Senate calls for quick diversification of economy, frowns against high cost of oil production

The Senate has described as “erroneous” report that it approved fresh loan of N850 billion at the plenary on Tuesday.

The upper chamber of the National Assembly has called on the federal government to quickly diversify the economy, following the high cost of oil production without commensurate result.

Berating the Nigerian National Petroleum Corporation (NNPC) for the high cost, which resulted into marginal profit of just $3 per barrel for the country, the Senate noted that the high cost of oil production in the country is higher than other oil producing nations.

This development was noted when when officials of NNPC appeared before the Senate Committee on Finance.

The Senate also noted that the high cost of oil production which is $21.2 per barrel, almost equaling $25 per barrel oil price benchmark fixed for the N10.509 trillion 2020 revised budget.

The upper chamber expressed its displeasure when the Chief Operating Officer (COO) (Upstream) of NNPC, Engineer Yemi Adetunji was called upon by the Chairman of the Committee, Senator Solomon Olamilekan Adeola (APC Lagos West) to explain why cost of oil production in Nigeria is far higher than those of other oil producing countries of the world.

The lawmaker noted that while cost of oil production in Saudi Arabia is $4 per barrel and $3 per barrel in Russia, it is $21.2 per barrel in Nigeria, indicating very poor marginal profit of about $3per barrel based on new oil price benchmark of $25 per barrel.

Responding to this development, the NNPC COO, explained that the high cost of oil production is as a result of series of peculiarities ranging from security to crude oil theft in the country.

Almost all the members of the Committee pointed out that his explanation was untenable, insisting that the required actions must be taken to address the abnormality .

In his remark, Senator James Manager (PDP Delta South), said the security problem mentioned by the NNPC COO, was not tenable as similar problems exist in all other oil producing countries without high cost of production like Nigeria.

He said: “Even the reason that he gave for the high cost of production per barrel I think they are not tennable because wherever oil is produced they have their own security challenge even Saudi Arabia, Iran, Russia, they have their own unique security issues, how is our own so peculiar that our cost of production is up to $21 per barrel.

“You also mentioned administrative issue, which are those administrative issues, why are we different from the rest of the world. These are issues that the national assembly are supposed to take up.”

Also speaking, Senator Shaibu Gumau (APC Bauchi South), another member of the Committee, declared that the existing $21.2 per barrel high cost of oil production and $25per barrel oil price benchmark is economical for the country .

He said: “I can’t just believe even common sense cannot agree with this not even the National Assembly. How could we expect a situation where cost of production of oil per barrel is $21.2 and the revenue is $25 per barrel.

“Yet other countries in the world not one, that their cost of production is not even up to $10 per barrel. It is difficult to understand and I dont think it is only National Assembly, even the executive themselves should sit down and ask themselves this question because we are watchdogs.

“Not because we are watchdog that is why we are disturbed but it has got to an extent that they too should be disturbed and there should be a solution and if not there should be an explanation that somebody can understand and agree but common sense cannot understand this.”

Senator Jibrin Issa (APC Kogi East) on his part, also disagreed with the NNPC official over the high cost of oil production by aligning with his other colleagues.

He said: “I am disturbed because I expected the NNPC to dwell more on fixed costs but surprisingly you are talking about administrative cost, security, these are variables and even the fixed cost on the long run are also variables which you can also work on them.”

However, the Minister of State for Finance, Clement Agba intervened by explaining to the committee members that peculiarities cited as reasons for the high cost of oil production were real .

He explained that the North Sea production cost is higher than that of Nigeria and that as an insider, details of the $21.2per barrel oil production is well calculated.

The Committee, however, challenged the NNPC official to be open with their federally funded projects of N484billion, voted for in the revised budget.

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