The Senate on Monday descended heavily on the
Nigerian National Petroleum Corporation (NNPC) over the astronomical cost of
production of the country’s crude oil which peaked at $21.2 dollars per barrel.
It, therefore, kicked against the $3 marginal
profit being made on a barrel by the corporation, calling on the federal
government to get the country's economy diversified as quickly as possible.
Information on the high cost of oil production,
which is $21.2 per barrel, almost equaling $25 per barrel oil price benchmark
fixed for the N10.509 trillion 2020 revised budget, came to the fore when
officials of the corporation appeared before the Senate Committee on Finance.
The production cost, according to the Senate Committee
on Finance, is far higher than between $4 and $10 cost of production in other
oil-producing countries like Saudi Arabia and Russia.
The Senate Finance Committee at a meeting with the
Minister of Finance and heads of revenue
generating agencies over the revised 2020 budget in Senate committee room 204
lampooned the NNPC over the unimaginable high cost of production of Nigeria's
crude oil.
The NNPC was put on the spot as its Chief Operating
Officer (Upstream), Yemi Adetunji, who stood in for the Group Managing Director
of NNPC, Melee Kyari, was called upon by the Chairman of the Committee, Senator
Olamilekan Adeola, to explain why cost of oil production in Nigeria is higher
than those of other oil-producing countries in the world.
According to Adeola, while cost of oil production
in Saudi Arabia is $4 per barrel and $3 per barrel in Russia, it is $21.2 per
barrel in Nigeria, indicating very poor marginal profit of about $3 per barrel
based on new oil price benchmark of $25 per barrel.
He asked: "I want you to take us through why
Nigeria's cost of production per barrel of crude oil is the most expensive in
the world, and you give us the breakdown of what constitute those costs into
the variables and the technical cost, as we want to know what you are doing as
an agency of the government to bring down this cost."
The lawmaker also asked about who determines the
production cost, saying: "With the benchmark of $25 as proposed, Nigeria
is just going to have just $3 as its own return on investment, and as I begin
to look at the oil revenue and the mineral revenue as proposed in the MTEF that
has dropped from almost N8.86 trillion to N3.33 trillion, are you saying that
it is worthwhile investment for us as a country?
"Going by the fact that the cost of producing
one barrel of oil is $21 and the benchmark is $25 for over 180 million Nigerians,
and all these cost you have listed, who determines them? How do you ensure that
Nigeria is being charged the right cost on each barrel of oil? In Saudi Arabia,
it is $4 per barrel cost of production; in Russia, it is about $3 per barrel;
while in Nigeria, it is $21, so we are beginning to be afraid as to why we are
channeling all our efforts to this oil and gas if the return on investment is
nothing to write home about."
The NNPC COO, in his response, attributed the high
cost of oil production to series of
peculiarities ranging from security to crude oil theft.
Adetunji explained that security challenges are
kind of peculiar to Nigeria, as in other climes, pipelines are on the surface without
being tampered with, but in Nigeria, even when they are buried two metres to
three metres deep, they are still being vandalised.
According to him, "In some cases, we are trying
to take them to deeper level, but those ones would add to the cost of
production-like going 10 to 15 metres deep-it will add to the cost of about
three to four times the cost of production as against putting the pipelines on
the surface.
“We are working with security agencies to put in
place new framework to ensure that all the hitches are brought down to the
nearest minimum."
On his part, another member of the committee,
Senator James Manager, stressed that the high cost of producing Nigeria's crude
oil is no longer tenable.
He said: "I think the reason given for the
high cost of production per barrel is not tenable because wherever oil is
produced, has its own security challenges, including Saudi Arabia, Iran, Russia among others.
"So, how is our own so peculiar that our cost
of production is up to $21 per barrel? What are those administrative issues and
why are we different from the rest of the world? These are issues that as National
Assembly, we are supposed to take up."
On his part, another committee member,
Senator Shaibu Gumau, declared: "I just
believe that with common sense, I cannot agree with this, and not even the National
Assembly. How could we expect a situation where cost of production of oil per
barrel is $21.2 and the revenue is $25 per barrel? Yet other countries cost of
production is not even up to $10 per barrel.”
However, the Minister of State for Finance, Clement
Agba, however, interjected by explaining to the committee members that
peculiarities cited as reasons for the high cost of oil production were real.
According to him, the North Sea production cost is
higher than that of Nigeria, adding that as an insider, details of the $21.2per
barrel oil production is well calculated.
Apart from the high cost of oil production, the
Senate committee also challenged the NNPC officials to be more opened with
their federally funded projects, the totality of which N484billion is voted for
in the revised 2020 budget.
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