The Buhari administration has been earning below expectation for the most part of this fiscal year, going by data from the Budget Office and pattern of the Federal Accounts Allocation Committee (FAAC) due to uncertainties around sources of revenues.
Nigeria’s earnings from oil exports receipts, tax collections, imports duties underperformed revenue expectations, Budget office had said in a review that in the first five months in the year, earnings underperformance by about 50%.
In spite a slowdown in revenues, Abuja’s spending has maintained an uptrend, crude oil exports earnings have been impacted by lower production. This was attributed to Shell’s declaration of force majeure on oil assets, technical issues in Forcados and Qua Iboe.
The combined effects of lower than expected income accrued to Nigeria continue to negatively impact Federation Accounts Allocation Committee disbursements month on month.
In October 2021 OPEC hinted that Nigeria achieved 1.45 million barrels per day oil supply as a member of the oil cartel, marking a significant improvement from an average of 1.30 million barrels per day the country had achieved.
With an increase in global oil prices, accretion into gross external reserves has been largely unimpressive as a result of relatively weak earnings from crude oil exports that have been affected by Nigeria’s production volume.
For the most part of the year, Nigeria has been underproducing its capacity, keeping the nation’s supply as a member of the Organisation of Petroleum Exporting Countries low in relation to her quota.
The country has remained growth-starved due to over-dependence on oil receipt is however expected to raise output, a position relay to the OPEC+ group at the Oil and Gas summit in Dubai recently.
However, data shows that the amount disbursed by the Federation Accounts Allocation Committee to the three tiers of government in October based on September revenue reversed the previous month’s decline.
FAAC disbursement increased by 6.2% month on month to N739.97 billion as against N696.97 billion in September.
Analysts at Cordros Capital said, “we understand that a significant increase in the Petroleum Profit Tax (PPT), Oil and Gas Royalties and Excise Duty were responsible for the increased disbursement in October”.
Notwithstanding, analysts noted that federal government revenues from Companies Income Tax (CIT), value-added (VAT) and Import Duty declined marginally. FAAC disbursement shows that the FGN received 40.7% or N301.31 billion compared with N289.26 billion in September.
Also, State Governments received N274.48 billion as against N246.16 billion last month while the Local Governments received N164.18 billion, a higher than N161.54 billion a month earlier.
“We maintain our expectations that the amount to be shared by the tiers of government would remain stable at current levels (N650.00 billion to N750.00 billion) over the medium term”.
Cordros Capital hinges its prognosis on the impact of general improvement in economic activities and rally in oil prices, which would partly offset the decline in crude oil production volume.
The firm said production challenges have continued to undermine the gains associated with rising oil prices on the oil sector as Nigeria’s crude oil output remained below the quota permitted by the OPEC+ production agreement.
According to the October edition of the OPEC Monthly Oil Market Report, Nigeria’s average crude oil production (excluding condensates) stood at 1.45 million barrels per day (mbpd) in September from 1.30mbpd, a 13.2% below the 1.67mbpd which the current agreement permits.
As a result, average crude oil production declined by 2.8% quarter on quarter in Q3-2021 to 1.38mbpd from 1.42 mbpd in Q2-2021.
“We attribute the production decline to the combined impact of infrastructure decay and complexities of operating the oil facilities”. Cordros Capital analysts.
On the latter, analysts said given that some of the significant oil wells were closed during the COVID-19 pandemic, there have been difficulties getting them back to normal operations post-COVID.
Analysts said they do not expect a material change to the current development over the short term, given the nature of challenges which mostly involve a dearth of infrastructure investment.
