Excess Crude: FG, States to Share $2bn

Excess Crude: FG, States to Share $2bn
�OPEC: World oil demand to rise again in 2010
By Chika Amanze-Nwachuku in Lagos and George Oji in Abuja, 08.12.2009



The National Economic Council (NEC) has approved that $2 billion be shared among the three tiers of government from the Excess Crude Account (ECA).
NEC, which is chaired by Vice-President Goodluck Jonathan, comprises all the 36 state governors, the Federal Capital Territory Minister, the Attorney-General of the Federation, Chief Economic Adviser to the President, National Planning Minister, Governor of the Central Bank of Nigeria (CBN) and the Finance Minister.
Rising from their monthly meeting yesterday at the State House, Abuja, NEC disclosed that of the $4.5 billion that had accrued to the account, a decision was taken to share $2 billion out of it, while the balance of $2.5 billion would be returned to the reserves.
A minimum of N1 trillion is to be left untouched at any point in time in the account, which was created by the last administration to save the difference between the budget prices and the actual prices of crude oil.
The excess crude account, which stood at $20 billion at the beginning of this year, has been drawn down to about $11.2 billion as at June. With this development, the new balance will be $9.2 billion.
The Federal Government was compelled to draw $1.5 billion from the account last March to bridge the financial shortfalls to the three tiers of governments for last January and February allocations.
The withdrawal from the ECA became necessary following some complaints from state and local governments that they were unable to pay salaries as a result of the decline in revenue owing to the global fall in international oil price which was then below the $45 benchmark for the 2009 budget.
About $5 billion has been spent this year to augment the monthly federal allocation that has been falling due to drop in prices of crude oil in the international market.
It was also from this account that $5 billion has been pledged by the three tiers of government to the National Independent Power Project (NIPP), which jointly own the account.
The governors, who addressed State House correspondents, were Chairman of the Governors Forum and Kwara State Governor, Dr. Bukola Saraki, Imo State Governor Ikedi Ohakim and Niger State Governor Babangida Aliyu Mu�azu.
The governors were joined by the CBN Governor, Mallam Sanusi Lamido Sanusi, and National Planning Minister, Dr. Shamsuddeen Usman.
The governors also threw their support for the Federal Government�s privatisation policy of the petroleum sector and the Petroleum Industry Bill (PIB) now before the National Assembly.
The governors said they supported the Federal Government that it could no longer continue to sustain the subsidy on petroleum, which will rise to N1 trillion before the end of the year.
Sanusi, who spoke on this issue, disclosed that for the months of January to May alone, petroleum subsidy stood at N150 billion. He explained that the disturbing aspect of the subsidy was that it did not get to the targeted beneficiaries, who are the poor.
Commenting on the issues of the excess crude oil, petroleum bill and petroleum subsidy, Saraki said: �We deliberated extensively on the excess crude management. As you are all aware, since 2007, we came up with a frame work for the management of excess crude where we all agreed that the figure of N1 trillion would always be left in the excess crude account and any figure above that should be shared 80-20.
�Following the presentation by the sub-committee on the global economic recession of the economic council, we realised that over and above the one trillion, we still have about $4.5 billion but it was all agreed by others that though we have access to the $4.5 billion, it will be prudent on our own part for now to agree and share $2 billion. This we thought will also have a lot of effect or impact for the fact that there were a lot of borrowing by the states and the Federal Government and we also felt that this will cushion the overcrowding of the private sector in a domestic market which will also reduce significantly.
�So we took a decision that the $2 billion be shared between the federal, state and local governments. We also talked about the petroleum industry bill before the National Assembly and the minister of petroleum and the group managing director of NNPC presented to us the pros and cons of the bill and the value that will come to Nigeria as a whole.
�After the presentation, the governors of the council unanimously gave our support to the bill. But at the same time, we did put a proviso, there was an initiative been brought about by the governors of the South-south states in regards to their communities that there should be some kind of initiatives that is presently being practised in delta where a certain token percentage is given to communities in those areas. The laws cannot allow them to put royalty but we all agreed that that should be looked into. We also agreed to talk to our members in the National Assembly to give support to that bill. Another area we talked about is the issue of gas. Presently, the production of gas has reduced significantly due to the problem in the Niger Delta and the damage to the pipelines.
�The NNPC and the ministry of petroleum resources gave their commitments that between now and the end of the year they should be able to go back to 180 million Square cubic Feet (SCF) or 300 million SCF which should be able to add a further 2000 megawatts into the system. It was clear that the security in the Niger Delta was paramount for them to be able to achieve this. We all agreed that all that is necessary on the part of the Federal Government to improve security in the Niger Delta that is essential for us to meet the commitments to Nigeria in respect of power should be done.�
Meanwhile, the Organisation of Petroleum Exporting Countries (OPEC) has predicted that world oil demand would start growing again next year, after the slight decline this year.
In its latest monthly oil report, the oil producers� group stood by its previous forecast that world oil demand growth in 2009 woulf decline by 1.6 million barrels per day (bpd), or 1.93 per cent to 83.91 million bpd, but that the trend was expected to reverse in 2010, with demand growing by 0.5 million bpd, or 0.59 per cent
The report noted that despite a continuing fall in US oil consumption, increases in demand elsewhere, especially in China and India, had helped maintain the 2009 forecast.
�Next year, increases in demand would be seen especially in China and India again, as well as the Middle East and Latin America. Rising unemployment in the United States and European Union and a stronger US dollar were to blame for the drop in oil prices in early July, but these recovered as optimism set in that economic recovery was on the way. In the absence of any significant change in oil market fundamentals, this volatility indicates the increasing sensitivity of oil prices to conflicting economic signals," OPEC said in its report summary.
The organisation however warned that it might still be too early to speak of a recovery, saying "if market expectations for an economic recovery are not fully realised, current (oil) price levels could face increasing pressure�.
The group also forecast that gasoline demand in the US, world's biggest oil consumer, "is expected to improve from the sharp decline seen this year but will remain a wild card in 2010," OPEC also noted.
As a result of the economic downturn, US gasoline demand dropped by 2.0 per cent in the May-July driving season this year, compared to the same period in 2008. In the five years prior, consumption had always steadily increased by 1.4 per cent in the same three months.
Oil prices picked yesterday, nearing $74 in London, on hopes of economic recovery which may boost demand for energy worldwide.
Brent North Sea crude for delivery in September rose 21 cents to $73.71 a barrel in morning London trade. New York's main contract, light sweet crude for September, gained 29 cents to $70.89 per barrel.