How Nigeria Can Curb Oil Revenue Losses

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Obinna Chima
The federal government has been advised to deepen the nation’s oil reserves, which according to a report, been flat in the past 10 years.
The report also highlighted measures the government can adopt to curb further revenue losses post 2019 elections.

PwC Nigeria, a professional services firm stated this in a report titled: “Avoidable Oil & Gas Revenue Losses: Breaking the Election Cycle,” obtained on Monday.
“The dire fiscal projections point back to the deafening call for reforms in the oil and gas sector if the federal government seeks to forestall further oil revenue losses in the current cycle.

“To avoid these oil revenue losses, we propose focusing on three key areas as the nation goes through the next election cycle,” it stated.
Firstly, it recommended that the Executive arm of the government should work extensively and purposefully with the National Assembly to pass and sign the PIB (Petroleum Industry Bill) into law. This, it stated, would go a long way to provide clarity and direction for all players in the industry and serve as an enabler to unlock pending FIDs (Final Investment Decisions) estimated in excess of $40 billion.

Second, it stated the need for continuous stakeholders’ management of the various interest groups in oil producing communities. “We advocate that more emphasis is placed on infrastructural and human development in these regions to enhance the life outcomes of inhabitants of host communities.

“This move should partly address security concerns that frequently disrupt production activities in the oil & gas upstream space.
“Finally, it is important for any new administration to promptly provide policy direction once elected into office to address the expectations/concerns of the different stakeholders in the oil & gas industry and reduce the time lag and uncertainties relating to investment decisions.

“If carried out objectively, we believe the headline steps set out will go a long way to prevent factors responsible for oil revenue losses on Nigeria’s equity barrels as well as offer support to other non-oil revenue initiatives by the government.

“By taking care of these predictable problems, the nation can focus on developing strategies to advance the upstream sector.”
The report noted that like most developing democracies, election periods in Nigeria are typically associated with uncertainties, which generally impede business decisions and slow down economic productivity. It also stated that in Nigeria, the last three election cycles have been followed by inflationary pressures occasioned by increase in money supply, which in turn forces the Central Bank of Nigeria (CBN) to tighten monetary policies via the MPR (Monetary Policy Rate) and reserve requirements.

It, however, stressed that prudent business leaders stall investment decisions, while they await the outcomes of the electioneering process and policy direction from the new administration.
The impact of these delayed decisions on the economy varies depending on the significance of the sector, the firm noted.

Owing to this, the report urged the federal government to focus on the oil and gas sector, as it constitutes over 90 per cent of the nation’s foreign earnings and about a tenth of the nation’s Gross Domestic Product.

It also stressed the need for the government to develop plans to exploit the expected increase in demand for sweet crude from 2020, that was prompted by the implementation of the MARPOL treaty by the International Maritime Organisation (IMO).
This treaty seeks to limits the content of Sulphur in bunker fuel to a maximum of 0.5 per cent, from the current 3.5 per cent.
“The ‘election effect’ lies largely within Nigeria’s control and we believe the proposed measures would go a long way to curb further revenue losses post 2019.”

Further analysis showed that oil wells completion in post-election years were negatively impacted by the twin factors of policy uncertainties and heightened security challenges in the Niger-Delta region (election effect).

In 2016, Nigeria survived a triple assault of uncertain policies, security challenges and slump in the price of crude in the international oil market.

Historically, Nigeria has incurred revenue losses usually caused by policy uncertainties and security challenges immediately after general elections Data from 2001 t0 2017 indicated that the number of oil wells completed on a yearly basis – in the oil & gas sector typically decline immediately after an election year regardless of the price of crude oil in the international market.
The range of this decline was between 14 and 59 per cent within the period under review.