- Lagos, Rivers, Delta May Fall Back on IGR
By Hamilton Nwosa (Head, The New Diplomat Business and data tracking desk)
As Oil price continues to plummet at the international market, fears have heightened that Nigeria’s 32 States may go broke at this month as projections estimate that FAAC may record its lowest monthly available revenue in recent times. The Federation Accounts Allocation Committee(FAAC) monthly receipts fell down as low as N400bn last month.
Under normal circumstances, FAAC shares an average of N700 bn monthly among the various States, local governments and the federal government. However, last month President Muhmmadu Buhari had to source additional $150m from Nigeria’s Sovereign Wealth Fund to augment the drastic shortfall in FAAC. With this latest crash, experts estimate that FAAC receipts may slide down to about N200bn with many states especially Osun going home with zero allocation from the FAAC meeting at the end of this month.
Said an economist who wishes to remain anonymous: ” It is a very grim situation my brother. With the as low as $11 per barrel and then down to $10 a barrel yet there are still no off takers. It would be tough. We have over the years failed to diversify our economy, hence the impact would be very dire. My analysis of the situation is that FAAC receipts for this month may fall to N200bn. Many states have to look inward.
“I see Lagos with hefty IGR of about N46bn monthly being able to survive the storm. Other States with IGR running into about N20bn to N40bn might still be able to fall back on their IGR to pay staff. And that would be all. Delta should fall back on IGR. Rivers. These States may have to rely on their IGR in the coming months until things pick up and stabilize.. Last year, Delta generated about N154bn IGR that year.. So on the average, it should be able to fall back on IGR..”
Recall that one of Nigeria’s benchmark grades, Bonny Light, has plummeted to about $12 per barrel, fueling apprehension that the FAAC receipts this month of April might be drastically reduced as dips in revenue receipts would start reflecting in the federation account this month with the sliding oil prices. Nigeria depends, largely( about 97 %) on oil revenue.
Thus these are tough times for Nigeria. Energy analysts explain that Nigeria’s energy challenges are further compounded by insufficient storage capabilities to warehouse or store unsold supplies. Experts told The New Diplomat that with growing discounts, there are still no off-takers of Nigeria’s oil.
Recall that NNPC’s GMD Mallam Mele Kyari had recently warned that the unsettling Oil price crisis might put Nigeria out of Oil business if not properly managed. Kyari noted that given Covid-19 pandemic, Oil producing countries including Saudi Arabia now sell Oil at $22 per barrel. The consequence is that should Nigeria emulate Saudi Arabia, the country would be earning only roughly $5 on a barrel, a development that is highly unsustainable. Even more worrisome, data tracked from Knoema.com, a global oil data firm had indicated that production cost in Nigeria’s Deepwater may be higher than $17 per barrel, as it ranges between $25 and $30 a barrel. But as at last night, Nigeria’s crude has fallen to $11 per barrel yet there are no buyers.
Analysts say if the covid-19 pandemic persist, many countries might weigh various options. One of the options is that with global oil price falling to $0 last night, some rich developed nations with highly diversified and robust economy might shut down crude production. Last night, Oil Price reports that many Energy companies in Canada have shut down crude production.