Low oil production threatens 2024 budgeted revenue

The Nigerian government has said its ability to achieve the 2024 budgeted revenue step-up of 77.4 per cent from 2023 is at risk should oil production remain 27.0 per cent below budgetary provisions.

The government disclosed this in a draft copy report of the Accelerated Stabilisation and Advancement Plan (ASAP) presented to President Bola Tinubu by the Minister of Finance and Coordinating Minister of the Economy, Wale Edun, on Wednesday.

“Our ability to achieve the 2024 Budgeted revenue step-up of 77.4 per cent from 2023 actual is at risk should oil production remain 27.0 per cent below budget. Fifty per cent of the annualised YTD variance suggests a lower-than-budgeted revenue of N15.7 trillion at the current run rate,” it said.

The report said the federal government retained revenue for January and February 2024 was approximately 60.0 per cent of budget, largely driven by lower crude oil production volumes (at 74.5 per cent of budget projection).

“If current revenue shortfalls persist, the revenue for 2024 is unlikely to exceed N15.8 trillion,” it said.

It added that the current oil production is at 1.4 million bpd compared to the 1.78 million barrels per day (bpd) budget assumption and the Organisation of Petroleum Exporting Countries (OPEC) quota of 1.5 million bpd, resulting in federal government revenue shortfalls.

Overall, it explained that the oil sector, as the fiscal anchor for the Nigerian economy, has underperformed due to years of underinvestment, inefficiency and opacity, leading to lost revenues and jobs and a grossly underserved local energy market.

According to the report, Nigeria’s comparatively high cost of oil and gas operations (mainly due to oil theft, vandalism and unattractive fiscal policies) has negatively impacted investment levels.

It noted that an uncompetitive investment climate resulting in low growth of oil production caused depressed fiscal income to the federation account, illiquidity in foreign exchange markets and domestic energy insufficiency.

“Continued reliance on fuel imports despite significant amounts spent on government-owned refineries over the years constituting significant foreign exchange drain on the economy and difficulties in reducing fuel subsidies to zero given the current inflationary and consequent social pressures,” it said.

Gas Potential

The report said despite having the largest proven gas reserves in Africa (over 209TCF), Nigeria has struggled with declining gas investments and production.

In addition, it said the debts owed by the power sector (now accumulated to N428 billion) have led to delayed and abandoned projects, adding that the Nigerian gas sector delivers only 1,555mmscfd to the local market, far below the needs of the local economy.

“Difficult economic conditions threaten to unravel bold reforms undertaken by Mr President. The macroeconomic environment, including persistently high inflation at 33.7 per cent, the highest in almost three decades, high interest rates (Monetary Policy Rate at 26.3 per cent) make it difficult for businesses to borrow, and the exchange rate remains volatile with the resulting uncertainty disrupting economic activity,” the report said.

The report highlighted the executive orders to bolster ASAP, including inflation reduction, employment generation, non-oil export promotion, prudent financial management, and tax information consolidation.

For the inflation reduction, the government plans to suspend import duty & value-added tax on specified items, boost the importation of paddy rice by millers, peg import duty exchange rate, and prioritise productive spending.

For employment generation, it plans a relief for wage awards, transport subsidy to low-income staff, the tax deduction for the salary of incremental staff, an additional 50 per cent uplift on eligible deduction on transportation and other allowances and enables foreign employment for Nigerians as remote workers.

Others, according to the report, include tax exemption for repatriated export proceeds of services and intellectual property, zero-rated VAT for all non-oil exports, relaxation of restrictions on the use of export proceeds, and removal of tax clearance certificates as a condition for foreign exchange application, payment of fees in Naira and MDAs foreign exchange banked with Central Bank of Nigeria, the introduction of tax information and collaboration Initiative(TICC), creation of TICC data bank to be managed by Joint Tax Board, mandatory use of NIN and registered company numbers and the National tax data governance framework.