Fresh trouble as crude oil prices’ fall continues

• AMCON’s N5.6tr obligation under threat • Govt
votes N500b for social welfare
• Cuts funds for amnesty programme to N20b •
Rules out salary increase<strong
DESPITE the Federal Government’s using a crude
oil price benchmark of N38 for its 2016 proposed
budget, an economic crisis looms. This is because
by yesterday, the oil price continued to plummet,
falling below $37 per barrel and international
Brent crashing to below $40 for the first time
since early 2009. The prices may fall further.
Lamenting the crash in oil price, Asset
Management Company of Nigeria (AMCON) said
the decline had far-reaching implications in its
efforts to meet obligations
Besides, about N500 billion has been earmarked
for social welfare intervention programmes in
next year’s fiscal plan. Potential beneficiaries of
the welfare programme, however, would have to
present evidence of children’s enrolment in
school and of immunisation.
Already, global stock markets fell sharply
yesterday as oil prices remained significantly low
as the Organisation of Petroleum Exporting
Countries (OPEC) decided to leave production
unchanged.
Economic experts, who spoke with The Guardian
yesterday, believed that the government had
come to terms with the reality of the plummeting
crude oil prices and had decided to align with its
resources in the 2016 budget proposal.
Speaking with The Guardian yesterday, Director,
Centre for Petroleum Energy Economics and Law,
University of Ibadan, Prof. Adeola Adenikinju,
said that the $38 per barrel was realistic,
describing it as a conservative approach by the
government.
According to him: “It will encourage the
government to cut its coat according to its cloth.
However, if the government experiences an
upside in the global price of oil, then it can
always submit a supplementary appropriation
bill to the National Assembly.”
The Managing Director of AMCON, Ahmed Kuru,
who noted that it had about N5.6 trillion debt to
honour in the next 10 years, said falling oil prices
reduced government’s ability to meet its own
commitment.
“The price of crude oil below $40 per barrel
impacts the government’s ability to honor its
obligations to those that are owing us. The
impairment of oil assets we took over is another
problem. Real-estate assets are challenged as the
economy is going down.
“There are quite a lot of tank farms in Apapa.
That asset is a specialised asset. Whoever that
will indicate interest will do so based on cash
flow projection, expecting that five years or 10
years down the line, it would have been able to
pay back.
“To dispose them is a big challenge and disposing
them at the prices we got them is also another
challenge. Some of those assets were revalued
and revaluation is most times based on
discretion”, Kuru said.
Transmitting the 2016, 2017 and 2018 Medium
Term Expenditure Framework (MTEF) and Fiscal
Strategy Paper (FSP) yesterday, President
Muhammadu Buhari disclosed that “the Federal
Government will collaborate with state
governments to institute well-structured social
welfare intervention programmes such as: school
feeding programme initiatives, conditional cash
transfer to the most vulnerable, and post-NYSC
grant.”
In the MTEF /FSP document which was presented
to senators at the commencement of session
yesterday, the president said:”N500 billion has
been provided in 2016 Budget as social
investments for these programmes. These
interventions will start as a pilot scheme and
work towards securing the support donor
agencies and our development partners in order
to minimise potential risks.”
The document further stated:”A phased social
welfare programme will be created to cater for a
larger population of the poorest and most
vulnerable Nigerians upon the evidence of
children’s enrolment in school and evidence of
immunisation”
The document provides N20 billion for the
Presidential Amnesty Programme.
This is in sharp contrast with the figure of N47.39
billion provided for the same programme in 2015.
It also announced that the Federal Government
will prune down its size.
In a sub-head tagged “size of government”, the
MTEF stated:”Government will in the near-to-
medium term, continue to prune the size of
government and its MDAs to more efficient levels
without compromising efficiency and
effectiveness. Over the medium term however,
government will revisit the need to rationalise the
agencies of government and strategically
implement relevant provisions.”
The Federal Government has also announced its
intention not to increase salaries within the
period covered by the MTEF. “The mounting
number of claims for increases in salaries and
allowances including pensions and other benefits
will need to be curtailed as part of the efforts at
re-balancing the structure of government
spending” the document stated.