The Nigerian Senate Committee on Finance has asked the National Petroleum Corporation (NNPC) to explain why the cost of oil production is ‘very high’ in Nigeria.
Members of the committee issued the query on Monday, wondering why the cost of production of oil in Nigeria is ‘far higher’ than what was obtainable in other oil producing countries.
The lawmakers revealed this when they hosted the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed and other heads of revenue generating agencies, to defend the revised 2020-2022 Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) submitted to the National Assembly last week.
The senators frowned that the cost of oil production was put at $21.2 per barrel while the price of crude oil in the revised budget was put at $25.
They noted that with the situation, what accrued to Nigeria was a marginal profit of $3.
Consequently, the chairman of the committee, Senator Solomon Adeola called for explanations on why the cost of oil production is far higher than those of other oil producing countries.
Giving instances, Senator Adeola noted that the cost of oil production in Saudi Arabia was $4/barrel and $3/barrel in Russia, while in Nigeria, the same cost $21.2/barrel.
He said what the situation showed, was that Nigeria only earned a very poor marginal profit of about $3/barrel based on new oil price benchmark of $25/barrel in the revised 2020 budget.
In his response, the NNPC’s Chief Operating Officer (Upstream), Yemi Adetunji, who represented the Group Managing Director (GMD), Mele Kyari, attributed the high cost of oil production to peculiarities ranging from insecurity to crude oil theft.
Not satisfied with his response, a member of the committee, Senator James Manager argued that the security issues referenced by Adetunji were not tenable as similar problems exist in other oil producing countries without leading to high cost of production in such countries like in Nigeria.
Similarly, Senator Shaibu Gumau, another member of the committee maintained that the existing $21.2 per barrel high cost of oil production and $25 per barrel oil price benchmark did not make any economic sense.
He said, “How could we expect a situation where cost of production of oil per barrel is $21.2 and the revenue is $25 per barrel? Yet, in other countries, there is no one that their cost of production is even up to $10 per barrel.”
At the end, Adetunji promised that the NNPC was working hard to ensure the fixed cost would be brought down.