Oil magic: President Buhari’s letter to the National Assembly

LAST week, Major General Muhammadu Buhari (retd.) wrote to the National Assembly requesting that the Medium-Term Expenditure Framework and by extension the 2022 federal budget be amended to accommodate a number of adjustments. Considering the rubberstamp nature of the National Assembly in fiscal matters, this request is deemed as good as approved by NASS. This discourse reviews the requests and posits that fiscal governance in an economy that, to a great extent, is dependent on petro dollars can be managed in a more prudent and sustainable manner.

The extant MTEF 2022-2024 is benchmarked on $62 per barrel of crude oil. The new request is a benchmark of $73 per barrel. This is founded on the increased price of crude oil arising from the Russia-Ukraine War. On the face of it, this request for an increased benchmark appears reasonable. But the poser is: how long will this war last? If the war ends in the next one to three months, will the new price be realistic and do we expect crude oil prices to continue going higher after the war? Will the president come back for an amendment of the MTEF to reduce the benchmark price if the price of crude oil falls below $72 per barrel? These are unanswered posers that should have played on the minds of the fiscal managers before proposing these changes for the approval of NASS. Ideally, money realised from a higher crude oil price, being a price higher than the benchmark price, is supposed to be saved in the Excess Crude Account and later appropriated after it has been distributed between the three tiers of government.

The second request is for a reduction in the production volume by 283,000 barrels per day. This means the daily production will be 1.6 million bpd instead of 1.83 million bpd approved in the extant MTEF and budget. The president premised this proposal for reduction on the activities of vandals. For some years now and under the Buhari presidency, Nigeria has not been producing enough to meet its quota from the Organisation of Petroleum Exporting Countries. Other OPEC countries have in the past exceeded their quotas and indeed have spare production capacity to produce beyond the quotas. The premise upon which the president is making the request for reduction of production is ridiculous. This is not just about vandals; a vandal is defined as a person who deliberately destroys or damages property belonging to others. This is not about destruction and damage.  This is not even about some petty criminals stealing crude oil in jerry cans and pots. It is about industrial scale stealing, organised oil theft, directly carried out under the watch of a ministry supervised by the president. Nigeria, in some years gone by, had budgeted for real time monitoring of pipelines with the explanation that it was about introducing technology, facilities and services to monitor oil pipelines all round the clock. What happened to those budgeted funds?

At some earlier time, the regime had blamed what it termed under-investment in the sector by previous governments for the inability to meet the OPEC quota. This blame game is coming after seven years in office. Today, it is oil theft, yesterday it was under-investment. Tomorrow, another excuse will come. For how long will a regime continue to wobble, lacking in ideas and imaginations of good governance and yet insist on inflicting their incompetence and dereliction of duty on over 200 million Nigerians? The Buhari regime’s favourite story of previous administrations selling crude oil for over $100 has suddenly gone out of fashion considering the current price of crude oil. Thus, the regime has crippled Nigeria and rendered her unable to take advantage of geopolitical developments in the oil sector. Thus, we are made to believe that we are producing less at a time we should have ramped up production.

Then the big elephant in the room. According to the president, N442.72 billion was earmarked for fuel subsidy in the 2022 budget for the period of January to June. Due to the hike in the price of crude oil, Nigeria is paying more for the PMS subsidy. He is therefore requesting for an additional N3.557 trillion for subsidy. How the president arrived at the N4 trillion is not stated in the letter to NASS and it is not available in the public domain. But some fundamental analysis is imperative. If oil had continued to sell at the former prices, by the calculation of the president, we would have required N442.72 billion multiplied by two. This would amount to the sum of N885.44 billion. If this calculation is correct and the price of crude oil doubled in the international oil market, the implication is that Nigeria will require N885.44 billion multiplied by two to pay the subsidy. This would be the sum of N1.770 trillion.  The request for a fuel subsidy vote of N4 trillion is not only outrageous but unsupported by empirical evidence. It lacks credibility and appears as an attempt to create a slush fund for political campaign expenses.

Nigerians are aware and this has been confirmed by the Minister of State Petroleum Resources and other top government officials that the 65 million litres per day on which subsidy is calculated is not based on empirical evidence. It cannot be true that fuel consumption rose from 35 million litres a day in 2015 to 65 million litres a day in 2022 after two recessions, high-level inflation and the worst unemployment figures since independence. That quantum of PMS is enough to power the whole of West Africa.

This is not the way to run a depressed economy where all the macroeconomic fundamentals are headed south, buffeted by unsustainable debt (debt service in excess of 95% of retained revenue), etc. The tragedy is that the regime has failed to position Nigeria to take advantage of high oil prices, to meet our OPEC quota and even exceed same considering our poor finances. While we cannot meet our OPEC quota, we keep borrowing to even pay salaries and overheads. Yet, the same administration presides over the inflation of consumption figures for oil subsidy claims.

The National Assembly is therefore called upon to insist on our producing enough crude oil to meet our OPEC quota as well as holding accountable the ministers presiding over the petroleum industry. NASS should request for evidence on the actual quantum of PMS consumed in Nigeria every day. The figures presented by the president do not have empirical value and should be rejected. Nigerians cannot be consuming more than 35 million of PMS every day.