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Oil price increase to solve Buhari’s revenue problem, but two factors challenge cashflow

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Skyrocketing oil price has thrown President Muhammadu Buhari’s administration a lifeline amid his government’s revenue problem, which has caused debt servicing to gulp 98% of 2021 nine-month revenue.

The drastic fall in oil price occasioned by the breakout of coronavirus in 2020 had depleted revenue generation of the Federal Government, with turnover on the commodity settling at N970.3 billion last year Q1 to Q3, against NEITI’s estimation for 2019’s N14.06 trillion (pre-COVID).

President Buhari had also admitted his administration’s challenge with declining oil revenue during his 2022 budget presentation to a joint session of the National Assembly in Abuja, last year fourth quarter.

But with the crude oil price hitting $88.4 per barrel on Tuesday – on the back of missile attacks on United Arab Emirates installations – President Buhari’s administration will have a robust revenue generation on its hands during the calendar year of 2022.

The $88.4 per barrel price is the market’s highest value in the last nine years. During the last year (2014) of President Goodluck Jonathan’s tenure, earnings from oil and gas was N22.40 trillion.

This is why borrowing rose in the face of revenue plummeting in recent years, causing the government to spend N4.20 trillion on debt service out of the N4.30 trillion recorded in nine months 2021.

But to tap into the strong recovery of the oil price to boost his administration’s revenue generation, President Buhari still has to face the Nigeria Labour Congress (NLC), pipeline sabotage and unavailability of the country’s refineries.

Factors challenging cashflow

$40.06 billion lost to theft: In 2019, the country lost $2.77 billion to oil theft, last year, this figure rose to $3.5 billion, while in ten years, Nigeria lost $40.06 billion to crude oil theft, according to NEITI, Nigeria’s oil industry auditor.

This is as a result of oil leaks, pipeline explosion that cut production output and prevents Nigeria from meeting its quota. Last year Royal Dutch Shell Plc had to suspend Bonny Oil Terminal export due to leakages.

Other production lines, Forcados also announced a force majeure, while at the end of Q3 into Q4 2021, Nembe Creek Trunk Line was damaged, allowing Libya surpass Nigeria as highest oil producer in Africa.

NLC faceoff preventing oil cash flow: With crude oil price leveling around $88.4 per barrel, the cost of fuel at retail filling stations should have gone past the current N162-N171 per litre.

Pump price should be above N212.6 per litre, however, the labour union are against the increment, threatening strike and nationwide protests if President Buhari’s administration go on to inflate fuel cost.

The president will have to settle to the demands of the labour if it plans to tap into the oil wealth, one of which is the demand for fully functioning refinery to prevent cost brought on by importation of refined oil.

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