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Nigeria’s 2021 revenue reduced by N792.9bn due to OPEC deal cuts

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When the Federal Government recently announced that it will be borrowing N895bn from dormant account balances and unclaimed dividends to shore up its revenue, so many frowned at this even though the very act itself is backed by a law President Muhammadu Buhari signed last year – the Companies and Allied Matters Act in the signed Finance Act 2020.

That the FG resorted to borrowing from dormant account balances is evidence of the  dire economic situation the country has found itself in and in a bid to keep the nation afloat.

And this may not be unconnected to a strict deal by the Organisation of Petroleum Exporting Countries (OPEC) to have Africa’s biggest oil-producing country cut daily production by 939,000 barrels for three months, which will impact revenue by N792.907 billion and probably, worsen her fiscal worries.

The deal is the outcome of the 13th OPEC and non-OPEC Ministerial Meeting (ONOMM) concluded on Tuesday, 5 January 2021 that is expected to help prop up prices which have been battered by a price war between Saudi Arabia and Russia, and the coronavirus crisis will see Nigeria’s oil production pegged to 1.513 million bpd in the first quarter of 2021.

Zainab Ahmed, Nigeria’s Finance, Budget and Planning Minister at the Tuesday’s Budget 2021 breakdown lamented the nation’s low revenue relative to the N13.5 trillion 2021 Budget 2021 signed by the President, Muhammadu Buhari on 31st December 2020. Aggregate revenue of N7.99 trillion is projected to fund the budget which is 25.7 per cent bigger than the 2020 fiscal plan. Ahmed said 30 per cent of the projected revenue would come from oil-related sources and 70 per cent from non-oil sources.

The OPEC plan which takes off in February will see Nigeria cut oil production by a combine 939,000 barrels per day in February, March and April 2021 which were arrived based on 23 per cent reduction in reference production of 1.83 million bpd.

Nigeria being a monolith economy with sole reliance on oil, this definitely will hurt Nigeria’s revenue inflows and further, pressured the spending plan of the government which is being propped partly by a borrowings of N4.686 trillion from both local and foreign sources.

Nigeria will take to local borrowing from January through the first quarter to raise N2.343 trillion according to Ahmed, to rally funds as the government monitors what happens on the foreign scene where the second tranche of the borrowing is expected.

“The decline in oil production and exports witnessed last year will be more complicated in 2021 with greater attention to be paid to climate change,” said Abiodun Adesanya, the CEO of Lagos-based oil consultancy Degeconek.

For the purposes of revenue calculations in the 2021 budget, the Nigerian government is assuming oil production of 1.86 million bpd, including condensate output of between 300,000 bpd and 400,000 bpd, and a benchmark oil price of $40/barrel.

The implication of the OPEC deal according to InsideBusiness, is that Nigeria would have at the end of the 89 days on April 30, cut a total of 83,571,000 barrels valued at $3,342,840,000 or N1.321 trillion using the $40 benchmark.

Owing to the 60-40 per cent sharing between the Nigerian National Petroleum Corporation (NNPC) and the international oil companies (IOCs), the nation’s revenue will drop $2,005,704,000 or N792.907 billion while the accruals to her partners also dip by $1,337,136,000 or N528.604 billion.

Other analysts say Nigeria’s poor record of budget execution means that the N13.6 trillion record budget while solid on paper, will likely fall short of its revenue targets if history is a guide.

The most recent 2020 budget implementation report shows a 100 per cent shortfall in the Half Year actual revenues compared to budgeted revenues from a wide range of sources including FGN share of NLNG Dividends, Revenue from Government-owned Enterprises (GOEs), stamp duty and grants and donor funding among others.

As a result of the zero inflows, a shortfall of N1.267 trillion was recorded as at June 2020, compared to the N2.9 trillion in budgeted revenues expected to fund the budget.

“Revenue generation remains our major challenge in 2021,” Charles Akinbobola, an energy analyst at Lagos based Sofidam Capital said.

The Lagos Chamber of Commerce and Industry (LCCI) lowered expectations about the oil sector outlook, noting that the sector’s growth would be subdued on the continued implementation of OPEC+ Declaration of Cooperation and weak oil price outlook.

“Considering the dim outlook for revenue in the light of weak economic fundamentals, we think the government would most likely underperform its revenue projections, with attendant impact on fiscal deficit and debt portfolio,” LCCI’s Director-General, Muda Yusuf said.

Nigeria has undergone two recessions in the past five years, largely as a result of a collapse in oil prices which is responsible for up to 60 per cent of the country’s budget and 90 per cent of export earnings.

 

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