The Nigeria National Petroleum Corporation (NNPC) recently announced the resumption of 1,000 graduate trainees. While the new hires resumed virtually, this signals increased overheads for the state-owned enterprise. With refineries that have not made profits in the last eight years, it is argued that many NNPC staff are earning salaries without doing anything. By implication, the new hires may end up having little or nothing to do and thus keep up with the existing redundancy at the NNPC.
But the bigger challenge bothers on balancing investments with returns. If refineries have not generated profits in eight years, continued investment including staffing appears as underutilization of scarce economic resources. In fact, it is argued that NNPC lacks coordination on the charge of efficiency and cost management.
Beyond this is the issue of the insensitivity in the timing of the resumption of the new hires. Increasing the staff payroll appears to reveal a lack of coordination between the government and the NNPC. This is in consideration of the government’s inadequate oil revenue. Aside from salaries, the cost of setting up the new hires would add to the existing financial burden. Perhaps NNPC is just an isolated government completely outside and above the national economic framework.
Nigeria’s Revenue Crisis
Since January, Nigeria has been facing revenue challenges that may, in fact, threaten development. The challenges are due to the falling oil revenue and the drastic drop in oil demand due to the COVID-19 pandemic. The federal and state governments adopted budget cuts in order to absorb the effects of the ongoing fiscal crises.
The budget cuts will possibly impact capital expenditure and in turn the country’s development projects. Moreso, there are indications worker’s earnings may be affected by the fiscal melee. Already, a report has identified that 33 states may be unable to survive without federal allocation. In fact, the chairman of the Governor’s forum announced that from June, states may receive zero allocation from the Federal Government. This further threatens worker’s salaries in many of the allocation dependent states.
Pump Price Reduction and the Rationale for Revenue
A series of reductions in the pump price of Petroleum Motor Spirit (PMS) occurred in a couple of months. Ordinarily, reduction in the price of petroleum products suggests a willingness of the government to ease some of the ‘burdens’ on the citizen. In fact, the pump price reduction for PMS was announced to be part of the government’s relief package for the citizens.
On the other hand, the series of oil price readjustments does not appear rational in terms of revenue management. Experts have agreed that removing petroleum subsidy was a step in the right direction. Nevertheless, the reduction in the pump price of oil seems inconsistent with the current fiscal realities. An increase in profit from oil trade presented an opportunity to tax domestic oil sales. Also, profit could have added to the country’s revenue amidst the ongoing financial crises. In fact, profit in oil sales could have been channelled to address some of the emergent needs from the pandemic.
The oil price readjustments also raise questions on the truth about Nigeria’s oil trade. Intrinsic details of oil trade such as details on production, cost, sales, profit among other details are still not accessible to the public. Together with disclosure issues, the paucity of public information on Nigeria’s oil trade cast doubt on the country’s oil revenue framework.
Need for revised Oil revenue management framework
The current economic crises continue to project the need for tighter revenue management measures. Reduction of huge governance cost, removal of undue expenditure items, and the prioritization of sacrifices both from the government as well as from the citizens have formed the core for many fiscal management advocacies. Each of these lessons points to the need for utmost frugality in the utilization of the nation’s very scarce resources.
From the foregoing, there is a need to reposition the oil revenue management framework. This is to ensure improvement in revenue generation and efficiency. Inefficiencies and leakages should be plugged, and accountability should be promoted in the management of oil revenue. Proportionate taxation of oil profits can contribute to Nigeria’s revenue inflow. The oil governance framework for Nigeria also needs some revamping. Expert contribution to decision making can improve the performance of the sector.