Archive for the ‘nigeria’ Category

Petroleum Subsidy and The Global Economy: The Nigerian Paradigm

Energy prices, to a great extent influence the global economy. For members of  the Organization of the Petroleum Exporting Countries, OPEC, the higher the prices of crude oil necessary for balancing their budgets, the greater their need to keep the commodity’s prices even higher. Subsidies as well as expenditure items — such as the “Arab Spring” palliatives — add to budgetary breakeven prices. According to reports, countries such as Saudi Arabia (US$80/bbl), Nigeria (US$70/bbl), Iraq (US$100/bbl) and Russia (US$110/bbl) all require certain crude oil price levels to meet budgetary provisions. In Nigeria, the recent unrest arising from gasoline subsidy removal, stirred global crude oil markets and caused a crash in the European 10 ppm gasoline market.  But that country’s subsidy regimes have also raised critical issues of sustainability.

Goldman Sachs includes Nigeria in its Next-11 group of countries which could potentially impact the global economy. The country’s outlook was recently upgraded to positive from stable by Standard and Poor’s Ratings Services. A member of OPEC, Nigeria is Africa’s largest crude oil producer and fifth-largest supplier to the United States. However, due to an abysmally low, refining capacity utilization, it currently imports between 80% and 90% of its petroleum product requirement. Import costs (product, freight, value additions, handling etc) and a rather nebulous pricing formula have led to much higher retail prices than if products were locally refined.

Consumption subsidy regimes aimed at mitigating the retail price burden have been in place for decades. The sudden removal, on the first day of the year, then saw gasoline prices spike from about US$0.41 per liter to about US$0.90 per liter. Ranked the world’s 133rd in terms of income per capita by the International Monetary Fund, 63% of its people live on less than £1 (about US$1.5) per day according to the Department for International Development (DFID).

These subsidies have over the past few years become unrealistically high. Figure 1 for example, shows that between January and September 2011, a staggering 30.1% of total budgetary provisions was expended in subsidizing petroleum product prices alone. This substantially exceeds the combined provisions for education, health, housing and defence in the 2012 budget. According to the central bank governor, in 2011 a total of US$16.2 billion — approximately half the country’s foreign exchange reserves — was spent in foreign exchange sales to petroleum product importers and in subsidizing petroleum product prices. During a recent town hall meeting to discuss petroleum subsidies, the governor also revealed that ship-loads of refined product were often diverted to neighboring countries for sale at higher prices by “importers” who would also pocket subsidy payments from the government for the same diverted cargoes.

Figure 2 illustrates an even more staggering point: in 2011, more money was spent subsidizing petroleum products than was budgeted for capital expenditure. With rising public debt and declining foreign reserves, meaningful development becomes such a monumental task. In addition, recurrent-to-capital expenditure ratios (about 3:1) are often skewed by the bloated bureaucracy and its outsized emoluments.

 According to Punch, a Nigerian national daily, each serving Senator of the Federal Republic of Nigeria takes home about US$1.3 million annually — more than three times the salary of the U.S. president — while each serving member of the Federal House of Representatives takes home about US$840,000. There are also issues of corruption. For example, accounts of a US$16 billion power sector reform project reveal that for all that amount, not a single power plant was built; nor was the said amount accounted for. Worse still, the report of a hearing on the project by the legislature was shamelessly buried in a political cesspool.

 The government correctly argues that excising financial waste would enable the provision of infrastructure necessary for attainment of its Vision 20:2020 goals. It promised palliatives to cushion the impact of product subsidy withdrawal. But if the citizenry has been leery, it may be because previous promises proved futile.

The subsidy withdrawal drama has played out across successive administrations but three issues of denouement are noteworthy:

1. Phased Withdrawal

There is a limit to the “corrective shock” an economy can sustain without compounding problems. If Nigeria’s productivity for example, is adversely impacted by a one-step (immediate and total) subsidy removal, then the country could be burdened with more problems than it initially set out to address. In addition, a government severely challenged by the increasingly daring terror of the Boko Haram sect can ill-afford further conflicts let alone with trade unions and civil society groups.

Beyond withdrawal of subsidies, internal controls which encumber efficient product supply also need to be eradicated and provisions made among the most vulnerable for amelioration of withdrawal effects. Strictly adhered to, a phased withdrawal of subsidies along with structured milestones, would not only make for impact and conflict mitigation, but also lead to better product delivery.

2. Refining Capacity

The lack of adequate domestic refining capacity is a major driver for the high petroleum product prices. To spur investment in domestic refining, part of the withdrawn subsidy may be deployed in the R&M subsector as initial guarantees for refining margins. This would be a shift of subsidy from consumption to production. Such guarantees were successfully applied to the country’s upstream subsector a few years ago when low, global crude oil price regimes discouraged capital expenditure. The Refining and Marketing (R&M) subsector creates by far the most jobs in the oil and gas value chain.

Nigeria has a total installed crude oil refining capacity of 445,000 barrels per day; but at less than 30%, its aggregate refining capacity utilization over the past decade is abysmally low. (See Figure 3 below). 

The country plans to increase that installed refining capacity by 300,000 barrels per day within three years, possibly making it a net exporter of refined products. However, a country that can hardly utilize a third of its 445,000 barrels-per-day installed refining capacity would surely be incapable of utilizing any proportion of an additional capacity. Adequate investment in the country’s R&M subsector will remain elusive unless issues of product pricing, corruption, security as well as adequate supply of refining feedstock are addressed. Of the 18 refining licences issued more than 7 years ago, none has so much as received a final investment decision.

3. Restructuring

Finally, the country’s oil and gas sector is in dire need of total restructuring. Transactions in the sector have been largely opaque. Issues of corruption and the environment (oil spills as well as gas flaring) go begging. Accounting records of the country’s state-controlled oil company (which largely oversees oil and gas activities) are rarely, if ever published and the colossal failure of its refining processes is symptomatic of the sector’s ills. The requisite matériel, personnel and will to carry out effective regulation are clearly absent; subjects of regulation are even relied upon for logistics and critical evaluations.

The Petroleum Industry Bill (PIB) which was supposed to provide an operational framework for that restructuring has been mothballed in the legislature, amid accusations and counteraccusations of bribery; and investment funds have sought more favorable climes.

All said, while the subsidy regimes are clearly unsustainable, the withdrawal process could have been more skillfully handled. There was a perception of insensitivity to it and the palliative measures seemed more of a patronizing afterthought than part of any well-planned process. If the planning and palliatives horse had been placed before the subsidy withdrawal cart, a much greater proportion of civil society groups would probably have been onboard.

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Oil and Gas Trends: Decoupling of Refining and Marketing Assets

The transport sector currently accounts for a dominant proportion of the global crude oil consumption with refining throughputs spiking during peak driving seasons. As penetration rates for electric and hybrid vehicles are still at modest levels, that dominance is set to endure for some time to come, albeit in decreasing proportions.

Oil and gas companies have recently seen challenges in the downstream Refining and Marketing (R&M) subsector; but these challenges are different for developed and developing countries.

OECD Countries

Total OECD petroleum consumption peaked at about the year 2005 and has been declining since. Figure 1 shows that while OECD consumption increased by about 20% between 1990 and its inflexion year of 2005, that for non-OECD increased by more than 60% from 1990 through 2010.

Weak motor fuel demand and the consequent decline in refining throughputs (Figure 2) have combined with costly regulatory requirements particularly in the United States to bring about poor refining returns. In the United States for example, figures recently released by the Energy Information Administration show that for the week ended September 23 2011, gasoline demand was 419,000 barrels per day (bpd) less than year-ago levels while the four-week average for gasoline demand was 2.4 million bpd less than the corresponding 2010 period. According to the released figures, both Gulf Coast and Atlantic Coast refinery runs saw declines.

Unforeseen circumstances earlier this year also added to poor refining throughputs. For example, European refineries, which take about 80% of Libya’s light sweet crude production, saw significant decline in runs when unrest knocked off that country’s output. In addition, the Sendai earthquake in Japan still keeps about 500,000 bpd of refining capacity offline.

Faced with increasing difficulty to reserves replacement, resource nationalism as well as the aforementioned challenges, many Integrated Oil Companies (IOCs) embarked on various restructuring processes aimed at improving their profitability.

For ConocoPhillips, — which, among the oil majors had the highest share price gains year-on-year for 2010 — assets divestment was the principal restructuring tool. It was therefore no surprise that downstream R&M assets formed a significant proportion of that divestment. The oil major recently broke up into two companies with R&M operations comprising one of them. It is also in the process of selling off refining assets such as the 185,000 barrel-per-day refinery in Trainer, Pa. in the United States. Total and Shell among others have also been involved in R&M divestment.

It would however be incorrect to assume that R&M operations are loss-making ventures (Figure 3). Falling demand for refining products has meant that the most efficient refiners are the most viable. Niche-focused independent oil and gas companies have proved much more efficient in their respective niches than unwieldy IOCs. For example, independent Exploration and Production (E&P) as well as R&M companies recorded overwhelmingly higher share price gains year-on-year in 2010 than IOCs. The potential alliance between resource-rich National Oil Companies (NOCs) and these niche-focused independents may well add to the viability concerns of IOCs.

An upside to the break-up of integrated companies into smaller independents is that the sum of the market valuation of the smaller units has in many cases exceeded that of the original company. This may lend credence to the position that niche-focused companies boast higher operational efficiencies.

 

Non-OECD Countries

For developing economies, where demand is largely subsidy-driven, the challenges are somewhat different. Countries such as Saudi Arabia, India, Pakistan, Venezuela, Iran, China and Nigeria among many others have emplaced various forms of petroleum product subsidies. While such subsidy regimes provide for caps in domestic product prices, they often do not allow for adequate refining margins and have on massive scales, entrenched corrupt financial practices as well as natural resources wastage. With such operational climate, many IOCs have either spurned R&M investments or spun them off completely.

In India, due to the large subsidy burden, the government has mandated a series of increases — albeit gradual — in the prices for refined petroleum products.

In Saudi Arabia where crude oil is used for much of its domestic power generation, subsidies often bring electricity prices as unsustainably low as US$0.015 to US$0.04 per kilowatt. The country’s oil consumption increased by 75% over the last 10 years and is set to top an estimated 5.6% increase this year, against the estimated global average of about 1.4%. The head of  Saudi Aramco had earlier this year, warned that by the year 2028, more than 8 million barrels of oil equivalent per day would be internally consumed if the trend is sustained; and that would impose severe restrictions on export proportions, probably impacting global supply.

Nigeria is often considered emblematic of the oil resource curse. In Nigeria, gasoline prices have been fixed for the past few years at about US$0.42 per liter across the country, irrespective of international crude oil prices or transportation costs. A refining company in that country would therefore face very bleak profitability prospects if it were required to purchase crude oil feedstock at the highly volatile international prices. Of the 18 refining licences issued more than 7 years ago, none has received a final investment decision; and that, in a country which imports most of its refined product consumption. 

For most of those licences, there were no proper provisions for supply of feedstock or evacuation and distribution of product. Security issues as well as poor regulatory regimes compounded the case.  

As Nigeria’s oil and gas production is now predominantly offshore, floating refining operations would stand the country in much better stead. They would provide proximity and ease of access to feedstock as well as better security against sabotage or terror threats.

The issue of caps on some product prices would still have to be addressed. A one-step (total) revocation of subsidies would probably throw up much greater and unsavory challenges for leadership and country. However, since the R&M or downstream sector creates far more jobs than the upstream counterpart, part of current product subsidies may be used initially to guarantee refining margins as a first step in the total subsidy revocation exercise. That would spur investment and with positive, multi-sector  knock-on effects.

Such guarantees are not novel. Capital expenditure (Capex) is critical for sustained oil and gas production. When global crude oil prices were at capex-crippling lows, the Nigerian government entered into contracts which guaranteed investors a certain margin on each barrel of oil produced. Even with the contracts’ inherent flaws, the result was that while global upstream activities were at a lull, operators in Nigeria paved the way for the subsequent, timely increases in the country’s oil and gas reserves.

For Nigeria, the burden of petroleum product subsidy is already unbearable. According to the country’s Petroleum Product Pricing Regulatory Agency, PPPRA, about US$13 billion was expended to subsidize refined petroleum products between January 2006 and June 2010. In comparison, about US$6.4 billion was provided for capital expenditure in the country’s 2011 budget.

One single element of data in Nigeria’s refining statistics, tells all the story:  over the past ten years, the country’s refineries have averaged an abysmal aggregate capacity utilization of less than 30%. The values are 10.90% and 21.53% for 2009 and 2010 respectively according to the Nigerian National Petroleum Corporation, NNPC. There has been either a lack of adequate feedstock supply, or a lack of technical maintenance. Without provisions for adequate refining margins and supply of feedstock, the country would be hard-pressed to find worthy investors for that subsector.

As seen in Figure 2, non-OECD refining throughputs have been on the increase (30% between 2000 and 2010), driven principally by the Asia-Pacific region where economic growth over the next few years is expected to be strong. Singapore refining margins are also expected to see significant upticks through the next few quarters.

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Japan’s Earthquake, MENA Unrest and the Global Energy Market

Japan which imported about 80% of its primary energy requirement in 2008, is the world’s largest importer of both coal and liquefied natural gas (LNG) as well as the third-largest net importer of crude oil. The shallow-focus earthquake (which registered 9.0 on the Moment Magnitude Scale) off the country’s coast last week, generated three-meter high tsunami waves, rendering about 25% of the country’s nuclear power generating capacity offline. Market response ranged from initial stock-selling frenzies through re-evaluation of the nuclear power option but oil and gas supply-demand re-balancing, even if on a regional basis is also expected. While long-term outcomes may be currently unclear, certain trends are indicated:

Oil and Gas

Japan has an interesting energy mix: about 30% of its power needs are met by nuclear capacity, but it also has gas-fired, coal-fired as well as oil-fired power generating installations and is only one of a few countries with the oil-fired variety. With a significant proportion of its nuclear as well as some gas-fired installations offline, it is expected that fuel oil and crude oil will be in greater demand for the short- to medium-term. Increase in LNG demand is also anticipated. Outages at three of the country’s major refineries would mean that an immediate drop in crude oil demand for refining throughput would be offset by an uptick in its demand for power generation. Preliminary estimates of the increase in demand range from 200,000 barrels per day (bpd) to 340,000 bpd, which figures are not likely to strain global supply. According to the Center for Global Energy Studies, CGES, Japan’s dependence on oil as a primary energy source has decreased from 78% in 1973 to its current value of 43%. The country has seen increasing productivity with relatively less use of energy. Figure 1 below for example shows that while Japan’s GDP grew by about 15% between 1999 and 2007, its Energy Use per unit of GDP decreased by about 12%.

The challenge however may be in securing adequate grade fuel oil, specifically, Low Sulfur Fuel Oil (LSFO) which is more suited to its boiler configurations; and prices have already seen anticipatory upticks. Heavy, low-sulfur crude oil grades may therefore be in higher demand.

In 2009, almost 80% of Japan’s 4.4 Mbpd crude oil consumption came from the Middle East while about two thirds of its LNG came from Asian suppliers in 2010. Some European LNG cargoes are set to be diverted to Japan and this has seen higher European LNG prices. Middle East crude oil supplies however, remain a source of global concern especially with regard to the Saudi spare production capacity. The recent arrival of Saudi troops in Bahrain along with brutal crackdown on dissent, ostensibly to protect state installations raised the stakes in the current MENA unrest; for example there are media reports that Saudi Arabia’s main export crude oil facilities may come under intense terrorist retaliatory attacks, a situation — depending of course, on the magnitude — that is certain to put severe, sustained upward pressures on global crude oil prices if not outright shocks.

One of the consequences of the current Libyan unrest has been the disruption of crude oil supplies to Europe. The onset of the Libyan unrest which coincided with a six-year low in European crude oil inventories for that period, exerted upward pressures on the European benchmark Brent. Libya’s light, sweet (low sulfur) crude oil grade is better suited to European refining preferences than the heavy, sour grades produced in many other parts of the world. There are reports which are still unconfirmed, that the exploding civil war in Libya has caused substantial damage to oil and gas installations there. If confirmed, Libya’s production could see protracted outage, further straining the global spare production capacity.

Crude oil grades such as Nigeria’s Bonny Light and Forcados Light among others from the prolific Atlantic petroleum provinces of Africa are expected to bridge that supply gap. Contrary to some media reports however, Nigeria’s crude oil production and not Libya’s, is the largest in Africa. Algeria and Angola also produce more oil than Libya (See Figure 2 below).

Angola, which became a member country of the oil group Organization of the Petroleum Exporting Countries, OPEC, in 2007 has since ramped up its production above Libya’s.

The year 2011 is an election year in Nigeria with increased threats of sabotage attacks on the country’s main oil and gas production facilities in the Niger Delta region; these had led to force majeure declarations on oil cargo deliveries in previous years. There is already a report of explosions at a flow-station operated by a major Integrated International Oil Company, IOC. Production outages in the Niger Delta have correlated with spikes in global crude oil prices; with the Libyan production outage, supply disruptions in the Niger Delta could further tighten Europe’s light crude supply, putting even stronger upward pressures on prices.

Nuclear Energy Swap

A cloud of nuclear uncertainty is gradually swirling around the globe, in the wake of Japan’s nuclear mishaps. In Germany for example, a moratorium on nuclear energy has been quickly emplaced, while many European nations have called for a radical re-evaluation of the nuclear power option. China however, with the highest number (27) of nuclear plants under construction, has vowed to press on, even if with an evaluative pause. Stocks in some major nuclear energy companies such as Areva were down in intra-day trading on Thursday. But if the truth must be told, Japanese nuclear power installations in the main, withstood the Sendai quake. The associated tsunami was the major culprit, knocking off auxiliary generators used for pumping reactor cooling fluids, in the absence of which radiation would spread. In addition, the magnitude of a given earthquake is not the sole determinant of the degree of structural damage; it is possible for lower magnitude quakes to produce higher peak ground acceleration (necessary for structural damage) than higher magnitude quakes. According to records for example, Chile’s 2010 was a magnitude 8.8 and had a peak ground acceleration of 0.78g; the Christchurch (New Zealand) quake earlier this year on the other hand, had a magnitude of just 6.3 but a peak ground acceleration of 2.2g.

Following these global concerns about the safety of nuclear power installations, global demand for natural gas as alternative power generation fuel would likely increase as would pressures for an end to oil-indexation of natural gas prices. This could be added incentive for mega gas projects such as Chevron’s Gorgon works in Australia. Royal Dutch Shell also has significant liquefied gas capability. Japan which holds extensive methane hydrate reserves in its exclusive but undisputed offshore zones may then need to commence exploitation. Strident objections (which cite energy independence issues) to the export-licensing of the increasing U.S natural gas production, would in the short- to medium-term likely see no substantial increase in prices there.

The events may give fillip to renewable energy roles in the global energy mix, as calls grow for more environment-friendly energy.  Renewable energy companies also stand to benefit from some energy re-balancing. For example, due to plant outages in Japan, Asian demand for PVC has turned to the United States where export prices are expected to increase substantially.

Japanese Reconstruction

Japan is not new to reconstruction. The aftermath of Kobe’s massive 1995 earthquake (then listed as “the costliest natural disaster to befall any one country”) is testimony to that. But the current reconstruction efforts may hold added problems. For example, if there is substantial pollution from radiation — and authorities are seemingly at their wits’ end as to management of the nuclear risk — not only would costs escalate steeply, but swathes of the productive eastern part of the country could be shut in for some time. This may translate to lower productivity as well as lower energy demand. Some companies such as General Motors in the U.S. have according to media reports, announced temporary production delays due to unavailability of automotive parts from Japan.

In terms of funding, a massive influx of insurance payouts is expected; in addition, there is reportedly an estimated US$2trln in external holdings which may be repatriated. This pullout could potentially impact some countries. The rapidly-strengthening yen, which recently reached a post world war II high against the U.S. dollar however, may be a disincentive to domestic manufacturers; though the G7 countries have just announced intervention plans, the nature of that planned intervention is still unclear.

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Energy Subsidies and the Global Economy

The government of Bolivia last week issued a decree revoking consumption subsidies on some petroleum products. The action sparked a wave of strikes by trade unions as well as civil groups. Prices of diesel in the country increased by 83% while those of low- and high-octane gasolines increased by 73% and 57% respectively. Following meetings with various union and civil society groups, Eva Morales, the country’s president reportedly reversed that enabling decree .

The International Energy Agency, IEA, in a recent report estimated the total fossil-fuel subsidy for the year 2009 at US$312 billion compared with US$57 billion for renewable energy. It also estimated that eliminating fossil fuel subsidies by the year 2020 would reduce carbon emissions by almost 6% while reducing energy demand by about 5% at that time.

Many countries – developed and developing – retain subsidies for various products in sectors such as energy and agriculture. According to the Energy Information Administration, EIA, for example, total fuel-specific energy subsidies in the United States for financial year 2007 was US$7.435 billion; and fossil-fuels accounted for most of that.  For many of these countries then, the issue of eliminating both production and consumption subsidies constitutes a political minefield. Lobbyists and interests groups wield formidable influence in developed countries while for developing countries, the prospects of a “Bolivia” response are daunting; in Pakistan, a vote of confidence in parliament looms large as an ally in a tenuous coalition bolted citing the 9% increase in gasoline price just a few days ago.

That said, there are in the main, three energy subsidy issues that impact the global economy:

First, international crude oil prices. Energy demand by developing countries has been on the increase; for many of the oil-exporting countries among them, the hike in demand has been boosted by significant levels of consumption subsidy, according to the Center for Global Energy Studies, CGES in London. The CGES reports that during the period 1998-2010, while global crude oil demand grew by 1.2% per year, the demand growth for members of the Organization of the Petroleum Exporting Countries, OPEC, was 3% per year. The import then is that the increasing domestic demand would place constraints on export quotas, a possible driver for higher international crude oil prices. The head of Saudi Arabia’s Saudi Aramco, last year warned that domestic energy demand could rise from 2009’s 3.4 million barrels per day of oil equivalent to 8.3 million barrels per day of oil equivalent by 2028, citing inefficiencies; oil and natural gas are used for generation of heavily-subsidized electricity in Saudi Arabia.

Many of these producer-nations have also embarked on very capital-intensive, medium-term national development programs which require crude oil prices of between US$59 and US$76 per barrel for break-even. It is therefore unlikely that they would be averse to higher, international crude oil prices.  One frightful aspect of resource-driven boom is that for unprepared countries, price-collapse is usually devastating.

Secondly, the issue of inadequate energy prices among many oil and gas producer-nations, has stifled capital investment and therefore supply. In resource provinces where natural gas is associated with oil, operators elect to flare the gas and exploit the oil rather than invest in gas infrastructure which would not provide adequate returns. For mostly natural gas provinces, investment is almost non-existent for the same reason. According to Oil and Gas Journal, Nigeria for example held 185 trillion cubic feet, Tcf, of natural gas as at January 2010, giving her the world’s eighth-largest natural gas reserves. The country, however flares a significant proportion of her natural gas production. The amount of natural gas flared in one year could easily meet some countries’ total energy needs for the same period. According to EIA, the country flared 532 billion cubic feet, Bcf, of natural gas in 2008. The country herself consumed only a total of 430 Bcf of natural gas (about 65% of which was used for electricity generation) in the same year. Of the country’s gross natural gas production in 2008, only about 50% was marketed.

The result is that in Nigeria, only about 47% of the people have access to electricity; those manufacturing companies that are still standing – many have fallen away – have had to invest in private power generation and that has increased operation costs by as much as 20% to 40%. However, the current president, Goodluck Jonathan, has instituted a complete overhaul of the country’s power sector with a new investor-friendly gas roadmap; but the country’s poorly regulated oil and gas sector has also led to an acutely  notorious lack of transparency as well as gas flare problems and oil spills more severe than the April 20, 2010 Gulf of Mexico disaster.

Finally, the sustainability of excessive energy subsidies. The steeply rising proportion of energy subsidies in national expenditure for highly subsidized economies has challenged their economic viability. In Iran, for example, inherent energy problems associated with high subsidies – until just December last year, gasoline prices were only ten cents a liter – have been accentuated by the recent series of asphyxiating economic sanctions spearheaded by the United States. According to TheNational, energy subsidies cost the country a third of her GDP. The degree of infrastructural decay is such that the country, which has the second-largest natural gas reserves is a net importer and the third-largest consumer behind United States and Russia despite having a smaller population. The situation with her crude oil is not much better. The lack of capital investment means that the country with one of the highest reserves could soon become a net importer. Even with the new US$0.40/liter price, the allowable monthly gasoline ration for each motorist would be meaningless in many countries.

Venezuela, with the world’s sixth-largest crude oil reserves is also an unenviable paradigm. A grossly mismanaged energy sector which has witnessed nationalization of assets and gasoline prices as low as US$0.07/liter has left little revenue for President Hugo Chávez to finance his ambitious 21st Century Socialism program. The result has been spates of food and power rationing and an inflation rate which the country’s own central bank put at 26.9% for 2010. The devaluation last week, of the country’s currency – one of several in the past and the second in the last twelve months – would probably add to her woes.

In Nigeria (the fifth-highest foreign supplier of crude oil to the U.S in 2009), the Petroleum Product Pricing Regulatory Agency, PPPRA, has reported that in the period between January 2006 and June 2010, about US$13 billion was expended to subsidize petroleum products. In comparison, provisions for total capital expenditure in the country’s 2011 budget amount to about US$6.4 billion. In that 2011 budget, recurrent expenditure takes about 59% of total outlay, boosted by politicians’ salaries and expenses. As reported, each Senator in the country’s legislature takes home about US$1.34 million per annum while a Representative takes home about US$848,000 per annum (not so sure how that stacks up with the U.S. Congress); and that in a country where about 7 in 10 people live on less than US$2 per day. The country’s central bank governor has at different fora inveighed against such massive fraud associated with her petroleum product subsidies and which make the exercise both meaningless and unsustainable. A Petroleum Industry Bill which was supposed to sanitize the country’s oil and gas sector has been languishing in the legislature; the Freedom of Information Bill, FOI, which is needed to enshrine transparency and good governance is also buried there in ten years of the chamber’s dust. One of the sponsors of that FOI bill has pointed out that the books of the country’s National Oil Company, are not subject to any legislative audit.

In countries such as India, China and even Pakistan, subsidy withdrawal processes have gained currency in bids to ease the rising burden on public purses.

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Nigeria’s Legislature and the Challenge of Relevance

For Nigeria’s legislature, the last few weeks have been somewhat unsavory: the National Assembly seemingly scored three own goals (to borrow a phrase from the passionately, soccer-loving nation) and in rapid succession.

First was the constitutional amendment process, which after ratification by the requisite number of State Houses of Assembly was deemed to be complete without the assent of the President of the federation. This was promptly challenged in the law courts by civil society organizations and a Federal High Court  ruled that the amendment process was still “inchoate”, to wit, in progress and required the assent of the President if it is to be deemed complete.

The nation was still trying to unravel the motives behind the first shot when the legislators fired another: they moved to enact a bill that would require all members of the National Assembly to be “automatic” members of their respective political parties’ National Executive Committees (NEC). In addition to the sheer potential unwieldiness of such NECs (there are more than four hundred and sixty members in the federal legislature), the situation would usurp the constitutional rights of parties to free association. In a recent public hearing held by the legislature, speaker after speaker repudiated the proposed enactment. There have been reports however, that the lawmakers are bent on speedy enactment of the bill, just in time for next year’s general elections. That would most probably provoke challenges in courts of law.

Then, just last week, for his comments to the effect that the National Assembly gulped a staggering and economically unhealthy 25% of the nation’s yearly overhead costs, an umbrageous legislature summoned, and stridently demanded an apology from Lamido Sanusi, the country’s Central Bank Governor; but if the lawmakers expected any repentance, they must have been taken aback. Sanusi resolutely defended his figures (which, reports show, tally with those of the Budget Office), and defiantly held that an apology was unnecessary.

The growing public disquiet over federal lawmakers’ earnings meant that in publicly summoning the Central Bank Governor, the lawmakers unwittingly drew public opprobrium and even accusations of coercion and selfishness. According to Punch, each serving Senator of the Federal Republic of Nigeria takes home N198.54m (about US$1.34m) annually while each serving member of the House of Representatives takes home N127.18m (about US$847,866.67). That said, Hamman Tukur, the recently retired boss of the Revenue Mobilization, Allocation and Fiscal Commission (RMAFC), the body charged with fixing remuneration of public officers, last week on a nationally televised program furnished what he called the official RMAFC-specified earnings (Table 1 below) for members of the National Assembly; he added that earnings by the said members above the given figures could be illegal.

Members of the National Assembly have over the past few weeks traded words with some State and Federal Government agencies over the former’s alleged interference in the affairs of the latter. Erstwhile president, Olusegun Obasanjo on August 4 ,2010, during a retreat for senior civil servants of Niger State, even reportedly “accused members of the National Assembly of corruption through the padding of the federal budget and collection of billions in unjustifiable allowances”. The Speaker of the Federal House of Representatives has also replied that “… for the record, all constituency projects are attached to the MDG fund and it’s the executive that awards the contract to any contractor. We have nothing to do with it. But we will continue to demand that projects are sited in our constituencies.”

The import of Sanusi’s thesis seemed lost in the miasma of the legislative branch’s apparent political one-upmanship. He, in expressing the need to stem the country’s rising debt profile, added that in terms of inflation, overheads were a crucial component of expenditure. He then spoke about the nation’s unsustainable petroleum subsidies  as well as the legislature’s proportion of the national overhead costs among other paradigms. Even the oil-rich Middle East countries (which incidentally have managed their oil proceeds better than Nigeria has) are currently establishing processes for the withdrawal of energy subsidies.

One financial analyst (Kenneth Ife) in underscoring Sanusi’s thesis, added that the percent increases in the National Assembly’s overhead between 2008 and 2009 (about 35%) as well as that between 2009 and 2010 (>20%) substantially exceeded inflation-indexed values.

The assembly members themselves admitted last week during their deliberations on the “Sanusigate” that their approval ratings among the citizenry had tanked substantially; and these three “own goals” most probably, did not help them. There are however, two pending bills that, if properly addressed, would certainly help their ratings. The first is the Freedom of Information Bill, trophied in ten years of the branch’s dust and which would ensure transparency and good governance; two development issues which have plagued Foreign Direct Investment (FDI) and Donor Agency initiatives for the country. The other is the Petroleum Industry Bill (PIB) which would ensure efficiency and transparency in the country’s economic mainstay. (Oil and gas account for more than 80% of the nation’s foreign exchange earnings).

Finally, in the light of recent political developments, unless the country’s Supreme Court is caused to determine (and sooner rather than later) the limits of the legislative branch’s oversight and appropriating powers, ghosts of the country’s past may yet reprise.

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