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Tariff hike: Electricity consumers to pay N92m kwh

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Tariff hike: Electricity consumers to pay N92m kwh

 

About eight million electricity consumers in Nigeria are to cough out over N92 million per kilowatt hour (KwH) in the new power tariff hike approved by the Federal Government.
The hike, already gazetted by the Nigerian Electricity Regulatory Commission (NERC) on its website, is to, with immediate effect, be implemented across the country starting from July 2019.
This will be followed by another review for implementation in January 2020.
The tariff documents for the 11 DisCos revealed an increase of at least N8 to over N13 per kilowatt hour (kwh) of electricity supplied to the over eight million Disco customers in Nigeria.
This is part of at least five minor electricity tariff reviews approved by the government, which were hitherto pending since June 2016.
Sparking a surge in the average cost of electricity payable by consumers nationwide, the new tariff will cause a spike in the bills to be paid by customers.
Using average tariff of N11.5 (average of highest rate – N13 – and lowest rate – N8 – in the new tariff), the eight million registered customers, checks by this newspaper showed, will cough out at least N92 million at every kilowatt hour, which should have started from July 2019.
The NERC uploaded the reviewed documents for the 11 DisCos to be implemented with effect from July 2019.
Multi Year Tariff Order (MYTO) 2015, it would be recalled, was implemented on February 1, 2016 and was to be reviewed every six months but never approved for implementation by the DisCos.
In the latest update, NERC said the approved review was up to 2018, leaving out the first half tariff review of 2019.
The commission is also working on a major tariff review, which will be ready by December for implementation by January 2020.
The 2016-2018 Minor Review of Multi-Year Tariff Order 2015 and Minimum Remittance Order for the Year 2019 document for Abuja DisCo shows that its end-user cost reflective tariff remains N46.44 kobo for customers.
NERC, however, said it would allow the Disco collect N32.66/kwh.
Residential customers had paid N24.30/kw before the new order, indicating a difference of N8.
NERC said it computed N102.2 billion tariff shortfall for Abuja DisCo for the four years from 2015 to 2018 and will be reflected in tariffs.
The commission also projected another shortfall of N52.1 billion for 2019 and N6.2 billion for 2020, which it will recognise in subsequent reviews.
In spite of the N102 billion, NERC recognised from 2015 to 2018, the tariff document shows that N73 billion shortfall has not been catered for.
Averagely, customers of Kano DisCo will pay N30, instead of N53 that is the cost reflective tariff for the MYTO in 2018.
The customers had paid at least N25/kwh previously NERC then computed N97.8 billion tariff shortfall for Kano DisCo for 2015 to 2018; another N42 billion was recognized to take care of shortfall for only 2019.
However, N13.9 billion shortfall of the DisCo will still not reflect in the tariff, NERC computation shows.
For Eko DisCo, its reviewed tariff document shows that its customers will be paying N28.3 instead of N41.8 that is true cost reflective tariff.
The lowest tariff before the review was around N24.
Meanwhile, Managing Director, Transmission Company of Nigeria (TCN), Usman Gur Mohammed, had reiterated recommendation for the government to liquidate one of the 11 Discos.
Mohammed particularly told the new Minister of Power, Engr. Mamman Sale, and the Minister of State, Goddy Jedy Agba, at their inaugural briefings by ministries, departments and agency heads in Abuja to make the liquidation a priority.
Though he did not mention the name of the company, the TCN boss stressed that the recommendation was due to gross inefficiency of the DisCo.
The TCN, according to him, has the power under its act to make such recommendation.
“Honorable ministers, as we speak with you, we have actually recommended the liquidation of one DisCo for lack of performance,” he said, adding “there is no reason why we cannot change this despicable and miserable narrative.
“This is what Nigerians expect from us as we begin this new journey. We must therefore brace up to face this challenge.”
The Managing Director, Nigeria Bulk Electricity Trading (NBET) Company, Dr. Marilyn Amobi, added that her company had borne a payment of N181billion to five generation companies for electricity that Nigerians did not use.
In the context of the N701 billion power sector intervention fund, the Federal Government paid N105 billion as five per cent to GenCos for unused electricity.
The payments, she said, were due to the power purchase agreements that government had with the companies.
Reacting to the comment, the Permanent Secretary at the ministry, Louis Edozien, told the minister that Nigerians were agitated about the quality of service in the industry.
He said: “We created an industry that places a huge continent liability on the government. We have to apply our intellect to this problem to solve it.
“The minister of state I know that this is an area you are familiar with. Both of you have to lead us out of this quagmire.”

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Oil prices edge higher as OPEC hints at deeper output cuts

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Oil prices edge higher as OPEC hints at deeper output cuts

Oil prices rose on Wednesday, tracking gains in equities, as investors pinned hopes on a potential Brexit deal between Britain and the European Union and on signals from OPEC and its allies that further supply curbs could be possible.

But gains were limited due to lingering concerns of a global economic slowdown.

Global benchmark Brent crude oil futures LCOc1 had risen 25 cents to 58.99 dollars by 0621 GMT, up about 0.4 per cent from the previous day’s close.

U.S. West Texas Intermediate (WTI) crude CLc1 gained 23 cents or 0.4 per cent to 53.04 dollars a barrel.

“Oil is starting to see some bullish positions added on the easing of two big tail risks for global demand, the U.S.-China trade war and Brexit,” said Edward Moya, a senior market analyst at OANDA in New York.

“While a broader trade deal seems unlikely in the immediate future, the risks for the U.S.-China trade war have been fading.”

Last-ditch talks between Britain and the European Union to get a Brexit deal ahead of a summit of the bloc’s leaders this week ran past midnight to Wednesday, but it was still unclear if Britain could avoid postponing its departure, due on Oct. 31.

Analysts have said any agreement that avoids a “hard” or no-deal Brexit should boost economic growth and in turn oil demand and prices.

Providing more support, OPEC Secretary-General Mohammad Barkindo said the Organization of the Petroleum Exporting Countries “will do whatever (is) in its power” along with its allied producers to sustain oil market stability beyond 2020.

OPEC, Russia and other producers have cut oil output by 1.2 million barrels per day to support the market.

Yet an expected rise in U.S. crude inventories this week kept prices under pressure.

U.S. crude stocks probably grew for the fifth straight week, a preliminary Reuters poll showed.

U.S. oil inventory reports are due out from industry group the American Petroleum Institute on Wednesday and the U.S. Energy Information Administration on Thursday.

The reports have been delayed one day because of a U.S. government holiday.

“Should EIA inventories illustrate for a fifth consecutive week build, we expect for strong selling pressure to afflict oil prices on an intraday basis,” Benjamin Lu from Phillip Futures said in a note.

Concerns of a global economic slowdown due to the protracted trade war between the United States and China and swelling U.S. inventories also pressured prices.

The U.S.-China trade war will cut 2019 global growth to its slowest pace since the 2008-2009 financial crisis, the International Monetary Fund warned on Tuesday.

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CBN: Supply of secured credit increased in Q3’19

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CBN: Supply of secured credit increased in Q3’19

T

he Central Bank of Nigeria (CBN) has said that the supply of  secured credit to households increased in Q3 2019 and is expected to increase in the next quarter, adding that the development was due to improved market share. 

 

The apex bank, which disclosed this in its Credit Conditions Survey Report for Q3 2019 posted on its website yesterday, also stated that  the availability of unsecured credit to households increased in Q3 2019, but it is, however,  expected to decrease in Q4 2019.

According to the report,   the overall availability of credit to the corporate sector decreased in Q3 2019 but was expected to increase in the next quarter as a  result of capital market pressure.   

 

The  report  further disclosed  that demand for secured lending for house purchase decreased in Q3 2019, but lenders expect demand to increase in the next quarter.

 

“The proportion of loan applications approved increased even though lenders maintained the credit scoring criteria,” the report stated.

It, however, stated that demand for total unsecured lending from households increased in the current quarter, and is expected to increase in the next quarter.

 

 

“In spite of lenders’ resolve to retain the credit scoring criterion, the proportion of approved unsecured loan applications increased in the current quarter and is expected to further increase in the next quarter,” the CBN said.

In addition, the CBN survey  shows that  lenders reported increased demand for corporate credit from all firm sizes in Q3 2019 and they  also expect increased demand from all firm sizes in the next quarter.

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DMO: Nigeria’s debt hits N25.7trn

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DMO: Nigeria’s debt hits N25.7trn

Rising

Nation’s debt increased by N3.32 trilion in one year

 

 

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igeria’s total public debt increased by to N25.7 trillion as at the end of June 2019 from N22.38 trillion as of June 2018, the Debt Management Office (DMO)  said yesterday.

This means that the country’s debt increased by N3.32 trilion in one year.

The debt stock, the DMO said, is made up of N8.32 trillion ($27.16bn) external debt and N17.38 trillion borrowed domestically.

 

 

According to latest data posted on the DMO website, the N25.7 trillion debt comprise N20.42 trillion owed by the Federal Government owed as of June 30, 2019, while the 36 states and the Federal Capital Territory had a total debt portfolio of N5.28 trillion.

It would be recalled that the International Monetary Fund (IMF)  in January this year warned Nigeria and other highly indebted countries against  “a legacy of excessive debt”.

 

Also during its meeting last month, the Central Bank of Nigeria’s Monetary Policy Committee (MPC) noted that the rising public debt was one of the factors hindering the  nation’s growth prospects.

 

However,  the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, said in August this year that the country did not have a debt problem,  but faced  the challenge of  generating sufficient revenue.

 

She said: “There is a lot of insensitivity around the level of our debt. I want to restate that our debt is not too high — what we have is a revenue problem. Our debt is still very much within a reasonable fiscal limit. In fact, among our comparative countries, we are the least in terms of borrowing.”

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NSE: Equities drop 0.16% to reverse gain

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NSE: Equities drop 0.16% to reverse gain

LOW SENTIMENT

GSK Plc led losers with a drop of 9.86 per cent to close at N6.40 per share

 

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rading activities on the nation’s equities market yesterday closed bearish as negative sentiments reversed the previous day’s gain.

At the close of trading session, market breadth also closed negative, recording seven gainers against 13 losers.

Consequently, the All-Share Index dipped 43.79 basis points or 0.16 per cent to close at 26.513.65 index points as against 26.557.44 recorded the previous day while market capitalisation of equities depreciated by N22 billion from N12.928 trillion the previous day to N12.906 trillion as market sentiments remained on the negative territory.

 

Meanwhile, a turnover of 174.4 million shares exchanged in 2,484 deals was recorded in the day’s trading.

The premium sub-sector was the most active (measured by turnover volume); with 96.3 million shares exchanged by investors in 938 deals.

Volume in the sub-sector was largely driven by activities in the shares of Access Bank Plc and Zenith Bank Plc.

 

Also, the banking  sub-sector, boosted by activities in the shares of GTBank Plc and Sterling Bank Plc, followed with a turnover of31.8 million shares in 358 deals.

 

Further analysis of the day’s trading showed that in percentage terms, Nacho Nigeria Plc topped the day’s gainers’ table with 5.15 per cent to close at N2.45 per share while Cement Company of Northern Nigeria (CCNN) Plc followed with 4.28 per cent to close at N15.85 per share. United Capital  Plc added 3.45 per cent to close at N2.10 per share.

 

On the flip side, GSK Nigeria Plc led the losers with a drop of 9.86 per cent to close at N6.40 per share while Courtville Business Solutions Plc shed 9.09 per cent to close at 20 kobo per share. Union Dicon Nigeria Plc trailed with 8.33 per cent to close at 22 kobo per share.

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SEC restates commitment to sustainable financing

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SEC restates commitment to sustainable financing

T

he Securities and Exchange Commission (SEC) has reinstated commitment to the promotion of infrastructural development through sustainable financing. 

 

 

This was stated by Acting Director General, SEC, Ms. Mary Uduk, at the formal launch of the Financial Center for Sustainability in Lagos.

Uduk said SEC believed, and very strongly too, that the huge budget deficit and infrastructural gap in the country can be financed by harnessing resources available from sustainability finance investors and interest groups around the world.

 

 

According to her, as Nigeria strives to build a diversified economy that harnesses the resources of non-oil sectors to anchor the transition to a more resilient economy, there is urgent need to close the huge infrastructure gap with investments in sustainable finance initiatives driven primarily by complementary efforts of the government, regulators and the financial services industry to direct financial capital to more sustainable economic activity.

 

 

She said: “It is, therefore, my expectation that the launch of the Financial Centre for Sustainability, Lagos would serve as a rallying point for further discussions and engagement on ways of taking advantage of the enormous resources and potential of sustainable financing to address the infrastructure gap of our country, deepen the product offering in the Nigerian Capital Market and create greater prosperity for investors and our people.

 

 

“There are tremendous opportunities in the areas of power generation and transmission, rail transportation, housing, agriculture and water, among others, where sustainable financing can be an avenue for the private sector to partner with government in the overall drive for prosperity and economic development.

“The Federal Government through the Debt Management Office (DMO) has led the way in Africa in this regard by issuing the first sovereign green bond in December 2017. It has since followed up with another N15bn issuance in June this year specifically to fund renewable energy, afforestation and transportation.”

 

 

The Acting DG disclosed that following the approval of the commission’s Rules on Green Bonds in October 2018, two issuances have been made by North South Power Services Ltd and Access Bank Plc worth N8.56bn and N15bn respectively, to finance various infrastructural projects in the power, water and agriculture sectors of the Nigerian economy. 

She said the onus, therefore, lies with all in the financial services industry to work together and continue to expand these issuances by locating a need and fashioning appropriate sustainable financing products to meet them.

“In addition, the Securities and Exchange Commission led the creation of sustainable finance guidelines and disclosure requirements for capital market operators. The guidelines which will be rolled out before the end of the year were developed in line with the Nigerian Sustainable Finance Principles (NSFP),as adopted by the Financial Services Regulatory Council Committee (FSRCC).

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Seplat Petroleum to acquire Eland

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Seplat Petroleum to acquire Eland

T

he boards of Seplat Petroleum and Eland Oil and Gas have reached agreement on the terms of a recommended cash acquisition of the entire issued and to be issued ordinary share capital of Eland by Seplat.

The acquisition, according to Seplat, is to be effected by means of a scheme of arrangement under Part 26 of the Companies Act.

 

 

Under the terms of the acquisition, each Eland shareholder will be entitled to receive for each Eland Share 166 pence in cash.

 

 

The acquisition values the entire issued and to be issued ordinary share capital of Eland at approximately £382 million on a fully diluted basis, and represents a premium of approximately 28.5 per cent to the closing price per Eland Share of 129.2 pence on 14 October 2019 (being the latest practicable date prior to this announcement);  a premium of approximately 32.6 per cent to the three-month volume weighted average price per Eland share as of October 14, 2019 of 125.2 pence; and  a premium of approximately 32.7 per cent to the six-month volume weighted average price per Eland Share as of 14 October 2019 of 125.1 pence.

 

 

In addition, Eland shareholders on the register at the close of business on October 18, 2019 will be entitled to receive and retain the interim dividend of 1 pence per Eland share to be paid on October 31, 2019.

 

 

Commenting on the acquisition, George Maxwell, CEO of Eland, said: “This recommended offer from Seplat represents the culmination of a very successful journey by Eland, the management team and all of its stakeholders. Since founding Eland, we have, jointly with our partners in Elcrest, acquired our interests in OML 40, a non-producing asset, achieved an all-time record production on this asset and become a significant independent producer in Nigeria’s E&P landscape and one of the biggest oil producers on London’s AIM market.  Eland has, in a period which has seen a significant cyclical downturn in our industry, outperformed most of its peers and the AIM Oil & Gas Index. This transaction represents a record share price for Eland and crystallises Eland’s stated goal to maximise shareholder value.”

 

 

Russell Harvey, Chairman of Eland, commented:  “We are pleased to announce this recommended Acquisition by Seplat. Eland’s management team has done an excellent job executing our strategy. We have demonstrated a strong track record of operational delivery and value creation in Nigeria from our high-quality assets.

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2020 budget: Concern mounts over FG’s revenue projections

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2020 budget: Concern mounts over FG’s revenue projections

Widespread scepticism about Federal Government’s ability to realise the  N8.155 trillion revenue projection  in its  2020 budget is casting shadow on the  excitement  generated  by the fact that President Muhammadu Buhari presented  the appropriation bill to the National Assembly much earlier than in previous years, Tony Chukwunyem writes

 

 

I

t clearly appeared to be more than a coincidence that barely 24 hours after President Muhammadu Buhari presented the 2020 Appropriation Bill to  a joint session of the  National Assembly last Tuesday, the International Monetary Fund (IMF) released a statement in which it cautioned the government over the risks of what it described as “Over-optimistic revenue projections.”

 

 

IMF warning

 

 

Specifically, the IMF said in the statement that “over-optimistic revenue projections have led to higher financing needs than initially envisaged, resulting in overreliance on expensive borrowing from the Central Bank of Nigeria (CBN) to finance the fiscal deficit.”

 

 

 

The statement was issued at the conclusion of the latest visit to Nigeria by an IMF staff team, led by the Mission Chief for Nigeria, Amine Mati.

 

The Fund further noted that government’s reliance on central bank for funding was leading to bigger deficits, which make monetary policy complex.

 

Revenue projections

 

 

The 2020 budget proposal of N10.33 trillion unveiled by President Buhari last week represents an 11per cent increase when compared to the 2019 appropriation of N9.12trillion. The President put the Federal Government’s estimated revenue in 2020 at N8.155 trillion and a deficit of N2.18 trillion. The revenue comprises oil revenue of N2.64 trillion, non-oil tax revenues of N1.81 trillion and other revenue of N3.7 trillion.

 

 

Other estimates are N556.7 billion for statutory transfers; N2.45 trillion for debt servicing and provision of N296 billion as sinking fund.

The 2020 budget is based on an oil production estimate of 2.18 million barrels per day, oil price benchmark of $57 per barrel and an exchange rate of N305 to a dollar. It projects real GDP to grow at 2.93per cent while inflation rate is projected at 10.81per cent.

Analysts, stakeholders’ reactions

 

 

Apart from the IMF’s statement, Nigerian analysts and industry stakeholders had also questioned government’s revenue projections in the budget.

 

 

For instance, in its preliminary review of the budget obtained by New Telegraph, the Centre for Social Justice (CSJ) faulted the projected revenue to N8.155trillion, contending that it was overly ambitious and unrealistic given the trend the national budget had taken in recent years.

 

 

The CSJ pointed out that over the years, the Federal Government had continued to propose unrealistic revenue projections, thereby  leading to poor implementation  of  budgets as  there were usually no funds to execute projects.

 

 

It noted that in 2016, revenue projections fell short by 23per cent; by 47.73per cent in 2017 and in 2018 by 45per cent.  This, according to the organisation, is an indication that those projections are not based on empirical evidence.

 

 

The CSJ said:“If projected revenue in 2018 was N7.1trillion and we missed the mark by 45per cent and have also missed the mark by 30per cent in the half year of 2019, then  further increase in projected revenue to N8.155trillion in 2020 seems to be hanging in the air. The revenue projections for 2020 should have been greatly influenced by the trend and actuals of 2018 and 2019 except there has been a dramatic change in economic circumstances warranting the new projection.”

 

 

In addition, Lead Director of the CSJ, Eze Onyekpere , faulted the $57 benchmark projected for revenue accruing from oil, arguing that it was “overtly optimistic” considering the  dynamics of the international oil market.

 

 

Similarly, he questioned the oil production estimate of 2.18 million barrels per day, stressing that it seems overly optimistic.

 

 

He said: “The revenue framework projects that Nigeria will produce 2.18mbpd. This is less than projections in previous years of 2.3mbpd. However, in 2018, the actual was 1.86mbpd while data from the first half of 2019 indicates actual production as at June 2019 of the same 1.86mbpd.  Further, Nigeria’s quota from the Organisation of Petroleum Exporting Countries (OPEC) is currently 1.774mbpd.

 

 

“This projection of 2.18mbpd also seems overly optimistic and may not materialize. There has been no change in circumstance to warrant the new production volume. Oil revenue was below target by 41per cent  as at June 2019 and in 2017, it had a negative variance of 47per cent and in 2018, it fell short by 23per cent. Thus, the expectation from oil revenue seems not to be founded on empirical evidence and may need to be downwardly reviewed.”

 

 

Corroborating Onyekpere, a financial analyst, Mr. Victor Oluoma, told New Telegraph he was certain the Federal Government would not be able to realise N8.155 trillion as revenue projection in 2020.

 

 

He said: “Let’s begin with oil revenue projection of N2.64 trillion; the fact is that we cannot produce and sell 2.18 million barrels per day. We have never achieved that and there is nothing on the horizon that suggests  oil production will suddenly surge not when reports suggest that there is an increase in incidents of pipeline vandalism.

 

 

“If  you go back and analyse the  2016, 2017 and 2018 budgets you will find out that, the Federal Government’s revenue projections were not achieved.”

 

 

According to him, “in 2018, actual revenue collected was N3.48 trillion. So how would this jump to N8.155 trillion by next year?”

 

 

On its part, even though it commended the return to the January to December budget cycle, the Lagos Chamber of Commerce and Industry (LCCI) in its reaction to the budget proposals stated: “We note that the total budget size is N10.3trillion.  The recurrent component is N4.88 trillion, debt service is N2.45 trillion.  Together, these two budget items amount to 7.33 trillion, which is 90per cent  total revenue estimates.  And from the track record of revenue performance, the percentage may be much higher when related to the actual numbers.  All of these indicate that the hope for an impactful investment in infrastructure is dim and would remain so for some time to come.”

 

 

The LCCI, which spoke through its Director-General, Muda Yusuf, also described the  exchange rate assumption of N305 to the dollar as unrealistic, arguing that it was difficult to justify this assumption, especially when the country’s earnings were declining.

 

He said: “The key assumptions underpinning the budget are realistic except for the exchange rate assumption of N305 to the dollar.  This is one assumption that is difficult to justify, especially at a time when declining revenue has become a major issue both for the government and the citizens.”

 

 

However, in his contribution, Dr Boniface Chizea said: “The foreign exchange rate of 305 to the dollar assumed in the budget is cautionary as this is the Base Exchange rate and, therefore, exchange rate above this rate would be a bonus as it generates greater dollar inflows. But with the newly inaugurated economic council, this rate might not survive for too long.”

 

 

The general consensus among analysts seems to be that the government would again struggle to fund the 2020 budget as it did with previous years’  due to lower oil output and an inability to boost non-oil exports.  It would thus have to rely on borrowing at high costs from the CBN.

 

 

Commenting on the situation in its aforementioned statement, the IMF said: “The increasing CBN financing of the government reinforces the need for an ambitious revenue-based fiscal consolidation that should build

 

 

on the initiatives laid out in the Strategic Revenue Growth Initiative. A tight monetary policy should be maintained through more conventional tools. Managing vulnerabilities arising from large amounts of maturing CBN bills—including those held by non-residents—requires stopping direct central bank interventions, the introduction of longer-term government instruments to mop up excess liquidity and moving towards a uniform market-determined exchange rate.”

“Structural reforms, particularly on governance and corruption and in implementing the much-delayed power sector recovery plan, remain essential to boosting prospects for higher and more inclusive growth.”

 

In the same vein, analysts at Cowry Asset Investment Limited said: “We opine that the fiscal authority should focus more on policies that will stimulate engagement of private capital in infrastructural development in order to save it the avoidable pressure of increasing its debt profile (and the attendant onerous high debt service) – it could engage private investors in arrangements such as, build-operate-transfer (BOD).

 

“Hence, while we note that Nigeria needs increased budget to fund critical infrastructural projects in order to facilitate ease of doing business, the pressure of increasing consumption tax amid low disposable income could further hamper economic growth which the current administration is struggling to boost,” they added.

 

Last line

A financial consultant, who did not want his name in print, however, told New Telegraph that until the country’s entire budgeting process was overhauled, various administrations would continue to produce budget proposals that, according to him, would be completely out of touch with reality.

 

He said: “If you carefully study the 2020 budget and previous ones, you will discover that the civil servants who put them together are simply doing what we know as ‘cut and paste’. There are many vested interests that need to be flushed out of the system if the country really wants to have a real budget.”

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2020 budget: Concern mounts over FG’s revenue projections

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2020 budget: Concern mounts over FG’s revenue projections

Widespread scepticism about Federal Government’s ability to realise the  N8.155 trillion revenue projection  in its  2020 budget is casting shadow on the  excitement  generated  by the fact that President Muhammadu Buhari presented  the appropriation bill to the National Assembly much earlier than in previous years, Tony Chukwunyem writes

 

 

I

t clearly appeared to be more than a coincidence that barely 24 hours after President Muhammadu Buhari presented the 2020 Appropriation Bill to  a joint session of the  National Assembly last Tuesday, the International Monetary Fund (IMF) released a statement in which it cautioned the government over the risks of what it described as “Over-optimistic revenue projections.”

 

 

IMF warning

 

 

Specifically, the IMF said in the statement that “over-optimistic revenue projections have led to higher financing needs than initially envisaged, resulting in overreliance on expensive borrowing from the Central Bank of Nigeria (CBN) to finance the fiscal deficit.”

The statement was issued at the conclusion of the latest visit to Nigeria by an IMF staff team, led by the Mission Chief for Nigeria, Amine Mati.

 

The Fund further noted that government’s reliance on central bank for funding was leading to bigger deficits, which make monetary policy complex.

 

Revenue projections

 

 

The 2020 budget proposal of N10.33 trillion unveiled by President Buhari last week represents an 11per cent increase when compared to the 2019 appropriation of N9.12trillion. The President put the Federal Government’s estimated revenue in 2020 at N8.155 trillion and a deficit of N2.18 trillion. The revenue comprises oil revenue of N2.64 trillion, non-oil tax revenues of N1.81 trillion and other revenue of N3.7 trillion.

 

 

Other estimates are N556.7 billion for statutory transfers; N2.45 trillion for debt servicing and provision of N296 billion as sinking fund.

 

 

The 2020 budget is based on an oil production estimate of 2.18 million barrels per day, oil price benchmark of $57 per barrel and an exchange rate of N305 to a dollar. It projects real GDP to grow at 2.93per cent while inflation rate is projected at 10.81per cent.

 

 

Analysts, stakeholders’ reactions

 

 

Apart from the IMF’s statement, Nigerian analysts and industry stakeholders had also questioned government’s revenue projections in the budget.

 

 

For instance, in its preliminary review of the budget obtained by New Telegraph, the Centre for Social Justice (CSJ) faulted the projected revenue to N8.155trillion, contending that it was overly ambitious and unrealistic given the trend the national budget had taken in recent years.

 

 

The CSJ pointed out that over the years, the Federal Government had continued to propose unrealistic revenue projections, thereby  leading to poor implementation  of  budgets as  there were usually no funds to execute projects.

 

 

It noted that in 2016, revenue projections fell short by 23per cent; by 47.73per cent in 2017 and in 2018 by 45per cent.  This, according to the organisation, is an indication that those projections are not based on empirical evidence.

 

 

The CSJ said:“If projected revenue in 2018 was N7.1trillion and we missed the mark by 45per cent and have also missed the mark by 30per cent in the half year of 2019, then  further increase in projected revenue to N8.155trillion in 2020 seems to be hanging in the air. The revenue projections for 2020 should have been greatly influenced by the trend and actuals of 2018 and 2019 except there has been a dramatic change in economic circumstances warranting the new projection.”

 

 

In addition, Lead Director of the CSJ, Eze Onyekpere , faulted the $57 benchmark projected for revenue accruing from oil, arguing that it was “overtly optimistic” considering the  dynamics of the international oil market.

 

 

Similarly, he questioned the oil production estimate of 2.18 million barrels per day, stressing that it seems overly optimistic.

 

 

He said: “The revenue framework projects that Nigeria will produce 2.18mbpd. This is less than projections in previous years of 2.3mbpd. However, in 2018, the actual was 1.86mbpd while data from the first half of 2019 indicates actual production as at June 2019 of the same 1.86mbpd.  Further, Nigeria’s quota from the Organisation of Petroleum Exporting Countries (OPEC) is currently 1.774mbpd.

 

 

“This projection of 2.18mbpd also seems overly optimistic and may not materialize. There has been no change in circumstance to warrant the new production volume. Oil revenue was below target by 41per cent  as at June 2019 and in 2017, it had a negative variance of 47per cent and in 2018, it fell short by 23per cent. Thus, the expectation from oil revenue seems not to be founded on empirical evidence and may need to be downwardly reviewed.”

 

 

Corroborating Onyekpere, a financial analyst, Mr. Victor Oluoma, told New Telegraph he was certain the Federal Government would not be able to realise N8.155 trillion as revenue projection in 2020.

 

 

He said: “Let’s begin with oil revenue projection of N2.64 trillion; the fact is that we cannot produce and sell 2.18 million barrels per day. We have never achieved that and there is nothing on the horizon that suggests  oil production will suddenly surge not when reports suggest that there is an increase in incidents of pipeline vandalism.

 

 

“If  you go back and analyse the  2016, 2017 and 2018 budgets you will find out that, the Federal Government’s revenue projections were not achieved.”

 

According to him, “in 2018, actual revenue collected was N3.48 trillion. So how would this jump to N8.155 trillion by next year?”

 

On its part, even though it commended the return to the January to December budget cycle, the Lagos Chamber of Commerce and Industry (LCCI) in its reaction to the budget proposals stated: “We note that the total budget size is N10.3trillion.  The recurrent component is N4.88 trillion, debt service is N2.45 trillion.  Together, these two budget items amount to 7.33 trillion, which is 90per cent  total revenue estimates.  And from the track record of revenue performance, the percentage may be much higher when related to the actual numbers.  All of these indicate that the hope for an impactful investment in infrastructure is dim and would remain so for some time to come.”

 

The LCCI, which spoke through its Director-General, Muda Yusuf, also described the  exchange rate assumption of N305 to the dollar as unrealistic, arguing that it was difficult to justify this assumption, especially when the country’s earnings were declining.

 

 

He said: “The key assumptions underpinning the budget are realistic except for the exchange rate assumption of N305 to the dollar.  This is one assumption that is difficult to justify, especially at a time when declining revenue has become a major issue both for the government and the citizens.”

 

 

However, in his contribution, Dr Boniface Chizea said: “The foreign exchange rate of 305 to the dollar assumed in the budget is cautionary as this is the Base Exchange rate and, therefore, exchange rate above this rate would be a bonus as it generates greater dollar inflows. But with the newly inaugurated economic council, this rate might not survive for too long.”

 

 

The general consensus among analysts seems to be that the government would again struggle to fund the 2020 budget as it did with previous years’  due to lower oil output and an inability to boost non-oil exports.  It would thus have to rely on borrowing at high costs from the CBN.

 

 

Commenting on the situation in its aforementioned statement, the IMF said: “The increasing CBN financing of the government reinforces the need for an ambitious revenue-based fiscal consolidation that should build   on the initiatives laid out in the Strategic Revenue Growth Initiative. A tight monetary policy should be maintained through more conventional tools. Managing vulnerabilities arising from large amounts of maturing CBN bills—including those held by non-residents—requires stopping direct central bank interventions, the introduction of longer-term government instruments to mop up excess liquidity and moving towards a uniform market-determined exchange rate.”

 

“Structural reforms, particularly on governance and corruption and in implementing the much-delayed power sector recovery plan, remain essential to boosting prospects for higher and more inclusive growth.”

 

In the same vein, analysts at Cowry Asset Investment Limited said: “We opine that the fiscal authority should focus more on policies that will stimulate engagement of private capital in infrastructural development in order to save it the avoidable pressure of increasing its debt profile (and the attendant onerous high debt service) – it could engage private investors in arrangements such as, build-operate-transfer (BOD).

 

“Hence, while we note that Nigeria needs increased budget to fund critical infrastructural projects in order to facilitate ease of doing business, the pressure of increasing consumption tax amid low disposable income could further hamper economic growth which the current administration is struggling to boost,” they added.

 

 

Last line

 

 

A financial consultant, who did not want his name in print, however, told New Telegraph that until the country’s entire budgeting process was overhauled, various administrations would continue to produce budget proposals that, according to him, would be completely out of touch with reality.

 

 

He said: “If you carefully study the 2020 budget and previous ones, you will discover that the civil servants who put them together are simply doing what we know as ‘cut and paste’. There are many vested interests that need to be flushed out of the system if the country really wants to have a real budget.”

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Wheat import to Nigeria hits N31.47bn

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Wheat import to Nigeria hits N31.47bn

RIVALRY

Price of Russian wheat has crashed over stiff competition by the major suppliers

 

 

  • U.S. moves to edge out Russia

 

 

Three years after, United States wheat supply to Nigeria is gradually bouncing back following Russia’s weak supply in the global market.

 

Currently, no fewer than 343, 574 metric tonnes of the grain valued at N31.47 billion ($86.23 million) are being offloaded at Lagos and Tincan Island ports.

 

Price of wheat has crashed to $251 per tonne at the global market because of glut in the Russian market.

 

It was learnt that Russia, United States, Canada and Australia have been supplying the bulk of imported wheat used by Flour Mills of Nigeria, Dangote, Honeywell, Olam and Seaboard Group under stiff competition as domestic production fell in 2012 from 350,000 tonnes to 60,000 tonnes in 2019.

 

 

Wheat importers pay a duty of 20 per cent, while flour attracts 100 per cent duty in the country.

 

 

Data by the Nigerian Ports Authority (NPA)’s shipping position revealed that the grain was ferried by seven vessels to Apapa Bulk Terminal Limited (ABTL), Greenview Development Nigeria Limited (GDNL) and JosepDam.

 

At ABTL, three vessels berthed this week with 155,823 metric tonnes of the grain with Mandarin China laden with 50,820 tonnes, Desert Challenger, 54,700 tonnes and Desert Glory, 50,303.76 tonnes.

 

Also, two vessels have arrived Lagos Port with 72,193.  Genco Loire and Santy berthed with 44,814 tonnes and 27,379 tonnes respectively.

 

At Josepdam, Wild Rose and Ansac came with 30,255 tonnes and 35,000 tonnes respectively.

 

Also in August this year, eight vessels offloaded a total of 181,240 tonnes of wheat valued $127.8 million (N46.7 billion) following the sharp fall in the price of the grain.

The grain was discharged at the Calabar, Lagos, Rivers and Tincan Island ports.

 

At the Lagos Port complex, NPA data revealed that 53,727tonnes of the grain were offloaded by Akour II at the Apapa Bulk Terminal Limited (ABTL).

 

Also, Josepdam terminal at Tincan Island Port received 40,000tonnes   from Genco Auvergne, while Angela berthed with 33,042 tonnes; Hawk 1, 29,000 tonnes and Thor Chaiyo, 24,177 tonnes.

 

Calabar Port took delivery of 16,500 tonnes from MV Cooper Island.          

 

In addition, Seastar Endeavour and Thor Chaiyo discharged 14, 300tonnes and 24,221.393 tonnes respectively at Rivers Port in Port Harcourt in the same month.

In June, the shipping data revealed that three vessels offloaded 120, 875 tonnes of the grain at GDNL and ABTL of Lagos Port.

 

At GDNL, Genco Bourgogne berthed with 27, 300tonnes, while Desert Victory and Desert Hope discharged 41,725 tonnes and 51,850 tonnes respectively at ABTL terminal.

 

In May, a total of 259, 574 tonnes of the grain were ferried to ABTL by six ships. Desert Oasis discharged 39,882 tonnes;   Genco Province, 49,112 tonnes; Desert Melody, 86,130 tonnes; Desert Victory, 36,250 tonnes; Desert Calm, 48,200 tonnes and Genco Bourgogne, 33,050 tonnes to GDNL in the period.

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Why Nigerian capital market needs derivatives

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Why Nigerian capital market needs derivatives

Developing derivatives will help to reduce the current problem of shallowness and lack of breadth in the capital market. Chris Ugwu writes

 

 

A

ccording to reports, trading in derivatives has a 10,000-year-old history. In humanity’s financial history, derivatives have always had a place. From Babylonians to the medieval era to the current electronic age, derivatives have existed all this while.

 

In 8,000 B.C., to deliver a number of goods by a certain date, clay token was exchanged in envelopes. The time frame was decided by the imprint on the envelope and the tokens themselves. This process functioned like that of a forward’s contract.

 

 

The contract got once settled as soon as the seller delivered the goods as per the imprints on the token. By 1700BC they became written contracts. Currently many stock exchanges across the globe who are predominantly equity driven has taken to leverage on this products in order to hedge against risks or diversify market offerings.

 

 

The Nigerian Stock Exchange remains a predominantly equities-driven market with certain sectors dominating trading and market capitalisation. On the Main Board, the Financial Services sector leads the pack of the board’s total market capitalization while consumer Goods are a close-second.

 

 

However of recent, bond trading has been on the rise through the issuance of bonds by the Federal Government. But it is clear, especially since the slide in the values of the Exchange in 2008, that efforts, including more instruments like derivatives, are required to improve the fortunes, attraction, and experience of investors in the Nigerian stock market.

 

 

This will also help to reduce the current problem of shallowness and lack of breadth in the capital market as currently, less than 30 per cent of listed equities are actively traded, while the NSE offers only basic products.

 

 

Between 2008 and 2016, the stock market has seen a reduction in its value by over 50 per cent. However, significant underlining progress has been made in terms of strengthening the process in the capital market. This development is essential, because it helps the foundation and the platform on which investors rely to make reliable judgments on their investments.

 

 

There have been arguments, though, to the effect that the NSE’s product offering has only reflected the domestic economy’s financing needs.

 

 

However, on account of the economy’s radically changing financing needs, including the recourse to the public private partnership (PPP) arrangement as a solution to the nation’s infrastructure dearth, finance experts are at the opinion that opportunities should now abound for a broadening of the exchange’s product offerings to include key derivative categories, expansion of listed mutual funds, index funds, among others.

 

 

In an effort to strengthen the Nigerian capital market and make it compete favourably with other exchanges across the globe, some experts have in various fora called on the regulators to create more products that would broaden deepen and  inject liquidity to the market.

 

 

In pursuit of its drive to deepen the stock market, both the Nigerian Stock Exchange and the FMDQ Securities Exchange have said it would intensify efforts create more products like derivatives to offer investors other alternative investment platforms.

 

 

What are derivatives?

 

A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, index or security. Common underlying instruments include: bonds, commodities, currencies, interest rates, market indexes and stocks, according to Invetopedia.

 

 

Futures contracts, forward contracts, options, swaps and warrants are common derivatives. A futures contract, for example, is a derivative because its value is affected by the performance of the underlying contract. Similarly, a stock option is a derivative because its value is “derived” from that of the underlying stock.

 

 

Derivatives are used for speculating and hedging purposes. Speculators seek to profit from changing prices in the underlying asset, index or security. For example, a trader may attempt to profit from an anticipated drop in an index’s price by selling (or going “short”) the related futures contract. Derivatives used as a hedge allow the risks associated with the underlying asset’s price to be transferred between the parties involved in the contract.

 

For example, commodity derivatives are used by farmers and millers to provide a degree of “insurance.” The farmer enters the contract to lock in an acceptable price for the commodity; the miller enters the contract to lock in a guaranteed supply of the commodity. Although both the farmer and the miller have reduced risk by hedging, both remain exposed to the risks that prices will change. For example, while the farmer locks in a specified price for the commodity, prices could rise (due to, for instance, reduced supply because of weather-related events) and the farmer will end up losing any additional income that could have been earned. Likewise, prices for the commodity could drop and the miller will have to pay more for the commodity than he otherwise would have.

 

 

The derivatives market however is the financial market for derivatives, financial instruments like futures contracts or options, which are derived from other forms of assets. The market can be divided into two, that for exchange-traded derivatives and that for over-the-counter derivatives.

 

 

Derivatives to boost capital market

 

 

First Vice President of The Nigerian Stock Exchange (NSE), Mr. Abimbola Ogunbanjo, said that Nigeria’s Exchange Traded Derivatives (ETDs) would boost the nation’s stock market.

Ogunbanjo  in a keynote address he delivered in Lagos on training  on  ‘Legal & Risk Aspect of Derivatives and Central  Counterparty Clearing (CCP) Transactions,’ said: We believe that Nigeria’s ETD initiative will eventually develop into a robust market place that can support our growth ambitions as a nation, using South Africa as an example of Africa’s first derivative market.”

 

He noted that South Africa’s derivatives market had grown rapidly in recent years, which has supported capital inflows and helped market participants to price, unbundle and transfer risk.

 

 

“Their market comprises two broad categories of derivatives, namely options and futures. Within these two categories, a wide range of instruments may be identified: warrants, equity futures and options, the agricultural commodity futures and options, interest rate futures and options, currency futures and fixed income derivatives.

 

 

“The fixed income derivatives are made up of bond futures, forward rate agreements (FRAs), vanilla swaps, and standard bond options. Notwithstanding the foregoing, South Africa has had to manage the risks associated with misuse of complex financial products via continuous improvement and enhanced enterprise risk frameworks.  Accordingly, as innovation drives interest in any product, the market will require continuous advancement to risk frameworks, technology and critical thinking to bringing about competition which is a basic driver towards development and growth in the market,” he said.

 

 

Ogunbanjo noted that the concept of derivatives remains relatively novel in the Nigerian financial market space and has only been noticeable within the Over-The-Counter (OTC) segment of the market.

 

 

“The frontiers of the Nigerian financial market is expected to grow exponentially due to enhanced liquidity arising from the development of new and intricate financial instruments. Given the open and transparent financial market place the NSE offers to a wide range of domestic and international investors,” he said.

 

 

Tinuade Awe, Executive Director, Regulation, NSE, noted that the frontier of the Nigerian financial market is expected to grow exponentially due to enhanced liquidity arising from the development of new and intricate financial instruments.

SEC’s recent efforts

 

 

The Securities and Exchange Commission (SEC) recently said that the rules on derivatives would be ready soon.

 

 

The Acting Director General of SEC, Ms. Mary Uduk, noted that the Commission had been building capacity in-house in partnership with South Korea for the development of derivatives.

 

 

“We have a knowledge sharing programme with them, they have been to the country twice now and our staff are scheduled to travel to their country for more training. Even their ambassador has been to the commission and all of that is part of building capacity and training the staffs.

 

 

“Even in the market NSE is doing a lot in the area as well as the FMDQ who are taking some people to India this month on capacity building. All stakeholders including the CBN have been joining hands to ensure that we get it right,” she said.

The Commission identified derivatives as one of the investable products that would enhance the liquidity of the Nigerian capital market.

 

Uduk stated this at the Final Reporting Workshop of the Knowledge Sharing Programme (KSP) recently in Lagos.

 

 

The KSP is centred on “Capacity Building on Operation and Development of Financial Derivatives Markets in Nigeria.” It is aimed at tapping from the Korea’s expertise and excellence towards developing the derivatives market in Nigeria. The Nigerian capital market will not remain the same at the conclusion of this workshop as it has derived tangible benefits from this partnership.

 

According to Uduk, there is no doubt that the KSP has presented a good opportunity for addressing some of the market’s challenges in setting up a strong and functioning derivatives market, especially in terms of having the required market infrastructure, regulatory framework and surveillance system for the derivatives market in Nigeria which are the target areas of research.

Last line

 

 

Derivatives are essential in markets with significant low product to investor ratio like the Nigerian capital Market. However, the regulators and fund managers have key roles to play in ensuring the right products are introduced to the market and that product proliferation does not lead to investor abuse.

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