Though the benefits of conservative crude benchmark are not easily seen, the fighting group should sink their differences for the appropriation bill to be presented
With two weeks to the end of 2013, it is still not certain when President Goodluck Jonathan will present the 2014 Appropriation Bill before the National Assembly. This is against the background that the federal government has on two occasions stalled its presentation over the harmonisation of the benchmark price for oil and issues with the implementation of the 2013 budget. The Ministry of Finance had set a benchmark price of $74 per barrel of crude oil while the senate passed a benchmark price of $76.5 per barrel. Meanwhile, the House of Representatives has set a benchmark price of $79 per barrel. One may wonder why this seemingly simple issue has attracted such attention since benchmark price is only relevant for the purpose of planning.
Others may even argue that a conservative estimate of $74 per barrel, which our executive proposes, is wise for the nation to ensure that we can resist whatever shocks may come in the year ahead. At least with conservative estimates, our problem would be of additional funds rather than the vulnerable position that a very high benchmark price could occasion. But the issues are not that simple because there are also questions of trust, accountability and transparency that need to be addressed.
For the past three years, the price of crude has never for once fallen below $90 a barrel and our benchmark prices for those three years were conservative. In 2012, for instance, 830.8 million barrels of crude oil were reportedly exported from Nigeria.
The benchmark price for the budget in the same year was $72 per barrel and the average price of a barrel of crude oil was $111.65. This means that the excess amount realised in 2012 from our export sale of crude above the $72 benchmark price was $32.94 billion. Essentially, this amount was not captured in planning for capital projects in 2012 and represented an excess return for the period.
However, the excess crude account, as published by the Ministry of Finance for 2012 reflected a balance of $9billion which might suggest that the sum of $23.94billion i.e. NGN4trillion was indiscriminately shared by the three tiers of government during the period in question. One therefore can only imagine that if the excess funds realised from conservative benchmarking were channelled into a single infrastructure development project such as rail, our infrastructure deficit would indeed narrow very quickly. What Nigerians grapple with is the limited accountability that seems to prevail and the penchant for spending arbitrarily on things that we cannot see or those that do not impact on the lives of average Nigerians.
Even with the development of shale oil reserves in North America, tensions in Syria and increasing non-OPEC supply of crude oil, the US Energy Information Administration still projects a price of $103 per barrel for Brent crude oil in 2014.
This suggests that the additional caution of a benchmark price of $74 per barrel of oil is unwarranted. Whilst it may appear trivial that a $2.5 or $5 difference in the benchmark price for oil should hold us all to ransom, majority of the governors and the lawmakers believe the Excess Crude Account (ECA) has practically been turned into another slush fund by the federal government.
In view of our peculiarities as a mono-product economy in need of critical infrastructure development, we are compelled to agree with the legislature, particularly the House of Representatives, that the higher benchmark price of $79 per barrel be used in the 2014 budget. But it is important for both the executive and the legislature to come to a quick agreement so that the 2014 appropriation bill can be laid before the National Assembly. It is imperative that we move away from the last minute syndrome that a delayed budget brings to our system.