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President asks Assembly to retain budget peg of $27
From Alifa Daniel and John-Abba Ogbodo, Abuja
PRESIDENT Olusegun Obasanjo yesterday cautioned the National Assembly against raising the benchmark for the 2005 budget above the $27 per barrel of crude oil that he proposed.
According to him, any such action will be a poor reading of the international crude oil market. The President added that the level of deficit for the proposed budget should also remain at 2.9 per cent of the Gross Domestic Product (GDP).
The Chairman, Senate Committee on finance and Appropriation, John Azuba Mbata, at the weekend in Abuja told reporters of the National Assembly's plan to raise the benchmark. He did not however, specify the possible new rate, which some sources told The Guardian would be between $30 and $35.
Obasanjo, in a letter to both Houses of the National Assembly, said that the arguments being canvassed in support of the plan were faulty.
Mbata had said: "If expenditure increases significantly, we may have to increase the benchmark in order for deficit to be at a manageable level because we are quite worried about the deficit level." He noted, in particular, the volatility in the world oil price mechanism.
But the President said that the increase posed grave dangers to the economy.
He listed the principal arguments for the proposed increase as:
- 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
- Iraq will be at peace and will be able to produce about 3 mbpd of crude oil,
- additional crude oil will be produced by Russia
- there will be a mild winter in the Northern Hemisphere.
- OPEC and non OPEC countries will over produce.
Obasanjo said that having studied both positions, the middle of the road solution would be to maintain the $27 benchmark.
He said: "On balance, I have elected to retain the oil price of $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."
Obasanjo continued: "It is our assessment that there is an important fiscal risk that would be attributable to raising the price above this level."
The President outlined how he plans to finance the deficit of N319 billion which include 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 ports.
Obasanjo said that although the privatisation exercise had not yielded much in the recent past, he had resolved to personally monitor the process especially now that a time table had been prepared for the sale of the Aluminium Smelter Company of Nigeria (ALSCON) and the Nigerian Telecommunications Ltd. (NITEL).
He gave assurance that the projections made were realistic.
His words: "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."
Insisting that the benchmark is realistic and should be maintained, the President said: "Please note that the oil price assumed for the revenue framework remains US $27 per barrel and the level of deficit is still 2.9 per cent of the nominal GDP.
This development indicates that the Federal Government might have abandoned its earlier proposal to finance part of the deficit from the capital market.
But the House Committee on Appropriation faulted the measures proposed for financing the deficit.
The Guardian learnt in the report of the Appropriation Committee to the leadership of the House, the committee argued that the arrangement for deficit financing using the concessioning of ports and privatisation proceeds is not realistic.
The committee also contended that the privatisation exercise in the recent past has been subjected to a number of vagaries that had failed and therefore to continue projecting based on proceeds of the exercise in the same vein, the committee faulted the resort to ports concessioning pointing out that the exercise is still characterised by bottlenecks.
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