Govt diverts N813.6b to fund joint ventures

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• Retains zero oil, gas revenue from April to Dec
• Nigeria shops for foreign JVs’ investors
• Only N5b released for projects in second quarter

AS a further indication of the oil and gas sector’s loss of its status as the nation’s cash cow, the Federal Government’s revenue of $3.191 billion or N628.6 billion (at the rate of N197 per dollar) from exports in the industry, which was supposed to be retained from April to December 2015, has been used to meet Joint Venture (JV) Cash Calls obligation.

Meanwhile, the grim reality of the effect of revenue drop in the country manifested evidently in the somewhat failed execution plan of the Federal Government budget in the second quarter of 2015 as only a paltry N5.14 billion was released for the financing of projects.

The JV funding between January and December 2015 was more than the total crude oil revenue to the Federal Government for that period.

Specifically, of the total export proceed of $4.74 billion receipts, $0.61billion was remitted to the Federation Account while the balance of $4.13 billion was used to fund the JV Cash Call for the period.

A joint venture is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a joint venture, each of the participants is responsible for profits, losses and costs associated with it.

State-owned Nigerian National Petroleum Corporation (NNPC) holds an average 55 per cent stake in five joint ventures with Royal Dutch Shell Plc, Exxon Mobil Corporation, Chevron Corporation, Total SA and Eni SpA that pump more than 80 per cent of the country’s crude. It pays the same share of capital contributions for the operation of the oil ventures.

At present, the Nigerian government struggles to meet its share of funding to the operation of the joint ventures with energy companies, thereby limiting the scope for increasing production. It is currently indebted to companies including Shell, Exxon Mobil, Total and Eni, which had provided loans in the past to fill the funding gap.

According to a document from the NNPC, JV funding has taken more than 87 per cent of the proceeds, as the 2015-approved budget required a monthly funding of about $615.8 million.

For example, of the total $376.6 million proceeds from crude oil sales in January 2015, government’s funding of JV cash calls was $300 million while it retained $76.64 million, which is lower than the actual JVs funding for the month under review. Also, in March, it funded JV with $320.80 million while it retained $184.98 million.

The Federal Government ploughed back all its oil and gas revenue of $338.10 million, $387.93 million, $419.41 million, $225.74 million, $271.99 million, $445.79 million, $402.55 million and $197.15 million it made in the months of April, May, June, July, August, September, October, November and December respectively in 2015 into JVs’ funding.

The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, while defending the move, said the NNPC was mandated to sweep all the export receipts into JV Cash Call funding , implying a zero remittance to the Federation Account.

He said that plans were on the way to raise funds from international investors and the private sector in 2016 to fund the Joint Venture cash calls.

Nigeria’s Joint Venture operations contributed 227.7 million barrels to the country’s total production of 708.18 million barrels between January and November last year. Kachikwu said already high-level discussions were underway with local and international investors to bridge the perennial JV cash call funding gap.

According to him, the initiative is geared towards relieving the Federal Government of the burden of funding capital-intensive projects in the upstream sector of the oil and gas industry.

The document revealed that output of 294.71 million barrels from Production Sharing Contract (PSC) was the highest during the period under review. Alternative Funding (AF), NPDC and marginal fields contributed 113.1 million barrels, 32 million and 40.1 million barrels respectively in the period under review.

For instance, according to NNPC statistics, JVs contributed 22.2 million barrels to the country’s total crude oil production in January which dropped to 19.6 million in February; 18.7 million in March; 19.5 million in April; 19.5 million in May; 18.3 in June; 21.9 in July; 20.5 million in August; 21.7 in September; 23.1 in October and down again to 22.3 million barrels in November.

A total of 65.48 million barrels of crude oil and condensate was produced in the month of November 2015 representing an average daily production of 2.18 million barrels.

This represents a decrease of 4.23 per cent compared to October 2015 performance. Of the November 2015 production, Joint Ventures (JVs) and Production Sharing Contracts (PSC) contributed about 34.08 per cent and 41.61 per cent respectively. And Alternative Funding (AF), Nigeria Petroleum Development Company (NPDC) and independent accounted for 14.34 per cent, 4.89 per cent and 5.09 per cent respectively.

An indigenous Nigerian producer, who is into joint venture with NNPC after buying assets sold by Shell, wants the current funding arrangement in Africa’s biggest oil producer scrapped in favour of a method less dependent on the government.

The operator who spoke with The Guardian in confidence, stated: “We need to find a situation where the joint-venture partners sit down and agree on what percentage of production should be dedicated on operation and capital expenditures. That way you ensure that growth in the industry is guaranteed, that the production will increase, that the reserves will be increased and that there will be room for exploration activities as well.

“We would like to see government also thinking about divesting some of its joint-venture assets such that the private sector will drive the industry.”

Earlier in the First Quarter of the year, the sum of N47.29 billion was released making a total of N52.43 billion for the half year of 2015 out of the N278.50 billion projected for capital budget for the period.

These revelations are contained in the 2015 Second Quarter Budget performance Report just released by the Budget Office of the Federation obtained by The Guardian at the weekend.
The report signed by the recently sacked Director – General of the Budget Office, Mallam Aliyu Yayaha Gusau explained that the development followed the shortfall of revenue projection during the period.

Quite interestingly however, a whopping sum of N1.166 trillion out of the N1.303 trillion projected for recurrent (non-debt) was expended during the period which also marked the end of the immediate past Administration of former President Goodluck Jonathan.
The report reads in part : “ Due to the shortfall in projected revenue inflow and other demands for the limited resources available to the Government, the second quarter of 2015 Capital Development Warrant was not released to all MDAs. Data from the OAGF shows that as at 30th June, 2015, only N52.43 billion was released to some specific Ministries, Departments and Agencies (MDAs) for their 2015 capital projects, N47.29 billion in the first quarter and N5.14 billion in the second quarter.

It is worthy to note that the Budget Office of the Federation in conjunction with the Office of the Accountant General of the Federation are working towards releasing the First and Second Quarter General Capital Development Warrants as soon as the revenue profile of the government improves.”

Giving specific breakdown of the budget performance during the period under review the Report said the 2015 Fiscal Framework reveals a quarterly deficit of N260.25 billion to be financed through Proceeds of Sale of Government Properties of N2.5 billion, Privatization Proceeds of N2.5 billion, FGN’s Share of Signature Bonus of N14.72 billion, Sharing from Stabilization Fund Account (ECA) of N20.0 billion, Domestic Borrowing (FGN Bond) of N125.53 billion and Foreign Borrowing of N95.0 billion.

It gave more insight into the implementation performance : “ In the second quarter, a total of N387.71 billion was realized from financing item sources implying an increase of N127.45 billion (or 48.97%) above the quarterly estimate of N260.25 billion. The financing item was realized from only Borrowing from Special Accounts of N4.91 billion, Domestic Borrowing (FGN Bond) of N120.0 billion, Transfer of Funds from Special Account (Monetization) of N72.60 billion and Credit Advance from CBN of N190.20 billion. Other items such as through Privatization Proceeds, Proceeds of Sale of Government Properties, Foreign Borrowing and FGN’s Share of Signature Bonus did not materialize in the quarter.

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