Lucky Fiakpa
3 December 2008
analysis
Lagos — With paltry allocations to the Power and Transport sectors, two critical sectors needed for the realisation of the seven-point agenda of President Umaru Yar'Adua's administration, Nigerians may look beyond next year to have problems in those sector properly addressed
No doubt, the 2009 budget is structured to be an austere one of some sort. With oil prices tumbling from a peak of $147 per barrel in July this year, to an average of $50 per barrel this month, President Umaru Yar'Adua, had to re-work the budget before presentation to the National Assembly.
The President had set up a team of technocrats headed by the Minister of State for Finance, Mr. Remi Babalola, with a mandate to review the proposed budget, synchronise it with the current global trends and ensure less friction with the National Assembly.
It was that development that was responsible for the delay in the presentation of the Appropriation Bill to the Legislature.
However, with only N88.5 billion and N35.2 billion earmarked to the Power and Transport sector respectively in the 2009 appropriation bill as presented to the National Assembly for consideration yesterday by President Umaru Musa Yar'Adua, Nigerians may have to look beyond next year to have problems in those sector properly addressed.
These two sectors respresent major thrusts of the present administration's seven-point agenda for the development and growth of the Nigerian economy. It is doubtful if the paltry sum allocated to the sectors could go far to address the huge problems in those sectors.
State of Infrastructure
The country's state of infrastructure is an apology, the roads are simply in deplorable state, and electricity supply which is taken for granted in most countries is not just there. Some $16 billion was said to have been invested in the sector by the Obasanjo administration with the situation getting from bad to worse.
This is said to have contributed in no small way to the unemployment rate in the country. Companies that could not cope with the harsh operating environment are daily closing shop.
Crippling power crisis, failed basic infrastructure and rising cost of refined petroleum products are of serious concern in the Nigerian manufacturing sector. These are said to have driven down capacity utilisation in the sector to about 38 per cent.
All of these, Jide Mike, Director-General, Manufacturers Association of Nigeria, recently wrote, have added to place the Nigerian manufacturer at serious competitive disadvantage in the global market place leading to huge dumping of goods from countries with lower production cost.
There is a report that many manufacturing industries have closed their production lines while not a few others have had to relocate to smaller African countries with better infrastructure and stable power supply. Even Nigerian entrepreneurs are also relocating their industrial concerns to these other African countries while they maintain liaison offices in Lagos or Abuja.
Michellin, a household name in tyre manufacturing in Nigeria had since closed shop and thousands of Nigerians laid off.
Dunlop Nigerian Plc, the only surviving tyre manufacturer, on August 23, 2008, laid off over 300 workers in the wake of its recent downsizing of operations. According to the company's public relations manager, Abiona Babarinde, the affected workers did not lose their jobs on grounds of incompetence or any other factor but due to the present situation of the company.
Dunlop's problems are traceable to two critical issues: power and tariff. The company spends an average of N150 million every month to generate its own power and in the light of the high cost of diesel at N150 - N160 per litre, producing at a competitive price had become difficult.
Energy
In addition, the epileptic supply of gas, price of which was hiked by 300 per cent recently had worsened the company's energy problem. The power problem had greater effect on the production of radial tyres being a heavy power consumer. And for most manufacturers, electricity from the Power Holding Company of Nigeria (PHCN) serves as back up.
Available statistics have it that Nigerians spend about N16.408 trillion or $140 billion to fuel generators annually.
Broken into sectoral details, the Telecom sector spends N6.7 trillion per annum to purchase diesel; filling stations spend N43.98 billion; factories spend N43.98 billion; the banking sector spends N11.7 billion Insurance companies spend N80 billion; residential households spend N7.812 trillion and; commercial enterprises, N1.57 trillion.
This, it is said, amounts to 300,000,000 litres of petrol per day. These are funds that would have been deployed to better use in other vital sectors of the economy to create jobs and improve the standard of life of Nigerians.
The President made some reference to this in his Independence Day broadcast. "We are aware that our physical infrastructure deficit cannot sustain the level of economic development which we envision for Nigeria.
This brings to the fore the imperative to rapidly rebuild, maintain, upgrade, and expand our critical infrastructure. In our quest for practical solutions to our endemic energy problems, we have set in motion far-reaching reforms which have started to yield some positive results," he said.
How soon Nigerians will start to see and enjoy these "positive results" from the energy sector as stated by the President is left to be seen as the 2009 appropriation bill allocation to the sector seems to fall short of expectation.
The power sector targeted for attention in 2009 include the Mambilla Hydro-electric power generation project for which N3.5 billion has been earn marked, N21.5 billion votes for other Generation projects (including N6.5billion for the completion of the Niger Delta Power Holding Company's NIPP projects), N32 billion for Transmission projects, and N19.25 billion for Distribution projects.
Transport
But President Yar'Adua believes his hands are on the plough and he is sure to take the country to its expected destination.
Again, in his Independence Day speech he stated that, "We have evolved a holistic strategy for the development and rehabilitation of the nation's transport system. We intend to concession the most economically viable roads across the country, while aggressively pursuing a road sector development and maintenance programme estimated to cover 5,700 kilometres.
"With the railways, we plan to concession some existing routes including the Western and Eastern rail lines as well as the uncompleted central line, while rehabilitating and expanding the existing rail system. Notably, the Infrastructure Concession Regulatory Commission, ICRC, is expected to commence work shortly," he stated.
The ICRC was recently inaugurated with Chief Ernest Shonekan heading it. But there is also the fact that the country intends to fix some of the roads and rail lines before the concession programme. It is however doubtful how many of the several failed roads across the country can N35.2 billion earmarked to the Transport sector fix in 2009.
Another key plank in the seven-point agenda is addressing the Niger Delta question. The government during the year created the Niger Delta Ministry which was seen as a step in the right direction. But with allocation of just N50 billion, many believe the ministry may not be able to do much in addressing the infrastructural questions in the area.
It has been said that it takes about ten times more the cost of constructing a kilometer of road in the area than other zones in the country due to the terrain. So by the time recurrent expenditure, which often takes about 60 per cent of budgetary allocations are deducted from the N50 billion allocated to the ministry, not much would be left to execute capital programme that are seriously needed in the area.
Crude Oil Output
Crude oil output of Nigeria's largest upstream oil and gas exploration and production company, Shell Companies in Nigeria (SCiN), has dropped from an all time high in excess of 1.0 million barrels per day to an average 412,000 barrels per day owing to militancy in the Niger Delta and funding constraints.
Yet, the 2009 budget is premised on production forecast of 2.292 million barrel per day. This looks somewhat ambitious.
The aggregate projection for Federation Account receipts in 2008 was N4.529 trillion. Oil-related revenue was expected to amount to N3.606 trillion or 80 per cent of this sum while non-oil sources of revenue were to account for the balance of N923 billion or 20 per cent.
In addition to volatility in international oil prices, actual crude oil production has been lower than projected, averaging just over 2 million barrels/day, due to the situation in the Niger Delta. As a result, overall revenue receipts fell below expectation.
Although, there are concerted efforts to address the militancy problem in the region, a projected forecast of over 2 million barrel per day looks very much on the high side.
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