Tuesday, November 4, 2014

Nigeria assumes $78 a barrel oil price benchmark for 2015 budget

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(Reuters) - Nigeria is assuming an oil price price of $78 per barrel for its 2015 budget, up from $77.5 per barrel in 2014, according to its 2015-2017 budget framework document seen by Reuters on Wednesday.

The document, which forms the basis for preparing the budget, assumed oil production of 2.27 million barrels per day in 2015, down from 2.38 million barrels in 2014. It projected oil output to reach 2.32 million barrels per day in 2016, rising to 2.40 million barrels by 2017.

A higher assumed oil price means a slightly looser budget for 2015 than for 2014, although that was to be expected given this is an election year, when demands for funds from politicians tends to surge. President Goodluck Jonathan faces what is likely to be a closely fought presidential poll in February 2015.

The document, dated to the month of September, assumed gross domestic product (GDP) growth of 6.35 percent for 2015, down from 6.56 percent estimated for 2014 -- figures which differed slightly from some given by Finance Minister Ngozi Okonjo-Iweala in a news conference on Tuesday.

There, she projected 6.75 percent growth in 2015, with this year expected to finish at 6.2 growth.

The budget framework paper said the budget deficit rose to 2.41 percent of GDP in 2014 on higher debt servicing, up from an expected 1.85 percent.

Nigeria's external and local debt stood at $65.26 billion as at end March 2014, up from $48.50 billion end March 2013, the budget framework document said.

In theory Nigeria saves money over a benchmark oil price in its Excess Crude Account (ECA), which then provides a cushion for when oil prices fall or extra cash is needed for spending on infrastructure.
Lawmakers tend to inflate the benchmark price if they believe it is too low, which can bring them into conflict with Okonjo-Iweala.

With global oil prices falling and a benchmark of $78 a barrel -- a figure lawmakers wanted for 2014 -- they may agree not to try to raise the benchmark this time. However, the ECA is still prone to being raided for distribution to feed extensive patronage networks, analysts say.

The ECA declined as low as $2.5 billion at the start of 2014, from around $11.5 billion at the start of January 2013, according to the central bank, despite consistently high oil prices over that period.

It has since recovered to around $4 billion.

Okonjo-Iweala sought to allay concerns over falling oil prices in Tuesday's press conference, arguing that the country still had funds to pay salaries and keep its debt obligations. Brent crude, the benchmark against which Nigeria's oil is measured, has declined by around 25 percent since June.

Nigerian assets have taken a beating over the past two months. Nigeria's naira was hovering around a seven-month intraday low of 166 on Wednesday, before the central bank intervened to prop it up. (Reporting by Camillus Eboh; Additional reporting by Chijioke Ohuocha in Lagos; Writing by Tim Cocks; Editing by Ruth Pitchford)

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