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Mass Sack, Huge Revenue Loss As Militants Strangulate Economy -By Chika Izuora

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In this piece, Chika Izuora looks at unfolding events as militants strangles the economy by bombing oil facilities.

The recent bombing campaign of oil facilities in the Niger Delta is fast eroding the Nigerian economy, plunging the country further down the road to financial crisis as oil production has significantly dropped and reasonably threatening the implementation of the 2016 budget which was predicated upon the production level of 2.2 million barrels per day.

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Going by the latest data released by the National Bureau of Statistics (NBS) the Nigerian economy is teetering on the brink of recession and the increase in bombings is sinking the country deeper into the abyss, a situation which is worrisome when viewed against the backdrop that crude oil exports account for about 70 per cent of Nigeria’s revenue and 90 per cent of Nigeria’s foreign exchange earnings.

In the wake of the return of hostilities in the Niger Delta, the minister of state for petroleum resources, Ibe Kachikwu, had, a few weeks ago, stated that Nigeria’s crude oil output had dropped to 1.4 million, but analysts were of the view that the country’s crude oil output would have dropped significantly to about 900,000 barrels per day as at today. This, thus, means that the country is currently losing about 1.3 million barrels of crude oil daily due to the bombing. This is exclusive of the huge volume of gas that is transported through the affected pipeline.

In monetary terms, with the current price of Light Crude Oil at about $48.94 per barrel, Nigeria is currently losing about $63.622 million on the deferred 1.3 million barrels of crude it could not export.This is an equivalent of N12.724 billion per day and N381.732 billion per month. Already, the NBS gross domestic product report for the first quarter of 2016 had stated that the crude oil component of the country’s total trade decreased by N716.7 billion or 46.6 per cent against the level recorded in fourth quarter 2015.

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Presently, four grades of Nigeria’s oil continue to be under force majeure, including Qua Iboe, Brass River, Forcados, and Bonny Light. With increasing exports of Qua Iboe and Bonny Light, Exxon Mobil Corporation’s  production has dropped near 300,000 barrels per day, according to sources. Italy oil major, Nigerian Agip Oil Company (NAOC), and an indigenous oil firm, Aiteo Oil, are also currently counting serious losses as available figures show that both companies are losing about 140,000 barrels of crude oil per day from their oilfields in Bayelsa State.

Going by the current market value of about $48 per barrel, the two firms are losing an estimated $6.72 million daily. Eni, an Italian energy firm and parent company of Agip, said that the firm’s production had been cut by 65,000 barrels per day, following Friday’s attack on its pipeline in Bayelsa.Earlier attacks on the oilfield on May 18 and 24 had resulted in the shut-in of some 5,200 barrels of Eni’s equity share of oil output. An Eni spokesperson confirmed the development in an electronic mail at the weekend.

“The total deferred production due to the attack is 65,000 barrels of oil equivalent daily. I can confirm that. There is no further impact on production, since all production from the swamp area were stopped days ago,” the spokesperson said.

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Aiteo, the operator of the Nembe Creek trunkline, which came under attack by the Niger Delta Avengers, (NDA)  on May 28, according to its spokesman, Mr Sola Omole, shut the line conveying crude to the Bonny Export Terminal. Omole said that 75,000 barrels of daily production were deferred as the line remained out of service.

Although figures from Shell Petroleum Development Company could not be obtained, the oil firm had similarly declared a force majeure on its oil exports from the Bonny Export Terminal. Force Majeure is a legal clause that frees a company from liabilities arising from its inability to meet contractual obligations due to reasons beyond its control.

The SPDC, which in 2014, sold the 100 kilometres Nembe Creek trunkline to Aiteo, still relies on the line to lift crude produced from onshore oilfields in Bayelsa to the Bonny Terminal in Rivers State.

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Kachikwu said that Nigeria was producing 1.6 million barrels per day, excluding further production outages due to the attacks on Agip, Chevron and Shell recently. In addition to the loss in revenue to the country, power supply is gradually inching closer to zero as the attacks have crippled almost all of the country’s power plant.Currently, it is put at about 2,800 megawatts (mw), dropping to as low as 650mw within the week from a high of 5,074mw recorded in February.

The chief executive officer of Egbin Power Plc, Dallas Peavey, stated that the company’s power generating capacity had dropped to less than 10 per cent of its 1,320mw capacity.

“We are just sitting idle here. Until the violence ends and gas supplies resume unhindered, the company has suspended plans to double the capacity of power plant, saying that we cannot double the capacity if we cannot find fuel,” he said.

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The managing counsel and head of Energy Projects at Templars, a Nigerian law firm, Desmond Ogba, also warned that if the vandalism is not addressed urgently and comprehensively, electricity will continue to deteriorate and the government’s aspiration to significantly increase power generation by 2019 would be a mirage.

As a result of all these negatives, economic analysts are of the view that the future appears bleak, and it is expected that the country’s gross domestic product (GDP) for the second quarter would be negative, meaning that the country is officially in recession. The situation worsened further for Nigeria, especially with the low oil price, as revenue accruable to the federal government would drop drastically. Already, the amount shared by the federal, state and local government, had over the months been dwindling. Even with the slight rebound recorded in the price of crude oil in the last couple of days, the country would still be at a disadvantaged as its low oil output would further worsen the situation.

Reacting to the bombings, the acting director-general of the proposed Maritime Security Agency (MASECA), Mr Jacob Ovweghre, said that the actions of the NDA, and other militant groups, would wreak the economy and cause even greater pain to the people of the Niger Delta who would bear the direct burden of the crisis. According to him, the destruction of the pipelines in the Niger Delta will reduce the states’ revenue bases and bleed the nation’s economy, increase environmental degradation, pollution, poverty, hunger, school drop-outs, unrest, insecurity, under-development and economic loss. He called on the NDA and other militant groups to desist from bombing crude oil facilities in the Niger Delta and from engaging in other acts of economic sabotage.

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Ovweghre advised the NDA to have a rethink of their action and use intellectual agitation within the ambit of the law to pursue their demands so as to gain credibility.

 

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