments, which should be the main key of the industry, are not happening.”