‘Nigeria Requires Savings, Stabilisation Mechanisms’

  •  Crude oil slips further below $80 per barrel
  • UK court stays proceedings on N’Delta community’s suit against Shell

Ejiofor Alike with agency reports

Stakeholders who gathered Thursday in Lagos in a roundtable on “Savings and Stabilisation Mechanism for Nigeria,” organised by the Shehu Musa Yar’Adua Foundation’s Oil Revenue Tracking Initiative (ORTI) have concluded that Nigeria would require a saving and stabilisation mechanism to absorb crude oil price volatility.

This is coming as crude oil prices recorded their largest one-day drop in two weeks Thursday, with expectations building that OPEC could wind down an output deal that has been in place since the start of 2017 due to concerns about supplies from Venezuela and Iran.

In her presentation on “Policy options on safeguarding and smoothening fiscal adjustments in Nigeria at the Shehu Musa Yar’Adua Foundation’s roundtable,” a former Minister of Education, Dr. Obiageli Ezekwesili, said the country lost the opportunity to save in the five cycles of oil boom witnessed between 1970’s and 2014 as a result of the mismanagement of the country’s resources.

According to her, the savings in the Excess Crude Account (ECA) set up by the administration of former President Olusegun Obasanjo were depleted by the successive administration.

Ezekwesili argued that the six years of record high oil prices after the tenure of Obasanjo could have built up foreign reserves to as much as $100 billion including an ECA level of at least $40 billion.

“The summary of the inflows and outflows from the Account shows that the opening balance was $4.56 billion in 2011 and reached a peak the following year at $8.7 billion before declining to $2.3 billion in 2013. The balance as at May 2015 was $2.07 billion,” Ezekwesili said.

Citing a comment by a former Minister of Finance and Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iweala, at the 2014 World Economic Forum, Ezekwesili quoted the former finance minister as saying that “the depletion of the Excess Crude Account to about $2.5 billion has made the country more vulnerable than it was in the past and put the economy of the country at great risk.”

Ezekwesili argued that about $200 billion was used to rebuild the entire Europe after the Second World War, while Nigeria has earned over $1 trillion from crude oil without commensurate development in human and infrastructure.

The former Vice-President of World Bank disclosed that Botswana is the only country in sub-Saharan Africa that has managed her mineral resources efficiently.

Also in their presentations, a member of the Central Bank of Nigeria (CBN) Monetary Policy Committee, Prof. Adeola Adenikinju and Andrew Onyeanakwe, noted that the government spending and the country’s revenue have no link.

Adenikinju, in his presentation, identified incoherence data as a major challenge in the country’s efforts to save, adding that over $1 trillion earned from oil has not reflected in the people’s welfare.

He said ECA and Sovereign Wealth Fund were supposed to provide stabilisation fund.

According to him, a temporary shock is not supposed to affect the economy if the stabilisation fund is working.

“But when the oil price goes down, the Federal Allocation goes down. So, the stabilisation mechanism is not working,” he added.

On his part, Onyeanakwe argued that Nigeria’s $1.5 billion savings in sovereign wealth fund is a far cry from Norway’s over $1 trillion, Saudi Arabia’s over $500 billion and Algeria’s $7.6 billion.

In another development, crude oil prices recorded their largest one-day drop in two weeks Thursday, with expectations building that OPEC could wind down an output deal that has been in place since the start of 2017 due to concerns about supplies from Venezuela and Iran.

Global benchmark Brent futures were down $1.02 at $78.78 per barrel, the largest one-day fall since May 8, while United States crude futures dropped $1.08 to $70.76 a barrel.

Reuters reported that OPEC may decide in June to lift output to make up for reduced supply from Iran and Venezuela and in response to concerns from Washington about a rally in oil prices, OPEC and oil industry sources told Reuters.

Russian Energy Minister Alexander Novak said production cuts could be eased “softly” if OPEC and non-OPEC countries see the oil market balancing in June, the Interfax news agency reported.

Venezuela’s output has fallen amid an economic crisis, while Iran’s supply is threatened by U.S. sanctions.

These factors have helped push Brent and WTI to multi-year highs, with Brent breaking through an $80 threshold last week for the first time since November 2014.

OPEC and some non-OPEC major oil producers, which are scheduled to meet in Vienna next month, previously agreed to curb their combined output by about 1.8 million barrels per day (bpd) to boost oil prices and clear a supply glut.

Meanwhile, a British court Thursday ruled that the suit brought before it by the Bodo community of Rivers State against Shell should remain stayed until July 2019.

The Bodo community has been involved in a protracted legal battle with Shell over the clean-up of two 2008 oil spills.

Lawyers for Bodo had accused Shell of trying to kill off the legal case by seeking a court order that would have meant the community had to meet onerous conditions before it could revive its litigation, which is currently on hold.

But a London High Court judge, Mrs Justice Cockerill, ruled that the litigation should remain stayed until July 1, 2019, with no conditions attached should the Bodo community’s representatives seek to re-activate it before then.

“We are delighted the court has rejected Shell’s attempt to restrict the community’s legal rights,” said the Bodo community’s lead UK lawyer, Dan Leader.

“The message is clear – Shell must clean up this appalling oil spill and the Bodo community will keep on with its legal case until they are confident that it will do so,” he said.

The 2008 oil spills devastated the lands and waterways of Bodo and Shell accepted liability for the spills in 2015, agreeing to pay 55 million pounds ($83 million at the time) to Bodo villagers and to clean up their lands and creeks.

After years of delays, the clean-up is currently underway, under the auspices of the internationally recognised Bodo Mediation Initiative (BMI).

Reuters reported that Shell’s lawyers had argued at a hearing on Tuesday that the community should only be able to re-activate the legal case should Shell fail to comply with its obligation to pay for the clean-up.

But Bodo’s lawyers had countered that the community should have unfettered access to the London courts if the clean-up was not completed to a high standard.

Arguing that the pressure of litigation was a key factor in pushing Shell to implement the clean-up, they had asked the judge to keep the legal case on hold until May 2020.

Oil spills, 80 per cent of which are caused by vandalism, are common in the Niger Delta.

Oil companies have run into problems trying to clean up spills, sometimes because of obstruction and even violence by communities trying to extract bigger payouts, or to obtain clean-up contracts.