2013 Budget: Concern Grows over Revenue Leakages

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 Vandalised Oil pipelines A combination of the growing theft of oil and decline in the remittance by the various government agencies is giving economy managers sleepless nights, as the prospect of full realisation of the 2013 budget projection looks dicey, reports Festus Akanbi

With the controversies that dogged the passage into law of the 2013 Appropriation Bill effectively laid to rest, economic experts believe Nigerians’ expectation of a speedy implementation of the financial document is justified. This, according to them, is in tandem with President Goodluck Jonathan’s promise to hit the ground running as far as the implementation of 2013 fiscal policies is concerned.

However, as the implementation of the budget rolled into the second quarter of the year, there are fears that some leakages in the system may put some strains on revenue generation with the attendant failure to meet the projections at the end of the year.

Depleted Purse
The Nigerian National Petroleum Corporation (NNPC) last week announced a drop in crude oil revenue of about $1.23 billion (N191 billion) due to a drop in crude oil production for the first quarter of 2013.
Also Shell Petroleum Development Company of Nigeria Limited (SPDC) has shut down the Nembe Creek Trunkline (NCTL), deferring the production of 150,000 barrels of crude oil per day to repair leaks caused by crude oil thieves.

Daily crude oil production, which had stabilised at 2.4mbpd,  is said to have fluctuated between 2.1 and 2.3 million barrels per day (mbpd) compared with the projected estimate of 2.48mbpd.
The fall between actual production and forecast in first quarter 2013 had resulted in a drop in crude oil revenue of about $1.23 billion (N$191 billion) that should have accrued to the Federation Account.
The fear over dwindling revenue was also rekindled a fortnight ago at the sharing of N623.768 billion (statutory allocation) among the three tiers of government for the month of March by the Federation Account Allocation Committee (FAAC).

Although the total mineral revenue of N518.389 billion received for the month exceeded the N486.671 billion realised for the previous month, receipt of arrears of sale of crude oil and gas helped boost collections for the month under review.

Notwithstanding, the net statutory allocation of N486.6 billion for the month still fell short of the budgeted amount, forcing a deduction of N123.308 billion from the Excess Crude Account (ECA) to make up for the shortfall. The ECA, which was created to provide succour during rainy days, currently stood at $7 billion.

Explaining the shortfall, Minister of State for Finance, Alhaji Yerima Ngama, had disclosed that crude oil production and lifting operations had decreased during the period as a result of the force majeure declared at Qua-Iboe and Brass terminals as well as the maintenance activities at Okono, Brass and Amenam terminals.
The minister also said the total non- mineral receipts of N77.319 billion for the month fell short of the budgeted amount of N158. 711 billion by N81.392 billion and also fell short of collections for February by N7.686 billion.
He said: “In total, the amount available for distribution is N595.708 billion, which is below the budgeted amount of N623.768 billion by N28.060 billion”.

Oil Pipeline Sabotage
Perhaps, the greatest fear came from the sabotage of the oil pipelines, which has continued to form the basis for oil companies to tinker with their production schedules.

According to a recent report by Bloomberg News, Exxon Mobil ended a supply warning on Qua Iboe oil exports it made on February 7 after two weeks. Shell on February 5 announced a force majeure on gas supplies to Nigeria LNG Limited, after thieves ruptured a pipeline.

At the height of militancy in 2009 by the Movement for the Emancipation of the Niger Delta, oil companies declared force majeure 12 times. The figure, which dropped to four in 2010 after the government declared an amnesty for MEND fighters, went up again to 11 last year as thousands of former rebels who gave up their weapons returned to a life of crime.

“There have been growing opportunities for some of these organised criminal syndicates to operate with greater impunity,” Roddy Barclay, an analyst at Control Risks, a London-based business consulting group, told Bloomberg News. “Certainly some of the ex-militant actors that were engaged in the armed attacks against the oil industry are now also involved in the more criminally lucrative theft”.

But Petroleum Resources Minister Diezani Alison-Madueke recently explained that President Jonathan was seeking international assistance by approaching countries that receive stolen crude from Nigeria or where the proceeds are laundered to help close the loopholes.

The thefts cost the government $7 billion in revenue in 2011, about a quarter of this year’s national budget, according to the central bank.

Harvests of Force Majeures
In the first two months of this year alone, Royal Dutch Shell Plc and other oil companies have declared three force majeures, a legal clause that allows them to miss contracted deliveries due to circumstances beyond their control. The thefts threaten to outpace the worst year, 2009, at the height of the insurgency by militants in the Niger Delta.

Bloomberg quoted the Country chair/ managing director of Shell Petroleum Development Company Limited, Mr. Mutiu Sunmonu, as stating that: “The situation in the last few weeks is unprecedented.”
He said: “The volume being stolen is the highest in the last three years; over 60,000 barrels per day from Shell alone.”

The agency stated that Shell, Exxon Mobil Corporation, Chevron Corporation, Total SA and Eni SpA run joint ventures with the Nigerian National Petroleum Corporation that pump most of the country’s oil. Nigeria was the seventh-biggest producer in the Organisation of Petroleum Exporting Countries last month, with output at about 2.1 million barrels a day.

The federal government recently charged 22 people, including 10 Indian nationals, with oil theft in Yenagoa, Bayelsa State capital, on January. 23. A 15-man Russian crew is also facing charges of weapons smuggling after their vessel was seized in waters in the oil region in October last year, with authorities alleging links with the oil gangs.

At least 7,000 improvised refineries dotting the delta were destroyed by troops in the past two years, Joseph Okogie, a navy spokesman, recently disclosed.
“Given the magnitude of the leakages, a more proactive and comprehensive approach is probably needed to curb oil theft,” Samir Gadio, a London-based emerging-markets strategist at Standard Bank Plc, said in an agency report.

Revenue Shortfalls Worry DMO
The Director-General, Budget Office of the Federation, Dr. Bright Okogu, who confirmed the government’s anxiety about the likely revenue shortfall, reportedly listed revenue challenges to also include non-full remittance by revenue generating agencies; taxes collection efficiency issues (Federal Inland Revenue Service, Nigerian Customs Service); pipeline vandalism and oil theft,” he said.

As in a further confirmation of this scenario, figures from the monthly allocations to the three tiers of government by the Federation Accounts Allocation Committee showed the country only realised N1.818tn as gross federally collected revenue in the first quarter of the year. A breakdown of the figure showed that N651.26bn was earned in January; N571.7billion in February while the month of March yielded N595.71 billion.

Threats to 2013 Budget
Analysts said going by the trend, Nigeria may only realise about N7.3tn for the 2013 fiscal year unless the revenue generating agencies step up their efforts.

Of the N11.34tn projected gross federally collectible revenue, the Federal Government is expected to retain N4.1tn made up of N2.358tn oil revenue and N1.742tn from non-oil sources.

The N1.742tn non-oil revenue is expected to be generated as follows: Value Added Tax- N127.05bn; Companies’ Income Tax- N457.12bn; Customs- N412.90bn; independent revenue- N455.78bn; Federal Government’s balance of special accounts- N28.02bn, and unspent balance of the previous year- N261.21bn.
Of the revenue, the Federal Government alone is expected to spend N4.987tn made up of N2.386tn for non-debt recurrent expenditure, while capital expenditure will gulp N1.621tn.

A report of an investigation conducted by the House of Representative Committee on Finance showed that about 60 agencies considered as major revenue earners either spent the money they collected on their operations or simply failed to remit it to the Consolidated Revenue Fund of the Federal Government.

The committee report revealed, for instance, that out of the N3.06tn the agencies generated in 2009, only N46.8bn or 1.53 per cent was remitted to the government. In 2010, the sum of N3.07tn was generated but only N54.1bn or 1.76 per cent was remitted. For 2011, the generated figure was N3.17tn, out of which N73.8bn or 2.33 per cent was remitted.  The report added that out of the N189bbn expected to have been remitted as of October 2012; only N80bn was remitted, leaving a shortfall of N109bn.

In all, the committee found out that the total remittance to government for the three years was a paltry N254.7bn out of the total N9.4tn revenue generated.  According to figures reeled out by the Petroleum Products Marketing Company Limited and Nigerian National Petroleum Corporation, N190bn was lost to pipeline vandals between 2011 and 2012.

Details of the loss showed that while revenues loss to crude oil theft decreased substantially within the period, those lost to theft of refined products, however, increased substantially.
In 2011, pipeline vandalism for the theft of crude resulted in the loss of N90bn, while theft of refined products resulted in the loss of N20bn in the same year.

Risks to Targeted Revenue
However, in his reaction to the emerging scenario, Head, Research and Intelligence, BGL Plc, Mr. Olufemi Ademola, said the situation would be worse unless the authorities moved swiftly to arrest the tide of sabotage to the economy.

He noted that a “significant portion of our national revenue comes from oil. The 2013 budget in which oil revenue accounted for 70% of total revenue is premised on oil production of 2.53million barrels per day (mbpd) and benchmark price of $79/barrel.

“Apart from the potential for download volatility in oil price which can affect the revenue, production shortfall due to downtime, insurgence/vandalism and theft are the major risks to meeting the target revenue.

“In the first quarter of 2013, despite the stable international oil price and the Naira exchange rate, total revenue to government was estimated at about N1.8 trillion; grossly below the budgeted figure of N2.84 trillion (based on the annual budget of N11.34 trillion). “The shortfall was blamed on production losses due to pipeline vandalisation and oil theft, and plants shutdown. In addition, non-full remittance by revenue generating agencies and taxes collection efficiency issues with FIRS and Nigerian Customs Services were partly responsible for the revenue shortfall. If this trend continues till the end of the year 2013, total revenue collected could amount to less than 70% of the budget; leading to increased borrowing to cover for the revenue gap and further worsening our debt situation and increasing macroeconomic risk. So, I will say that the fears are very real.”

FG up to the Task
In spite of the severity of the situation, Ademola believe the “Federal government is clearly capable of halting the negative trend. However, it will take a strong resolve by the government to tackle the problem. Since the causes of the shortfall are known, developing strategies to tackle the problems shouldn’t be difficult. Oil theft, especially in the delta areas, is not a new development. However, the brazen manner in which the perpetrators are now carrying out their activities is a serious concern. While the situation in the oil producing areas requires careful handling, it should be dealt with resolutely.

“There is need for increased effectiveness in policing the pipelines and oil installations and probably adopting the strategy of licensing the illegal oil refineries in the creeks and thus bringing them onto the mainstream. Government should also ensure increased transparent oversight of all revenue generating agencies and enforcement of strict adherence to fiscal governance rules and provisions in MDAs’ operation.”

How Serious is the Situation?
The BGL officer explained that, “On the surface the situation is very serious. The shortfall in the revenue for the first quarter was N1.02 trillion. This is being supported by the excess crude account and borrowing. The budgeted amount for borrowing in 2013 is N577 billion of which N285 billion has been borrowed in the first quarter.

The planned borrowing for April 2013 is N104.8 billion; leaving only N187.2 billion for remaining 8 months.
The implication is that the buffer to revenue from borrowing is seriously limited. However, this is just 3 months into the fiscal year and a lot can change before the year ends. Nonetheless, it will require deliberate corrective actions from the government to reverse the situation.”

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