FG Justifies Oil Exploration in North, to Reinvest Proceeds from JV Assets

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Ibe Kachikwu

• Records N1.6tn oil revenue, to increase excise duty on alcohol and tobacco

Ndubuisi Francis and Udora Orizu in Abuja

Despite its campaign for economic diversification, increasing global shift towards alternative and cleaner energy sources, and futile attempts in the past discovering oil in commercial quantities in Northern Nigeria, the federal government Tuesday justified the continuing search for oil in the Northern part of the country.

Several analysts have continued to question the justification for the over $3 billion reportedly sunk into oil exploration in the North by the current administration, in spite of its clamour for economic diversification as well as the global reality of the diminishing significance of the commodity in a couple of years.

But the Minister of State, Petroleum Resources, Dr. Ibe Kachikwu, who offered perspectives on government’s oil exploration drive in the North, said Tuesday that many fundamental factors informed the decision to continue prospecting for oil in the region.

Responding to questions at the public presentation of the 2018 budget proposal in Abuja, Kachikwu stated that the government has a real obligation to explore for oil anywhere there is reason to do so, noting that one of the reasons for the exploration activities in the North was the fact that it had been established that oil lies underneath the Lake Chad Basin.
He stated that the fact that the price of oil has fallen was not enough reason to stop exploration activities, adding that the commodity is still the country’s dominant foreign exchange earner.

Kachikwu, who stated that a huge responsibility still lies with oil, noted that the drop in oil prices and increasing world attention towards other energy sources would not stop hamstrung exploration activities.
He said: “Massive exploration activities will continue to proceed obviously in oil producing areas. The contribution of oil in the 2018 budgetary expenditure expectation is almost 60 per cent, that is, if you take the 37 per cent in debt. A huge amount of responsibility lies with oil.”

He, however, pointed out that his personal philosophy in the exploration of oil was that the Nigerian National Petroleum Corporation (NNPC) should not drive the process.
“My philosophy is that it shouldn’t just be NNPC that should prospect for oil in the North-east. What we are trying to do is to begin an inland basin programme and then we put in enough processes and incentives to bring the private sector to look for oil at their own cost under Production Sharing Contracts (PSCs) and that will therefore not place a burden on the federal government but at least open up the frontiers which will be for the good of the country,” he said.

In his presentation on the details of the 2018 budget, the Minister of Budget and National Planning, Senator Udoma Udo Udoma, said the 2018 revenue projections reflected a new funding mechanism for the oil joint venture (JV) operations, allowing for cost recovery in lieu of previous cash call arrangements.

The minister said that this would come with additional oil-related revenue arising from royalty recoveries, new/marginal field licensing, early licensing renewals, and review of the fiscal regime for the PSCs.
Udoma disclosed that key reform initiatives in the 2018 budget to improve revenue generation included restructuring the government’s equity in the JV oil assets (reduction in equity holding) with proceeds to be reinvested in other assets.
This, he noted, will improve efficiencies in the operations of the JVs and position them for better revenue performance in the future.

He also disclosed that there would be an upward adjustment on the excise duty imposed on alcohol and tobacco.
The minister also spoke on the tax administration improvement initiatives aimed at positively affecting collection across various tax categories, including the Voluntary Assets and Income Declaration Scheme (VAIDS).

He disclosed that about N300 billion was provided for roads across the country in the 2018 budget, adding that the federal government was desirous of attracting private sector participation in all facets of the economy.
According to him, “The 2018 budget proposal seeks to continue the reflationary policies of the 2016 and 2017 budgets which helped put the economy back on the path of growth.

“Thus, we plan to continue to spend more on ongoing infrastructure projects that have potential for job creation and inclusive growth; we will continue to leverage private capital and counterpart funding for the delivery of infrastructure projects.”
Udoma stated that as with the 2016 and 2017 budgets, the 2018 budget had been prepared on Zero Based Budget (ZBB) principles.

He stressed that the 2018-2020 Medium Term Fiscal Framework (MTFF) and the budget proposal reflected many of the reforms and initiatives in the Economic Recovery and Growth Plan (ERGP), “which is our roadmap to economic recovery and sustainable growth”.
But considering present realities, he said the growth projection for 2017 had been revised downwards from 2.9 per cent to 1.5 per cent.

Providing further insight into the performance of the capital component of the 2017 budget, Udoma said as of October 31, N450 billion had been released to the ministries, departments and agencies (MDAs) of the government.
The minister also disclosed that the government had also recorded 87 per cent performance in overall expenditure, even as he noted that under the 2017 budget, N1.6 trillion had been recorded as oil revenue.

Udoma said the government was having problems with non-oil revenue, noting that earnings from company income taxes and Value Added Tax (VAT) underperformed.
But he applauded the performance of the Nigeria Customs Service (NCS), noting that it has almost met its revenue target for the period.

Lamenting the poor performance of independent revenue sources, he regretted that the revenue generating agencies were not meeting their obligations.
On this score, he said the government was considering amending the Fiscal Responsibility Act to check the trend.

Responding to a question on the apathy of citizens to paying tax, the Minister of Finance, Mrs. Kemi Adeosun, blamed the discovery of oil for the low tax regime in the country.
She said Nigeria, with a population of 180 million people and oil production of about 2 million barrels per day cannot survive without tax.

The minister stressed that people should not compare Nigeria with Saudi Arabia, with a production of 10 million barrels of oil per day and a population of 30 million people.
“People are not paying taxes, not because of apathy, but because we have gone on for the last 35 years with a culture that when people don’t pay taxes there are no consequences.

“It is fraudulent for anyone to say he does not pay taxes because he does not see what he’s getting from government, so we are going to have to come together as nation for the future and do the right thing,” she said.

Also referring to the Dangote Group, the minister stated that the government never granted any company tax holiday or amnesty for roads construction, adding that government has an understanding with some companies on some roads.
According to her, such companies would repair certain roads while the funds expended on the roads will be recognised as taxes already paid.

  • Daniel Obior

    It is either this minister of state for petroleum does not understand the oil and gas business, or he is blatantly lying to justify a political agenda. The upstream business of oil and gas, consists of exploration, appraisal, development and production phases. By its nature, the exploration phase is technically and commercially the most risky of all the phases. In periods of low oil cost, it is the exploration projects that are relatively hit hardest. These are facts known to the major oil and gas producers all over the world, because of the uncertainty involved in exploration and the relative low value to investment ratios of the projects. In other words scarce money is better invested on other projects than exploration projects. For this minister to wish to proceed gong ho with exploration in the North, makes no economic sense, more so as oil was not found by the key players in the industry such as Shell, after protracted try. NNPC also has wasted valuable billions, in its futile attempt exploring for oil in the North. If the drive for exploration in the north is to be justified, let the minister do so on political basis. His justification runs against the grain with sound and prudent practices in the oil and gas industry.