Nigeria to scrap fuel subsidies

Nigeria's government has announced plans to end fuel subsidies, weaken the ? and increase spending by 7 per cent in next year's budget as oil prices decline. The Budget Office estimates that scraping the subsidy, over the next three years, will save the government $7.5 billion in 2012.

Nigeria is facing tumbling revenues as the price of oil, which constitutes more than 95 per cent of export income and 80 per cent of government earnings, declined by 28 per cent in the past six months. The ? declined to a record low of 160.65 against the $ on Wednesday 5th October; while foreign currency reserves, used to fund the central bank's twice-weekly auctions to stabilize the ?, have fallen 9 per cent in the year through 30th September.

The Budget Office said that the government plans to increase spending to ?4.8 trillion next year and will calculate its revenue using crude oil price of $75 a barrel and output of 2.48 million b/d.

It is estimated that combined spending will rise to ?5.18 trillion in 2015. By that time, the government is also proposing to impose a ceiling on recurrent expenditure, such as wages, in favor of capital investments.

The budget is forecast on an exchange rate of ?153 per $, compared with ?150 at present. The deficit is predicted to narrow to 2.69 per cent of the gross domestic product, from the current 3.62 per cent.

For more news and expert analysis about Nigeria, please see Nigeria Focus and Nigeria Politics & Security.

WikiLeaks implicates Nigeria's political elite in oil theft

At the end of last week, WikiLeaks released a US diplomatic cable saying certain members of Nigeria's political elite as well as soldiers have profited from large-scale oil theft in the Niger Delta.

The November 2009 cable sent by then US Consul-General Donna M. Blair, stated: "Oil theft, widely referred to as 'illegal bunkering' in Nigeria, represents significant economic activity with serious ramifications for Nigeria's economy, security, democracy and environment."

The cable went on: "No other, major oil-producing country ... loses as much revenue from illicit oil bunkering as Nigeria, largely because the political elite, militants, and communities profit from such operations."

Oil bunkering remains widespread, with little known about the shadowy process of how the illegally obtained oil, invariably by drilling into pipelines, is stored or distributed. The cable suggested that a Joint Military Task Force (JTF) charged with quelling militancy in the Delta at the time was also involved.

The cable concluded: "Various experts have estimated the volume of oil theft at between 100,000 and 250,000 barrels per day or as much as 91 million barrels per year. This amounts to billions of dollars in lost revenue for the Nigerian treasury every year."

For more news and expert analysis about Nigeria, please see Nigeria Focus and Nigeria Politics & Security.

© 2011 Menas Associates

Nigeria: No oil round till Q3

Senior government and industry sources tell Nigeria Focus there won't be an oil licensing round in Nigeria earlier than the third quarter of 2011. According to these sources, President Goodluck Jonathan has been persuaded to rescind his earlier decision to conduct a new oil licensing round, which had previously been scheduled to take place between August and December 2010.

The delay was argued for on the grounds that it would probably be as unsuccessful as the round held before the 2007 elections by former president Olusegun Obasanjo: few awards were converted to production sharing contracts and major companies hesitated to participate for political reasons.

On several occasions last year, Minister of Petroleum Resources Deziani Allison-Madueke had offered reassurance that a new oil licensing round would indeed take place in 2010. She has, however, been silent recently on the issue of the licensing round.

The new licensing round is expected to be mainly for marginal oil fields and the Department of Petroleum Resources, the agency responsible for organising licensing rounds, is reported to have submitted a list of 38 marginal oil fields to the minister for consideration; she will in turn forward the list to the president for his final approval. The marginal fields up for grabs in the licensing round belong to the existing upstream joint ventures with major companies.

For more news and expert analysis about Nigeria, please see Nigeria Focus and Nigeria Politics & Security.

© 2010 Menas Associates

Nigeria: Oil licensing round unlikely before Q3 2011

Oil and gas industry sources suggest it is almost certain that the next oil licensing round in Nigeria will not take place earlier than the third quarter of 2011. According to our sources, President Goodluck Jonathan had faced pressure to rescind his decision to conduct an earlier licensing round, which had previously been scheduled to take place anytime between August and December 2010.

The success of the argument to shelve plans for a licensing round before the 2011 general elections appears to have been based on that a pre-election bid round could create a credibility crisis for the president. The uproar that followed the botched 2007 oil licensing round, conducted by former president Obasanjo at the end of his tenure, is likely to have served as a cautionary tale.

On several occasions last year, Minister of Petroleum Resources Diezani Allison-Madueke had insisted that a new licensing round would take place in 2010. She has been silent on the issue in recent months, however. The new round is expected mainly to concern marginal fields and the Department of Petroleum Resources (DPR), which is responsible for organising bid rounds, is reported to have submitted a list of 38 marginal fields for consideration, by the minister and the head of state.

For more news and expert analysis about Nigeria, please see Nigeria Focus and Nigeria Politics & Security.

© 2010 Menas Associates

Nigeria: Further personnel changes rumoured

As analysed in recent editions of Nigeria Politics & Security, Petroleum Minister Mrs Deziani Allison-Madueke escaped dismissal in the minor reshuffle on 11th August, despite rumours of her imminent removal. Deputy Finance Minister Remi Babalola was not so lucky, being summarily reassigned to a ministerial backwater following his “unguarded” public comments about the purported insolvency of the Nigerian National Petroleum Corporation (NNPC).

However, this may not be the end of the current struggle for influence in Nigeria's oil hierarchy. Our sources have suggested that the next person in the line of fire may be NNPC Group Managing Director (GMD) Austin Oniwon, upon whose letter to the Federation Account Allocation Committee (FAAC) Babalola's fatal comments were apparently based.

Whether this speculation has any mileage remains moot. However, Menas Associates has noted with interest the increasing behind-the-scenes frustration of the presidency with the slow progress in narrowing the gap between the NNPC's view of the Petroleum Investment Bill (PIB) and the views of the oil industry. Oniwon has been a key figure in the NNPC's uncompromising stance, and has resisted calls from Allison-Madueke to move towards the middle-ground.

While Oniwon's departure might serve the presidency's interests vis-à-vis the PIB, it would further reinforce criticisms of Jonathan's (and Allison-Madueke's) handling of the NNPC: Oniwon took over from Shehu Ladan only four months ago, while Ladan himself had barely spent seven weeks in the position before he was replaced. Sources suggest that Oniwon – an indigene of Kogi State – will be replaced by a GMD from the South-East.

For more news and expert analysis about Nigeria, please see Nigeria Focus and Nigeria Politics & Security.

© 2010 Menas Associates