LCCI seeks reduction of oil benchmark to $40

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The Lagos Chamber of Commerce and Industry has proposed an oil price benchmark of between $40 -$45 per barrel for the Nigeria’s 2015 budget, saying the $65 per barrel proposed by the government was too optimistic given the current reality of the global oil market.

In his presentation at a press conference on the 2015 Appropriation Bill of the Federal Government and the Current Economic Situation, by Alhaji Remi Bello, President, LCCI said, “The fundamentals of supply and demand in the oil market cannot support this benchmark in the short to medium term; currently it is at less than $50 per barrel. Ideally, the benchmark should be significantly below the actual price in other to create room for possible savings and adjustments for volatility shocks.”

Similarly, he said the oil production benchmark of 2.278 million barrels per day prescribed in the Appropriation Bill was also optimistic having regard to the persistent oil theft which had continued unabated in recent years.

“The quantity of oil theft has been estimated at about 400,000 barrels per day. There is also the divestment by the major oil companies and sluggish investment in exploration as a result of policy uncertainties and security concerns.

“In recent years oil output has ranged between 1.8million and 2million barrels per day. The oil production benchmark should therefore be guided by this experience,” he said.

Bello described appropriation for petroleum subsidy as the biggest burden on government treasury in the country with N200 billion proposed as subsidy for PMS (petrol) in 2015 down by 80 per cent from N971 billion in 2014. While welcoming this development, he noted that the provision of N91 billion for kerosene subsidy in 2015 is difficult to justify.

“Besides the global oil price dropping to below $50 per barrel there is no longer any justification for budgetary provisions for petroleum products subsidy. We urge the National Assembly to take this into account in its deliberations on the 2015 Appropriation Bill. Times like these call for utmost prudence and curbing of leakages,” he said.

On appropriation for debt service, he said, “We are deeply concerned over the growing budgetary appropriation for debt service. The amount has grown from N712 billion in 2014 to N943 billion in 2015. This is even more disturbing when compared to budgetary appropriation of N93.66 billion for infrastructure and N633billion for capital projects.

“This relativity does not reflect our development priorities and the urgent need to fix the huge deficit in infrastructure. This also raises the concern about the growing domestic debt and the burden it imposes on the economy.

“As a percentage of revenue, the debt service provision is over 25%. As a percentage of infrastructure budget, it is 906%; as a percentage of capital budget it is 148%. The trouble is that the bulk of the debts [mainly domestic] were incurred for recurrent spending and the high cost of running government business. They were not incurred for developmental purposes. This makes the servicing even more burdensome on the economy and the citizens.

“We would like to caution once more to avoid relating debt to the re-based GDP in determining the borrowing the nation’s threshold. This is because a large component of the re-based GDP are not revenue generating. If the current trend of debt accumulation continues, it is only a matter of time for debt service provision to completely crowd-out capital expenditure in the budget.

“The concern about the structure of the appropriation is that it is at variance with the urgent imperative of economic diversification and austerity measures. Economic diversification requires a critical mass of investment in infrastructure. The following facts are worthy of note:

“While the total budget decreased by 8.4%, recurrent budget increased by 5.66%; Capital expenditure dropped by 59% [when compared with 2014] to N633.53billion which is less than 15% of the total budget; spite of the pronouncement of the austerity measure, personnel cost increased by 6.3%; Also, in spite of the pronouncement on fiscal prudence and call for sacrifice, the contentious Service Wide Votes increased from N301.84billion to N348.69billion in 2015, an increase of 15% “A sincere commitment to the regime of austerity measures, cost reduction and economic diversification calls for a major review of the expenditure structure by the National Assembly.”

On moves to deepening revenue profile, he said the chamber shared the concern of the government on the need to diversify and deepen its revenue base and that it should intensify efforts in the areas of Remittances by MDAs to federation account; Improving tax administration to enhance compliance; Addressing fiscal leakages and corruption; Reducing the cost of governance in all tiers and levels of government.

He said, “We further submit that emphasis should be on efficiency of tax administration not imposition of new taxes or fees on investors; taxation should reflect the ability to pay in order to meet the desired distributive role; we advise against imposition of excessive fees and charges on businesses in the name of expanding revenue from non-oil sector of the economy.

“A period like this calls for economic stimulus to reinvigorate the economy and expand the frontiers of the non-oil economy. Government and its agencies should therefore refrain from policy choices that could further stifle investments.”

On fiscal sustainability calls for a review of expenditure at all levels of government, he argued that it is easier to cut spending than to raise revenue and implored the National Assembly to take a critical look at some areas in order to curb leakages and ensure cost reduction in government spending.—Ships and Ports

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