The Federal Government of Nigeria witnessed a substantial reduction in its oil revenue target for May 2023, as it dropped from an initial projection of N804 billion to just N223 billion. This decline in federal earnings represents a staggering 72% reduction in the targeted oil revenue. These revelations are based on statistics from the Central Bank of Nigeria’s (CBN) Monthly Economic Report for May 2023.
According to the report, “oil revenue at N223 billion for May was 36% below receipts in the preceding month and below the monthly target of N804 billion.” The observed decrease in oil revenue is attributed to lower receipts from Petroleum Profit Tax and Royalties.
Overall, the report highlights a drop in gross federation earnings due to lower oil and non-oil receipts. In total, federation revenue amounted to N837 billion, reflecting a 16% decline compared to the previous month and a significant 53% shortfall when compared to the budget.
The report emphasizes that non-oil revenue sources continue to dominate, contributing to 73.4% of federation revenue during the review period. However, even non-oil receipts were affected, totaling N614 billion, which is 5.4% less than the previous month and a substantial 36% below the target.
The decline in non-oil revenue is mainly attributed to reduced collections from Company Income Tax, Value Added Tax, and Customs & Excise Duties, primarily influenced by the seasonality of tax returns filed by businesses in Nigeria.
The CBN’s report coincides with a similar report by Reuters, indicating a decrease in the United States’ waterborne imports of crude from the Organization of the Petroleum Exporting Countries (OPEC) and its non-OPEC partners. This trend is further contributing to the tightening of supplies in the U.S. while supporting other markets, particularly in Europe.
Additionally, the CBN reports that earnings from crude oil have weakened due to a decline in crude oil prices, which has been exacerbated by the United States’ debt situation. Provisional data reveals a 3.8% decrease in crude oil and gas export receipts to $4.06 billion from $4.22 billion in April.
The average spot price of Nigeria’s reference crude oil, Bonny Light (34.9° API), also declined by 11.16% to $76.91 per barrel. A similar decline was noted in the prices of UK Brent, Forcados, WTI, and the OPEC Reference Basket.
The report further mentions that domestic crude oil production rose to 1.18 million barrels per day, while crude oil exports increased to 0.73 million barrels per day, primarily due to the lifting of a force majeure by Exxon Mobil, following the suspension of industrial action by the workers’ union.
Despite this increase in production, Nigeria’s production level remained below the OPEC monthly quota of 1.742 million barrels per day. Challenges such as security issues, pipeline vandalism, oil theft, and delays in implementing the Petroleum Industry Act have been identified as factors hindering increased investment in crude oil exploration and subsequently impacting export and federal revenue.
Low crude oil exploration has persisted since the COVID-19 pandemic, and addressing these challenges is essential to boosting investment in the sector and increasing federal revenue.