* …FG working to reduce effect of imminent recession, says
Minister of Finance
Members of the Senate Committee on Finance Monday queried the
Nigerian National Petroleum Corporation over what they described as
“very high cost of oil production in Nigeria.”
Also Monday, the Minister of Finance, Budget and National
Planning, Mrs. Zainab Ahmed, said even though recession is imminent
as a result of the COVID-19 pandemic, the Federal Government is
already working to minimize its harsh effects.
The Senators spoke when the Minister of Finance, Budget and
National Planning, Mrs. Zainab Ahmed led heads of revenue
generating agencies to defend the revised 2020-2022 Medium Term
Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP)
submitted to the National Assembly last week.
The Senators expressed worry over a situation where the cost of
oil production was put at $21.2 per barrel and the price of crude
oil in the revised budget was put at $25, which suggest a marginal
profit of $3 for the country.
Other revenue generating agencies at the session included the
Nigeria Customs Service, Federal Inland Revenue Service (FIRS).
The Director General of the Debt Management Office, Patience
Oniha and her counterpart in the Budget Office, Mr. Ben Akhabueze
were also at the session.
The Minister of State, Finance, Budget and National Planning,
Mr. Clement Agba was also part of the Minister’s team.
Trouble started for the NNPC when its Chief Operating Officer
(Upstream), Engineer Yemi Adetunji, who represented the Group
Managing Director, Engr. Mele Kyari, was called upon by the
Chairman of the Committee, Senator Solomon Adeola (APC – Lagos
West) to explain why the cost of oil production in Nigeria is far
higher than those of other oil producing countries of the
world.
According to Senator Adeola, while the cost of oil production in
Saudi Arabia is $4 per barrel and $3 per barrel in Russia, it is
$21.2 per barrel in Nigeria.
He said that this shows that Nigeria only earns a very poor
marginal profit of about $3 per barrel based on new oil price
benchmark of $25 per barrel in the revised 2020 budget.
The NNPC’s COO, Adetunji, in his response, attributed the high
cost of oil production to series of peculiarities ranging from
security to crude oil theft.
However, almost all the members of the committee disagreed with
Adetunji’s claim even as they described as unacceptable.
A member of the Committee, Senator James Manager (PDP – Delta
South) specifically said that the security issues referenced by the
NNPC’s COO, was not tenable as similar problems exist in all other
oil producing countries without high cost of production like
Nigeria.
Manager said: “Even the reason that he gave for the high cost of
production per barrel, I think they are not tenable because
wherever oil is produced they have their own security challenge
including even Saudi Arabia, Iran Russia, they have their own
unique security issues. Why is our own so peculiar that our cost of
production is up to $21 per barrel?
“You also mentioned administrative issue, which are these
administrative issues? Why are we different from the rest of the
world? These are issues that the National Assembly is supposed to
take up.”
Another member of the committee, Senator Shaibu Gumau
(APC-Bauchi South), insisted that the existing $21.2 per barrel
high cost of oil production and $25 per barrel oil price benchmark
does not make any economic sense.
Gumau said: “I can’t just believe and even common sense cannot
agree with this. Not even the National Assembly. How could we
expect a situation where cost of production of oil per barrel is
$21.2 and the revenue is $25 per barrel?
“Yet, other countries in the world, there is no one that their
cost of production is not even up to $10 per barrel. It is
difficult to understand and I dont think it is only the National
Assembly, even the executive themselves should sit down and ask
themselves this question because we are watchdogs.
“Not because we are watchdogs that is why we are disturbed but
it has got to an extent that they too should be disturbed and there
should be a solution and if not there should be an explanation that
somebody can understand and agree to but common sense cannot
understand this.”
On his part, Vice Chairman of the Senate Committee on Finance,
Senator Jibrin Isah (APC – Kogi East), also disagreed with the NNPC
official over the high cost of oil production.
Senator Isah said: “I am disturbed because I expected the NNPC
to dwell more on fixed costs but surprisingly you are talking about
administrative cost and security and these are variables and even
the fixed cost on the long run are also variables which you can
also work on them.”
However the Minister of State for Finance, Clement Agba,
intervened by explaining to the committee that peculiarities cited
as reasons for the high cost of oil production, were real.
According to him, the North Sea production cost is higher than
that of Nigeria and that as an insider, details of the $21.2 per
barrel oil production is well calculated.
On his part, Adetunji explained that: “We are working hard to
bring down this fix cost.
“Historically our total cost has been $30 per barrel so the
objective of the new GMD Mr. Mele Kyari is that we have reduced the
cost to $21 this year.
“We believe that once we have the new framework in place going
forward in 2021,
we should even see lower cost of production. There are things we
are targeting.
“Security challenges are kind of peculiar to Nigeria. In other
climes pipelines are on the surface you hardly see them being
tampered with but in Nigeria even when they are buried two meters
to three metered deep they are still being vandalised.
“Is some cases we are trying to take them to deeper levels but
those ones will add to cost of production like going 10 meters to
15 meters deep.
“It will add to the cost about three or four times the cost of
production as against putting the pipelines on the surface.
We are working with security agencies to put in place new
framework to ensure that all the hitches are brought down to the
barest minimum.”
Beside high cost of oil production, the NNPC officials were also
challenged by the committee to be more open in their federally
funded projects, for which N484billion has been voted in the
revised 2020 budget.
Meanwhile, the Minister of Finance, Zainab Ahmed while
responding to a question, said that the Federal Government is
taking proactive measures to mitigate the harsh effect of imminent
recession in the country.
Ahmed said: “Very clearly the GDP (Gross Domestic Product) has
been reduced because of the economic crisis that we found ourselves
in but Nigeria is not alone in this. The global economy is
predicted to be also slipping into recession.
“What we are hoping to do by our own collective efforts – the
executive and the National Assembly – is that we minimize how far
we go into recession.
“NBS (National Bureau of Statistics) has made an assessment that
we will go into recession at the level of 4%.
“So some of the work that the executive is doing which is
preparing a stimulus package is to remedy that, so that if it
happens maybe we are going into 0.5% or 1% not going much lower.
That is our unfortunate reality and the reality of the global
economy.”
On the revenue projection N1.5 trillion for the Nigeria Customs
Service which has now put at N950 billion in the revised 2020
budget proposal, the committee said that the new amount was too
small.
The urges the Customs boss, Colonel Hammed Ali to worker harder
to achieve a higher target.
They also urged the FIRS not to cut its revenue projection for
stamp duty from N400 billion to N200 billion as contained in the
revised budget.
* …FG working to reduce effect of imminent recession, says
Minister of Finance
Members of the Senate Committee on Finance Monday queried the
Nigerian National Petroleum Corporation over what they described as
“very high cost of oil production in Nigeria.”
Also Monday, the Minister of Finance, Budget and National
Planning, Mrs. Zainab Ahmed, said even though recession is imminent
as a result of the COVID-19 pandemic, the Federal Government is
already working to minimize its harsh effects.
The Senators spoke when the Minister of Finance, Budget and
National Planning, Mrs. Zainab Ahmed led heads of revenue
generating agencies to defend the revised 2020-2022 Medium Term
Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP)
submitted to the National Assembly last week.
The Senators expressed worry over a situation where the cost of
oil production was put at $21.2 per barrel and the price of crude
oil in the revised budget was put at $25, which suggest a marginal
profit of $3 for the country.
Other revenue generating agencies at the session included the
Nigeria Customs Service, Federal Inland Revenue Service (FIRS).
The Director General of the Debt Management Office, Patience
Oniha and her counterpart in the Budget Office, Mr. Ben Akhabueze
were also at the session.
The Minister of State, Finance, Budget and National Planning,
Mr. Clement Agba was also part of the Minister’s team.
Trouble started for the NNPC when its Chief Operating Officer
(Upstream), Engineer Yemi Adetunji, who represented the Group
Managing Director, Engr. Mele Kyari, was called upon by the
Chairman of the Committee, Senator Solomon Adeola (APC – Lagos
West) to explain why the cost of oil production in Nigeria is far
higher than those of other oil producing countries of the
world.
According to Senator Adeola, while the cost of oil production in
Saudi Arabia is $4 per barrel and $3 per barrel in Russia, it is
$21.2 per barrel in Nigeria.
He said that this shows that Nigeria only earns a very poor
marginal profit of about $3 per barrel based on new oil price
benchmark of $25 per barrel in the revised 2020 budget.
The NNPC’s COO, Adetunji, in his response, attributed the high
cost of oil production to series of peculiarities ranging from
security to crude oil theft.
However, almost all the members of the committee disagreed with
Adetunji’s claim even as they described as unacceptable.
A member of the Committee, Senator James Manager (PDP – Delta
South) specifically said that the security issues referenced by the
NNPC’s COO, was not tenable as similar problems exist in all other
oil producing countries without high cost of production like
Nigeria.
Manager said: “Even the reason that he gave for the high cost of
production per barrel, I think they are not tenable because
wherever oil is produced they have their own security challenge
including even Saudi Arabia, Iran Russia, they have their own
unique security issues. Why is our own so peculiar that our cost of
production is up to $21 per barrel?
“You also mentioned administrative issue, which are these
administrative issues? Why are we different from the rest of the
world? These are issues that the National Assembly is supposed to
take up.”
Another member of the committee, Senator Shaibu Gumau
(APC-Bauchi South), insisted that the existing $21.2 per barrel
high cost of oil production and $25 per barrel oil price benchmark
does not make any economic sense.
Gumau said: “I can’t just believe and even common sense cannot
agree with this. Not even the National Assembly. How could we
expect a situation where cost of production of oil per barrel is
$21.2 and the revenue is $25 per barrel?
“Yet, other countries in the world, there is no one that their
cost of production is not even up to $10 per barrel. It is
difficult to understand and I dont think it is only the National
Assembly, even the executive themselves should sit down and ask
themselves this question because we are watchdogs.
“Not because we are watchdogs that is why we are disturbed but
it has got to an extent that they too should be disturbed and there
should be a solution and if not there should be an explanation that
somebody can understand and agree to but common sense cannot
understand this.”
On his part, Vice Chairman of the Senate Committee on Finance,
Senator Jibrin Isah (APC – Kogi East), also disagreed with the NNPC
official over the high cost of oil production.
Senator Isah said: “I am disturbed because I expected the NNPC
to dwell more on fixed costs but surprisingly you are talking about
administrative cost and security and these are variables and even
the fixed cost on the long run are also variables which you can
also work on them.”
However the Minister of State for Finance, Clement Agba,
intervened by explaining to the committee that peculiarities cited
as reasons for the high cost of oil production, were real.
According to him, the North Sea production cost is higher than
that of Nigeria and that as an insider, details of the $21.2 per
barrel oil production is well calculated.
On his part, Adetunji explained that: “We are working hard to
bring down this fix cost.
“Historically our total cost has been $30 per barrel so the
objective of the new GMD Mr. Mele Kyari is that we have reduced the
cost to $21 this year.
“We believe that once we have the new framework in place going
forward in 2021,
we should even see lower cost of production. There are things we
are targeting.
“Security challenges are kind of peculiar to Nigeria. In other
climes pipelines are on the surface you hardly see them being
tampered with but in Nigeria even when they are buried two meters
to three metered deep they are still being vandalised.
“Is some cases we are trying to take them to deeper levels but
those ones will add to cost of production like going 10 meters to
15 meters deep.
“It will add to the cost about three or four times the cost of
production as against putting the pipelines on the surface.
We are working with security agencies to put in place new
framework to ensure that all the hitches are brought down to the
barest minimum.”
Beside high cost of oil production, the NNPC officials were also
challenged by the committee to be more open in their federally
funded projects, for which N484billion has been voted in the
revised 2020 budget.
Meanwhile, the Minister of Finance, Zainab Ahmed while
responding to a question, said that the Federal Government is
taking proactive measures to mitigate the harsh effect of imminent
recession in the country.
Ahmed said: “Very clearly the GDP (Gross Domestic Product) has
been reduced because of the economic crisis that we found ourselves
in but Nigeria is not alone in this. The global economy is
predicted to be also slipping into recession.
“What we are hoping to do by our own collective efforts – the
executive and the National Assembly – is that we minimize how far
we go into recession.
“NBS (National Bureau of Statistics) has made an assessment that
we will go into recession at the level of 4%.
“So some of the work that the executive is doing which is
preparing a stimulus package is to remedy that, so that if it
happens maybe we are going into 0.5% or 1% not going much lower.
That is our unfortunate reality and the reality of the global
economy.”
On the revenue projection N1.5 trillion for the Nigeria Customs
Service which has now put at N950 billion in the revised 2020
budget proposal, the committee said that the new amount was too
small.
The urges the Customs boss, Colonel Hammed Ali to worker harder
to achieve a higher target.
They also urged the FIRS not to cut its revenue projection for
stamp duty from N400 billion to N200 billion as contained in the
revised budget.