Budget 2009 and Powering Nigeria

No Comments » January 16th, 2009 posted by // Categories: Energy Development Project



Budget 2009 and Powering Nigeria

http://www.businessdayonline.com/index.php?option=com_content&view=article&id=2122:budget-2009-and-powering-nigeria&catid=96:columnists&Itemid=278

The expected free fall of crude oil price in the international crude oil market came so quick, sudden and took those entrusted with managing the affairs of the Nigerian economy and by extension, the overall wellbeing of the Nigerian citizenry by surprise and ill-prepared (i.e. snoozing). For several months the writing was on the wall for all to see of what could imminently happen regarding the out-of-control spiralling crude oil price in the international market. Nigeria went partying and sharing of the booty from the “Excess” or crude oil windfall revenues.

Yet, the nation’s economic technocrats keep on telling and reassuring the highly sceptical Nigerian public that we are not in danger zone and in fact, we are insulated and immune to what is going on in the rest of the world as if we are not organically linked to the globalised economy; i.e., we are an idealised island economy. Moreover, Nigeria is presently facing massive flight of capital and the exodus of dollars from the economy. At last, the Naira has been officially devalued! And also, business mogul Aliko Dangote can tell us the truth; with his planned ambitious expansion of his cement manufacturing plants already as a result of the current world financial meltdown.

We need, however, to constantly remind our policymakers and economic management technocrats that the Nigerian economy has always been directly linked to the global economy even for the obvious fact that the Nigerian budget has perennially depended on the projected price of highly volatile (initially agricultural produce up to the 1970s) oil. Industrial or real sector economic activities have been largely dependent on the enclave and volatile oil sector since 1960s to date. Probably the current administration’s seven-point agenda will change the sad situation.

Yet, before the November 2008 crash of crude oil price, Nigeria’s economic managers went ahead to prepare the 2009 budget with great optimism that the crude oil price windfall is forever – repeating a silly mistake the country made some 30 years ago. For example, the initial budget 2009 bench mark for crude oil price was $62.50 per barrel. It was subsequently pruned down until the current ‘realistic’ bench mark crude oil price of $45 per barrel was adopted for the 2009 federal budget proposal and based on the following additional key assumptions: Oil production of 2.292mbpd; GDP growth rate of 8.9% and inflation rate of 8.2%.

It is from the previous experiences of oil price nosedives and their impacts on national budgets that I wish to draw some parallels with what is happening presently in the international crude oil market, the 2009 national budget adjustment in Nigeria and the likely impact on public and private funding of the ongoing new and planned additional new power projects for the country.

The aggregate expenditure for the 2009 federal budget is probably N2.87trillion (or more); with N796.7 billion earmarked for Capital Expenditure. About 91% of the capital vote has been earmarked to five key priority sectors, of which power sector is one of them. For example, of the N361.2billion capital allocations earmarked for the five critical infrastructures, N88.5billion has been earmarked as capital allocations for Power sector. Key projects to be funded in the Power sector by the 2009 Budget include: N3.5billion for the Mambilla Hydro-electric power generation project, N21.5billion for other Generation projects (including N6.5billion for the completion of the Niger Delta Power Holding Company’s NIPP projects), N32billion for Transmission projects, and N19.25billion for Distribution projects.

An important question to ask is: How far will the 2009 budget lead the country in the long and arduous journey of revamping the parlous power sector? Furthermore, I cannot locate in the 2009 budget proposal how much contribution is expected from the private sector under the professed and proclaimed public partnership with the private sector in revamping of the comatose power sector (i.e. Public Private Partnership – PPP mantra). This aspect is not emphasized or clearly stated in the 2009 budget proposal so far.

Other very important issues not captured in the 2009 budget proposal in relation to the power sector rehabilitation and expansion include the following: a) there is complete silence and zero capital allocation to harnessing and development of renewable energy sources to complement the existing traditional oil and gas based thermal power generation plants (beside the proposed Mambila hydroelectric dam). b) Zero capital allocation to demand-side management and consumption efficiency strategies to augment and balance the supply-side of the equation and c) Complete silence and zero capital allocation for rural electricity supply.

These three key issues are very crucial to any medium and long term sustainable electricity supply for the country and the march to the 20-20-20 national aspiration. For example, enhancing energy consumption efficiency is tantamount to: “Doing More with Less” according to industry practice. Therefore, energy efficiency is an important energy policy which satisfies all the key policy goals of:

a) Increasing the competitiveness of the electricity businesses (i.e. generation and distribution, for example). b) Providing a highly cost effective way of tackling the environmental impact of energy use including the emission of carbon dioxide. c) Increasing the level of energy security for the country. d) Providing affordable energy services for the most disadvantaged in society and e) Help in bringing down the high cost of supply expansion programme amidst paucity of available funds in a recessionary period.

Therefore, if these missing items are incorporated into the 2009 budget proposal, they may help also in reducing the substantial deficit of N1.09 trillion or 37 per cent of the budget that must be financed by borrowing, spending cuts and other fiscal restraints or austerity measures. Probably an early budget review and followed with Supplementary appropriation will bridge these identified gaps in the 2009 federal budget as presented to the National Assembly for appropriation by Mr. President.

Abubakar Atiku Nuhu-Koko

Thursday, 15th January 2009

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