As the new government of Muhammadu Buhari settles in, the World Bank has warned that unless the issue of gas -to -power is resolved, it would be difficult to mitigate against the effects of sliding crude oil revenue profile of the country. The World Bank therefore urged the government to muster the political will to break the jinx which has bedeviled the power sector.
With the power sector properly fixed, it
said,the nation’s economic base would expand and this would lead to
significant creation of jobs across sectors.
Marie Marie-Nelly, country director, World Bank stated this in Lagos, while speaking at the Contracting and Procurement Managers Conference with the theme : “Oil and Gas price Decline Contracting and Supply Management, Making a Difference,” which was organised by the Nigeria Liquefied Natural Gas (NLNG) company, and held in Lagos,Monday.
Marie-Nelly emphasised that the country’s leadership must muster enough political will to sort out the power problem, adding it was because of lack of political will that had made her unable to convert her huge gas resources to power.
He lamented that there were still a lot of bottlenecks yet to be addressed which have prevented the translation of gas resources to power, in spite of the huge reserves in- country.
“It is critical to get the gas -to -power issue sorted out without further delay because it is very important towards boosting the economic growth at this point in time when the decline in oil prices has impacted negatively on the economy”, he said.
“ The day Nigeria sorts out the gas-to-power supply issue, that would be the day the country would break the jinx that has enveloped the power sector and the economy would quicken its path of growth”.
Commenting on the implications of the declining oil and gas prices on Nigeria, he urged the government to diversified its economy so as to mitigate the effect of such fluctuations in Oil and Gas prices.
He said areas which the decline has already affected include sharp reduction in the capital expenditure of the 2015 budget, many states not being able to pay salaries and carry on with projects, while many have cut their budgets, and the drastic reduction of foreign reserves which can presently support only about four to five months of importation.
The diversification of the fiscal revenue through a tax policy and administration, export receipt, as well as improving the quality of expenditure could be some of the steps the government may consider taking to boost its revenue profile.
The financing needs of the country, he
said, are so large that they would need to be complemented by domestic
financing from different sources.
He said government would require extraordinary political will to carry out
such reforms but that when once accomplished, they wouls lead to a
diversification of the economy and revenue base of the country,
encouraging private sector financing through foreign direct investment
and borrowing.
He said borrowing to finance economic activities was not a bad thing, and that countries such as Thailand and Malaysia had borrowed significantly but made sure to deploy the resources judiciously.
In his opening remark Babs Omotowa, managing director
of the Nigeria LNG, said the oil price levels are expected to remain
subdued for at least two years. Omotowa added that it was not
inconceivable that oil prices could fall much lower, depending on what happens in countries like Iran, Iraq and Libya.
He said whilst we have experienced this
cycle many times in the past, it has a severe impact on the economy of
oil producing countries such as Nigeria which derives 80 percent of its
revenue from oil and gas earnings, and which do not have the deep
financial reserves of the likes of Saudi Arabia.
He said: “Agreements
are being renegotiated for up to 40 percent reduction in the joint
ventures budget in Nigeria just as many oil and gas producing nations
are taking various steps to respond to this challenge, including Egypt
and Indonesia who are reducing subsidies, Russia which is cutting
government expenditure by 10 percent, Venezuela which is liquidating
assets, Iran which is cutting its budget by $3billion”.
He observed that even though some analysis
may highlight that Nigeria has a relatively lower cost of production,
compared to other basins ($20-$30 for onshore and $50-$60 for offshore,
compared with LTO (light-tight oil) and Oil sands of $60-$80), these
costs are significantly high when one recalls that Nigeria’s onshore
cost used to be $8-$10.
Similarly, government expenditures he
said have gone up significantly, both in overheads and also in
projects. He exlpained for example, that a kilometer of road in Nigeria
now costs over N1billion, and that if it is in swampy terrain with
bridges, it could even be up to $3billion per kilometer.
The NLNG said while it is important for
governments and companies to diversify to increase revenues, it is
equally important to recognise that cost is a big challenge, which has
grown significantly in recent time and become unsustainable.
Olusola Bello
No comments:
Post a Comment