Economy in Bad Shape, Oil Price will Not Rebound Till 2019, Says Rivers TUC

The Rivers State chapter of the Trade Union Congress (TUC) of Nigeria has raised concerns that the Nigerian economy is in a very bad shape as the country was not prepared for the fall in crude oil price from $115 per barrel in June 2014 to the current price of less than $50 per barrel.

In a position paper titled: ‘The Historical Overview of the Impact of Global Oil Politics on Crude Oil Prices, Investments and Employment Relations in the Nigerian Oil and Gas Industry,’ the Chairman of Rivers TUC, Comrade Hyginus Chika Onuegbu, noted that global analysts like Goldman Sachs have forecast that global oil price will remain at $50 per barrel till 2020, stressing that the country is obviously not prepared for any sustained fall in crude oil price as global analysts forecast.

“For instance, Nigeria has just $2 billion in excess crude account which reports say may soon be shared; less than $30 billion in external reserves; owes over $60 billion even as many states in the country continue to seek for loans and bailout funds to pay workers salary. The country owes the Joint Venture (JV) partners some $6 billion and forced a 40 per cent cut in oil and gas JV operations last year; devalued the currency from N155 to some N200 per US$ etc.  Juxtapose this with Saudi Arabia that has external reserves of some $900 billion,” the union stated.

The congress also expressed serious doubt that President Muhammadu Buhari may be able to deliver his campaign promises to Nigerians if the price of crude oil which accounts for some 90 per cent of Nigeria’s total export revenue and 75 per cent of total consolidated revenue continues to hover around $50 per barrel between now and 2019 as forecast by global experts like Goldman Sachs.

Onuegbu further stated that the fall in crude oil price has already begun to take its toll on the oil and gas industry cutting deep into revenue projections and big losses at the end of third quarter of 2015 and has also led to significant contraction in exploration and production activities globally as the oil and gas companies embark on massive cost cutting measures to weather the storm.

According to him, there are concerns that some 120,000 direct and indirect jobs might have been lost in the Nigerian oil and gas sector due to the fall in crude oil price.

“At present many state governments are unable to pay the salaries of their workers as the federal allocation has dwindled seriously. Already many of the state governments including states in the oil rich Niger Delta are resorting to borrowings and the federal government bailout funds to pay workers’ salaries. The fact remains that in the coming months, analysts expect the country to rise above politics by making the needed bitter reforms if it must remain afloat. Already economic watchers foresee a situation where many state governments will in 2016 and 2017 or thereabout begin massive cut in public expenditure which may even include discussions over lay-off of public sector employees if the government does not take urgent steps to mitigate the effect of the current economic crises occasioned by the fall in global crude oil price and industry scale oil theft continues unabated,” he explained.

Onuegbu said Nigeria’s situation was made worse by the fact that there were existing serious challenges in the industry which were yet to be addressed by the government and other stakeholders.

He listed the stealing of about 400,000 barrels of crude oil daily through pipeline vandalism, well head vandalism, illegal crude oil diversion, escalating insecurity and kidnapping in the Niger Delta leading to significantly increase in the cost of doing business as some of the challenges.

Onuegbu also identified government’s inability or refusal to fund JV budgets and expenditures thereby stalling on-going oil and gas projects and operations as one of the major challenges.

He stated that other challenges are huge cash call arrears, and the non-passage of the Petroleum Industry Bill (PIB) which has reportedly stalled some $80 billion in investments in the sector as international investors adopt a wait and see attitude refraining from making any new investment pending the passage of the bill.

“There are also very serious challenges in the Nigerian downstream sector as the nation’s four refineries produce at far less than their installed capacity forcing the country to import much of its needed refined products, and embracing a subsidy regime to reduce the cost per litre to the public. Unfortunately the subsidy programme has become unsustainable under the current regime of low crude oil price, opaque and riddled with corruption. As if the above challenges are not bad enough, half way into 2014, the Nigerian National Petroleum Corporation (NNPC) announced a 40 per cent cut in the JV programme budget after the JV partners had gone ahead to spend on the basis on the DEVCOM approved figures and the 2013 levels. The effect of this is a significant cut in exploration and production activities from the second half of 2014. This in addition to non-funding of JV operations forced the JV partners who are major oil companies to significantly scale down their operations in Nigeria and also owing their contractors thereby exacerbating the problem in the Nigerian oil and gas sector,” Onuegbu added.

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