The Federal Government has proposed $78 as the benchmark price for a barrel of crude oil and fixed the exchange rate at N160 per dollar for the 2015 national budget.
The projection, which was contained in the Medium Term Expenditure Framework and Fiscal Strategy Paper sent to the Senate by President Goodluck Jonathan last week, was $4 higher than this year’s benchmark.
Jonathan had last year proposed $74 as the benchmark price for the 2014 budget but both chambers of the National Assembly, after several days of disagreement, finally put it at $77.5 per barrel.
The President, in a letter that accompanied the documents, noted that the MTEF and FSP were prepared against the backdrop of the global economic uncertainties and developments in the domestic environment.
He said the $78 proposed oil benchmark was to ensure that planned spending was set at prudent and sustainable level and was consistent with government’s overall development set out in the Transformation Agenda of his administration.
In fixing the oil benchmark, the MTEF stated that the proposal was driven by the need to be cautious in the revenue projections given the volatile nature of oil prices and the need to build the nation’s fiscal buffers, which had been very useful in periods of revenue shocks.
The document also set oil production projection for 2015 at 2.2782 million barrel per day, which is lower than the 2.3883 million bpd programmed for this year.
The crude production projection for 2015, according to the document, is predicated on present realities in the oil sector and extensive consultations with relevant stakeholders.
For 2014, the document stated that the government applied a risk factor (production losses) of 300,000 bpd due to production shut-in resulting from activities of oil thieves and pipeline vandals in late 2012 and early 2013.
It, however, stated that the risk factors had been reduced to 150,000 bpd due to improved government efforts at tackling setbacks in the sector.
It further explained that the projected oil production figure for 2015 was lower than that of last year due to lack of new investments in the sector due to uncertainties owing to the delay in the passage of the Petroleum Industry Bill.
However, the MTEF noted that oil production had been estimated at 2.3271 million bpd and 2.4067 million bpd for 2016 and 2017, respectively.
“These projections are indicative of government’s position to improve actual production capacity of the oil sector,” it added.
The document further stated that the rising United States oil output has had great impact on the market as crude prices hovered around $110 per barrel in the last three years despite OPEC’s production disruptions.
It noted that almost all the production losses over the past few years had been replaced by the US Shale boom and increased Canadian production.
It added, “Consequently, the value of US import of Nigeria’s crude dropped by about 69 per cent from $38bn in 2008 to $12bn in 2013.
“It is estimated that crude production in the US will average 9.3 million bpd in 2015. It will be its highest level since 1972. This will put further pressure on oil prices.”
The MTEF further stated that Nigeria’s debt stock was the equivalent of about $65.26bn as of March 2014, with the Federal Government responsible for about 80 per cent, while the 36 states and the Federal Capital Territory accounted for the balance.
The scenario, according to the document, implies a debt to Gross Domestic Product ratio of 12.8 per cent.
“The total debt stock is comprised of external debt stock of $9.17bn and domestic debt stock of $56.09bn,” it added.