The Federal Government, yesterday, stated that the low price of crude oil had presented an opportunity for Nigeria to save up to $5 billion, about N1 trillion as it would no longer have to pay for subsidy for Premium Motor Spirit, PMS, also known as petrol.
Vice President Yemi Osinbajo, who was speaking in a panel discussion at the World Economic Forum in Davos, Switzerland, however, stated that Nigeria is in dire straits on how to finance the deficit in the 2016 budget.
He said, “Lower oil prices also mean there is some advantage. The decline means that we are not paying any subsidies, which frees up something in the order of about $5 billion.”
He added that Nigeria would still face challenges in financing its budget deficit and aims to increase value-added tax and customs duty collection to help plug the gap.
“We think with adequate governance around budget management and around expenditure management, we can do quite a bit. If we are able to do those things, we might be able to come away with under $30 per barrel oil,” Osinbajo noted.
However, despite the gains to the country, the low price of crude oil and lack of policy direction in Nigeria, has continued to take its toll on companies in Nigeria, as Shoreline Group, an operator in the Nigerian energy sector, yesterday, said it would sack 700 of its staff, while it also suspended its planned $500 million Eurobond.
Chief Executive Officer of the Shoreline Group, Mr. Kola Karim, explained thatwith Brent crude trading below $30 a barrel and the Central Bank of Nigeria, CBN, imposing restrictions on the amount of dollars businesses can obtain, Shoreline plans to cut 35 percent of its nearly 2,000 staff to survive the tough conditions.
He said, “We went on a roadshow and the world of oil collapsed. We are going to wait until end of first quarter and see how stable markets are. Mid-last year, our projections were $60-dollar oil for the next five years.”
Karim said Shoreline would switch its focus to gas production and distribution within Lagos, especially as it costs the company more than $20 to produce a barrel of oil.
He further explained that with a government-mandated price of $3.69 per standard cubic foot of gas to encourage local producers to sell to Nigerian consumers such as power plants, Shoreline is in talks with the African Finance Corporation, African Development Bank and African Export-Import Bank to get them to lend $500 million to finance the projects, which include 125 kilometers, about 78 miles of pipeline.
“That is a local business that is tied to dollars, but is not fluctuating. More importantly, there is no downside to it because the country needs gas to energize its growth’ so that is a secure business.”
Meanwhile, succour came the way of Nigeria in terms of crude oil sales, yesterday, as Indian Oil Corporation (IOC) doubled its crude oil purchases from Nigeria, from 1.7 million tons per annum to three million tons in 2016 on a term or fixed contract.
The purchases, which is partly aimed at diversifying IOC’s sources of supplies, is coming on the heels of the term contracts the Nigerian National Petroleum Corporation, NNPC, signed with some companies for 991,000 barrels per day of Nigeria’s crude oil.
To this end, IOC is the only Asian companies to have been offered a term contract by Nigeria, following the overhaul of the crude oil contracts, where the NNPC prefer to sell directly to international refineries, trading houses and local downstream firms.
IOC was among the firms chosen for the contract alongside refiners like Spain’s Cepsa, Italy’s Saras, and ENOC of the United Arab Emirates. On the list were also trading houses Trafigura, Mercuria and Vitol and international oil companies ENI, Total, Exxon and Shell.
China’s Sinopec and its trading arm Unipec, which are large buyer of Nigerian oil, do not figure in the list.
Prior to the agreement, IOC, India’s largest refinery, buys some eight million tons a year of crude oil from Nigeria; most of which is bought from spot or current markets where prices are subject to extreme volatilities.
A term contract offers not just assured supplies but also cheaper price as the rate is based on official selling price of exporting country.
IOC Chairman, Mr. Shri Ashok said Nigeria chose the companies from their track records and trading experience to ensure that its crude cargoes are not left unsold.
Ashok said crude purchases are based on techno-commercial viability. “A crude has to be commercially viable for me to buy and also technically feasible for our refineries to process,” he stated.
India’s oil Minister, Dharmendra Pradhan said Nigeria crude oil grade is low sulphur and suits Indian refineries.
Nigeria is India’s third biggest oil supplier, selling 11.59 million tons in first half of current fiscal. It was behind only Saudi Arabia (19.56 million tons) and Iraq (17.01 million tons) in terms of supplies.