Three times in a row, the Nigerian team led by the resourceful Minister of State for Petroleum Resources, Dr. Emmanuel Ibe Kachikwu who has been mandated by President Muhammadu Buhari to reset the oil and gas industry on the path of growth, efficiency and profitability has convinced members of the Organization of Petroleum Exporting Countries (OPEC) and other top non-OPEC oil producing countries to exclude Nigeria from the collective agreement to implement oil production cuts.
The first concession was achieved in November 2016, when OPEC and Russia reached an agreement to strengthen oil prices by reducing supply to the global market by 1.8 million barrels per day for six months beginning January 1, 2017. Each member was required to reduce output accordingly. But Nigeria was exempted from applying the production cuts. The second concession was announced in May this year after a joint meeting of 13 OPEC and 11 Non-OPEC countries agreed yet again to extend the cuts.
Last month, Kachikwu secured the latest exemption at the Joint Ministerial Monitoring Committee of OPEC and Non-OPEC countries which held in Vienna, Austria. The Minister against stiff opposition by some members who stated that Nigeria did not deserve another exemption made a strong case that though Nigeria has made some progress in improving its production levels, the country was not yet out of the woods. He argued that the country needed more time to stabilize production after huge losses on account of disruptions caused by militant attacks before joining other members to implement cuts. Working with the OPEC Secretary General Mohammed Barkindo and other team members he engaged key OPEC and non-OPEC members and leveraged his international network to make Nigeria’s case. Fortunately, he was successful.
These exemptions have helped at a very fundamental level to stabilize the country’s financial position. First, they have boosted national revenues and reduced the shortfall in the financing needed for urgent national priorities. The reason is that the exemptions granted Nigeria have made it possible for the country to sell all the crude oil that it can produce.
At the same time, the country has enjoyed the advantage of the resulting rally in oil prices as other members implemented the production cuts. The cuts by countries such as Saudi Arabia, United Arab Emirates, Qatar, Russia in addition to the war in Iraq, tensions between the United States and North Korea have spurred global oil prices to rise upwards from a low of less than $30 per barrel before the first production cuts were instituted to about $58 as at mid-September.
Second, the resulting increase in oil earnings has enhanced the country’s capacity to finance the 2017 budget and reduced government borrowing. One important indicator of improving revenues is the recent spike in the allocations to the three tiers of government from the federation account. Last month particularly witnessed a robust increase in the amount shared by the three tiers of government. A total of N637.704 billion was distributed as federal allocations among the federal, state and local governments. Gross revenues went up from N487.319 billion in July to N550.992 billion, an increase of over N163.673 billion. Although there was a dip in oil prices from $51.05 to $50.44 per barrel, this was compensated by a significant increase in export volumes by 0.85 million barrels, leading to higher revenues from exports by about $41 million.
Third, the exemptions have also increased foreign reserves which are helping the Central Bank to stabilize the value of the naira against the dollar along with several other ancillary economic benefits. The Central Bank has drawn on the increasingly robust foreign exchange reserves which are now inching towards the $40billion mark to ensure liquidity in the foreign exchange market. Because of this, the naira has maintained a fairly strong stand against the dollar. The official rate has hovered in the region of N360- N380 for months in a row now in the black market.
It is easy to take for granted the successes which the ministry of petroleum resources and the entire Nigerian team to these engagements have recorded in realizing these oil supply concessions for the country. But the truth is, they were not inevitable. Without the strong lobby, the personal efforts and effective use of international leverage led by Kachikwu, it would have been very difficult to realize these benefits for the country.
Kachikwu’s “audacity” in asking for these cuts and strong case he made for Nigeria’s exemptions over and over again helped to make the difference. As a consequence, Nigeria has earned millions of dollars in extra revenues which are helping the country to recover and stabilize from the recent economic recession. Here again, the game changer has made a difference.