Adoption of Appropriate Benchmark Price for Crude Oil in Nigeria (an Imperative Study of National Savings from 2000 - 2005)

Abstract

Recently in Nigeria a benchmark price for crude oil was adopted for the purpose of estimating oil revenue in order to mitigate the unnecessary disruptions of the annual budgetary processes and stabilize revenue. This strategy was initially experimented for the appropriation bill of 2002 and internalized in subsequent years. As a strategy of adopting a benchmark price for crude oil, the market price presupposes that there was a consensus for compulsory national savings to build up a fund which would cushion the effect of shocks that could result from unfavourable future developments as well as ensuring high quality spending. However, the method of arriving at the benchmark price for crude oil for the budget has been criticized as being highly subjective and lacking transparency, and that it was not based on any of the GAAP (generally accepted accounting principles). This has often resulted in heated debates and intensive negotiations between the executive and the legislative arms of government; and this often leads to the delay in the release of the appropriation bill and the attendant adverse impact on the economy.