Following reported moves by the Senate to raise the $27 crude oil price benchmark upon which the 2005 budget has been predicated, President Olusegun Obasanjo yesterday wrote to the two chambers of the National Assembly warning that any increase in the oil price projection would be unrealistic and would portend a “fiscal risk” for the economy.
The president also told the lawmakers that the N319 billion deficit would be financed by drawing N148 billion from excess crude oil proceeds savings and the balance N171 billion from proceeds of assets sales and ports concession.
In two separate letters to the President of the Senate, Adolphus Wabara, and the Speaker of the House of Representatives, Aminu Bello Masari, dated 9 December 2004, presented on the floor of the two chambers yesterday, Obasanjo faulted the reasons adduced for raising the benchmark, and listed four reasons to support his position.
“On the balance, I have elected to retain the oil price of US $ 27 per barrel and strongly urge that we stay at this price because the oil market remains very volatile as evidenced by the six dollar drop in price last week during less than 24 hours of trading. It is our assessment that there is an important fiscal risk that would be attribu-table to raising the price above this level,” he said.
The proponents of raising the benchmark, according to Obasanjo, depend on five “principal arguments,” which were: the continued expansion of the Chinese economy; strict compliance by OPEC countries to their production quotas; continued insecurity and violence in Iraq; unanticipated conflict in any oil producing region; and a relatively weak US dollar.
But the president faulted this, explaining that, “the principal arguments against an increase are the likelihood that: Iraq will be at peace and will be able to produce about 3 million barrels per day of crude oil; additional crude oil will be produced by Russia; there will be a mild winter in the northern Hemisphere, and OPEC and non-OPEC countries will over-produce.”
Both the Senate and the House of the Represent-atives had expressed worry that the deficit level was too high, and were contempl-ating increasing the oil benchmark to fill up the gap.
Obasanjo, however, said: “I plan to finance the deficit of N319 billion by drawing N148 billion (50 per cent) out of the oil revenue saved in 2004 and the balance of N171 billion will be financed from the proceeds of asset sales and concessioning of the ports.”
He contended further that the hitherto gloomy privatis-ation process will have a rosy year ahead, and that this would further strengthen the government’s revenue base.
“Although our privatis-ation efforts have not yielded much in the recent past, there is a clear time table for the completion of the sale of ALSCON and NITEL in the first and second quarters respectively and the revenue projections are prudent. My minister of finance is also overseeing the concessioning of the ports. I, ther-efore, believe that the proje-cted revenue is prudent and achievable and I will personally monitor the progress of the privatisation to ensure we achieve results,” the president said.
Only recently, the Reve-nue Mobilisation Allocation and Fiscal Commission (RMAFC), in a presentation before the House Committee on Finance, advocated an increase to $30 per barrel of the oil benchmark, hinging its position on the average oil price of the past three years.
The 2004 budget was also initially predicated on $22 per barrel by Obasanjo, but the National Assembly hiked it to $25, following recomme-ndations by RMAFC.
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