Chika Amanze-Nwachuku
20 August 2008
Lagos — Nigeria may run into a serious budget crisis in view of the current drop in crude oil prices in the international market as about 80 per cent of Nigeria's budget is based on crude oil sales.
This is because the country's production level has recorded a tremendous drop owing to the persistent crisis in the Niger Delta region and there are no funds to finance new projects.
Oil producers in the country, under the aegis of Oil Producers' Trade Section (OPTS), raised these fears yesterday, warning that except urgent steps were taken to recover the volume of crude currently shut in and funds were made available to finance new projects, Nigeria would be operating below a balanced budget - especially if crude oil prices continue to fall.
Specifically, Chairman of the OPTS and Country Chairman of Shell, Mr. Basil Omiyi, who addressed the gathering, listed the challenges facing the industry to include funding, insecurity in the Niger Delta region, crude oil theft and bureaucratic problem.
He noted that the unabated Niger Delta crisis had brought various industry projects to a standstill, as contractors were scared of coming to handle projects in the region.
The ex-Managing Director of Shell noted that the industry had enough projects to grow Nigeria production, but that these had not taken off owing to issues of funding and insecurity.
He argued that if no new projects were coming on stream due to funding constraints and insecurity, the production level would continue to go down.
The OPTS chairman disclosed that at the moment, Nigeria records a production shut-in of 900,000 barrels of crude oil per day, out of which Shell alone loses about 500,000 barrels per day. Also, he revealed that the industry loses more than $10 billion annually due to the crisis in the region.
Omiyi revealed that from January to date, Nigeria had recorded 59 cases of attacks on oil facilities, while 93 persons were kidnapped. He said adequate security measures must be put in place for business to thrive, pointing out that Nigeria has to protect its crude oil volume, without which there is no trade.
"Once the price of oil goes down, and you have no volume, there is going to be budget crisis. We have to protect our volume, without which there is no trade," he said.
He noted that there is a big gap between what the industry needs in terms of funding and what the government releases.
He regretted that Nigeria, the sixth biggest oil producer in the world and Africa's biggest oil producer, is now rated low, among other members of the Organisation of Petroleum Exporting Countries (OPEC) in terms of production volume, and lamented that a lot of projects had been put on hold owing to funding and security challenges.
"Again, if oil prices drop and we don't have the income for new projects, we will have budget crisis. We need to fund the industry properly. Also, there has to be enabling environment for contractors to come into Nigeria to work. A lot needs to be done. This issue of crude oil theft can be stopped. These people who do these things must be stopped.
"The industry is saying we need to invest more. Government should fund its own part adequately, it will boost production," he said.
He further noted that last year alone, the OPTS expended $15 billion on community development projects, $30 billion on the Niger Delta Development Commission (NDDC) and another $18 billion on various sustainable projects.
He regretted that notwithstanding the huge amounts spent by the oil companies, oil facilities were being destroyed by the day, while expatriate workers were taken hostage.
He, however, stated that despite all these challenges, the OPTS was still poised to invest in power projects, adding that the oil companies were putting in place power project to generate 2,900mw of electricity by 2013.
Omiyi revealed that the Agip Company that supplies gas to some power stations are still being owed by the Power Holding Company of Nigeria (PHCN), while NNPC is indebted to Shell to the tune of between $600 million and $700 million.
The OPTS chairman stated however that the oil companies were interested in the gas master plan, if government provides funds to execute the plans.
He ruled out the possibility of achieving total flare-down by 2010, but stated that a lot of gas gathering and utilisation projects were ongoing.
According to him, Shell had expended $2 billion on gas projects and intends to spend additional $2billion, maintaining that oil companies are interested in selling gas rather flare it.
He however urged that industry operators must be consulted before relevant legislations that affect the industry are enacted, while the issue of bureaucracy must be removed for business thrive.
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There is an old saying exhorting us to "make hay while the sun shines". The saying comes from farming communities. There would often be only a short time in which the hay would be ready to cut- reap too soon, and the hay would be too green. Reap too late, and you run the risk of rain ruining it all. Still very good advice for this Yar Adua administration who thought that the world would wait for him and the world economic dynamics would stop and the price of crude oil would remain as high, indefinitely until Yar figure out issue #1 (while whistling the ruse of law tune)out of the seven (7) agenda he promised Nigerians would lead to the attainment of Vision 20/20. Sorry, the world ecconomy rolls along while we dither and puff, running in cicles and getting nowhere. Perhaps when crude oil price falls back to its usual $10 per barrell, Yar would wake up to another $10 Billion foreign debts that would in due course rise up to another $36 Billion debt (a la Shagari-Abacha), then we are back to our old 1999 economic stagnation, if not recession. Way to go, Naija. Under the OBJ's administration, Nigerian economic growth rate averaged about 9% during his 8 year tenure which is unprecedented in Naija's history. We shall see what YarAdua's economic growth rate would be in 4 years. OBJ's administration is the benchmark upon which past, present & future administrations would be measured. Unfortunately Nigerians lost its greatest oportunity when it unwisely gave up a proative, result-oriented leader when it doggedly chose to put mediocrity back in play. You all deserve what you asked for...Nigerian-shuffle - one step forward, 20 steps backwards.