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FG Owes Oil Firms $8.1bn in Cash Calls

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The Federal Government owes oil companies at least a total of $8.06bn in unpaid cash calls, as the Nigerian National Petroleum Corporation failed to pay $3.06bn in the first seven months of the year.

The nation’s oil and gas production structure is majorly split between Joint Ventures onshore and in shallow water with foreign and local companies and production sharing contracts in deepwater offshore.

The NNPC owns between 55 per cent (for JVs with Shell) and 60 per cent (for all others) and the JVs are jointly funded by the private oil companies and the Federal Government through the corporation.

The latest monthly report of the NNPC showed that the corporation paid a total sum of $1.932bn from January to July this year, as against $4.987bn expected to be paid for the period.

It paid $407,857,571 in January, $236,700,314 in February, $141,868,647 in March and $300,590,276 in April. The corporation paid $149,876,805 in May, $214,398,900 in June and $168,129,620 in July.

In July, N61,615,100,170 (equivalent to a functional dollar of $312,767,005.94 at a budgeted exchange rate of N197/$) was transferred to joint venture cash call from domestic crude oil receipts of N90,815,444,663 in addition to the $168,129,620.

The NNPC is expected to pay $712.46m to its joint venture partners monthly for the development of oil and gas assets, translating into $8.55bn for the year, up from $7.39bn in 2015.

Last year, the corporation recorded a shortfall of $3.3bn in its cash call payment as it was only able to pay $4.13bn to the JV partners.

In January, industry stakeholders including the Managing Director/Chief Executive Officer, Chevron Nigeria Limited, Mr. Clay Neff, said the cash call arrears owed by the NNPC was over $5bn.

The NNPC in the report said, “Total export crude oil and gas receipt for the period of August 2015 — July 2016 stood at $3.21bn. Out of which the sum of $3.16bn was transferred to JV cash call in line with 2015/2016 Approved Budget and the balance of $0.49bn was paid to Federation Account.

“However, this amount falls short of the calendarised appropriated amount of $615.80m and $712.46m for 2015 and 2016 respectively. This is due to worsening production and fall in crude oil price.”

According to the NNPC, the JVCC funding is a first-line priority statutory provision in the 2016 Budget.

“Funding approved JVCC commitments is necessary to protect current and future production and the vice versa is detrimental and unlawful,” it said.

The funding problem, which has lingered for over two decades, has been exacerbated by the steep fall in global oil prices which drove down the country’s earnings from the commodity, its major revenue-earner.

Production from JV assets has over the past few years seen significant decline, partly due to funding constraints occasioned by the NNPC’s inability to meet its share of cash call obligation.

An industry source had in June said as of January this year, about $5.5bn cash call arrears had not been paid to the International Oil Companies, while $1.1bn is owed to the indigenous companies.

The Group Managing Director, NNPC, Dr. Maikanti Baru, on Tuesday said it had started working out modalities that would enable it to exit JV cash call arrears by ensuring that outstanding and future payments were liquated from oil and gas royalties and taxes under a first-line charge model.

The Federal Government must get out of paying so-called cash calls to joint ventures with oil and gas companies to stand a chance of pulling its ailing economy out of recession, the Finance Minister, Kemi Adeosun, said this month.

The minister said the NNPC had spent N110bn ($360 million) on cash calls this month, which dwarfed the country’s N41bn income from oil production over the same period.

“We are already working to see how we can get out of the cash calls. And that is very fundamental to the economy,” Adeosun told a press conference.

“We are working with the Ministry of Petroleum Resources and NNPC … that’s a long-term plan: To allow those joint ventures to borrow money that they need rather than taking money out of the Federation Account.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Economy

Remittances To Africa Projected to Drop By 5.4% in 2021: UNECA

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According to a new report from United Nations Economic Commission for Africa (UNECA), remittances to Africa are projected to drop by 5.4 percent to $41 billion in 2021 from $44 billion last year.

The report notes that the bleak situation has been compounded by the high cost of sending money to Africa from abroad, as the cost of remittances to Africa remains the highest in the world at 8.9 percent.

Remittances are an essential part of economic activity in low and middle-income countries (LMIC), including Africa. Due to the economic crisis induced by the COVID-19 pandemic and shutdown, global remittances are projected to decline sharply by about 20 percent in 2020. For Africa, remittances are projected to drop by 5.4 percent to $41 billion in 2021 from $44 billion last year, according to a new report by the United Nations Economic Commission for Africa (UNECA) projects remittances.

The report, titled “African regional review of the implementation of the Global Compact for Safe, Orderly and Regular Migration”, notes that the projected fall is mainly due to a fall in the wages and employment of migrant workers, who tend to be more vulnerable to loss of employment and wages amid the pandemic.

The report adds that the bleak situation has been compounded by the high cost of sending money to Africa from abroad as the cost of remittances to Africa remains the highest in the world at 8.9 percent.

“A migrant sending $200 to his/her family in Africa pays an estimated nine percent of the value of the transaction, indicating that the continent is still far from achieving the three percent target set out in Sustainable Development Goal 10,” the report stated.

This signals huge deficits in millions of African households depending on their friends and relatives abroad for a financial lifeline, thus threatening a perpetuation of macroeconomic imbalances on the continent.

The Addis Ababa Action Agenda of the Third International Conference on Financing for Development and Sustainable Development Goal indicator 10(c) provides that countries should, by 2030, reduce to less than three percent the transaction costs of migrant remittances and eliminate remittance corridors with costs higher than five percent.

In response, some African countries have taken action to lower the costs of remittance transfers by offering diaspora bonds to investors and relaxing foreign exchange controls to allow for electronic and mobile money transfers at reduced costs.

“It should be noted, in that regard, that the use of digital money transfer platforms reduces transfer fees in Africa by an average of 7 percent,” says the report.

“Private financial institutions also offer incentives to encourage members of diaspora communities to use their services, including low transaction fees for remittances, and facilitate diaspora-initiated projects, especially in the real estate sector. These measures all promote the financial inclusion of migrants and their families.”

The report recommends that member States support migrants and their families through adopting laws and regulations to facilitate the sending and receiving of remittances, including by fostering competition among banks and other remittance handling agencies to establish low-cost transfer mechanisms.

In addition, the report recommends that African countries make every effort to reduce the transfer costs associated with remittance payments by making more extensive use of digital transfer solutions, such as MPESA, and by streamlining the regulatory constraints associated with international money transfers.

Finally, the report concludes that the African States should also engage with destination countries to identify ways to enhance the provision of basic services to migrants in those countries as remittances are a primary source of national income for at least 25 African countries, all of which have large diaspora populations.

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Nigeria’s Inflation Rate Declines to 17.01 Percent in August 2021

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Prices moderated further in Africa’s largest economy, Nigeria, in the month of August despite rising costs and growing economic uncertainties.

Consumer Price Index (CPI), which measures inflation rate, grew by 17.01 percent year-on-year in August 2021, representing a 0.37 percent decrease when compared to the 17.38 percent recorded in the month of July 2021.

On a monthly basis, inflation rate increased by 1.02 percent in August 2021, slightly higher by 0.09 percent than the 0.93 percent filed in July, the National Buruea of Statistics (NBS) stated in its latest report.

Prices of goods and services continued to drop on paper in recent months even as costs are hitting record highs across most sectors in Nigeria.

Naira has plunged to a record-low against the United States Dollar and other global currencies following the Central Bank of Nigeria’s decision to halt sale of forex to Bureau De Change Operators in an effort to curb illicit financial flows and forex supplies to the black market.

Naira plunged to N560 per United States Dollar at the black on Wednesday to set a new record low against the greenback and subsequently dragged on cost of import goods and profit of import dependent businesses.

Food Index also rose at a slower pace in August 2021 even with Nigerians complaining of over 50 percent increase in the price of food items. Food composite index rose by 20.30 percent in August, at a slower pace when compared to 21.03 percent recorded in the month of July 2021.

The rise in food index were caused by increases in prices of Bread and cereals, Milk, cheese and egg, Oils and fats, Potatoes, yam and other tuber, Food product n.e.c, Meat and Coffee, tea and cocoa, according to the NBS report.

On a monthly basis, the food sub-index grew by 1.06 percent in August 2021, representing an increase of 0.20 percent from 0.86 percent filed in the month of July 2021.

Looking at a more stable food index guage, the twelve-month period ending August 2021 over the previous twelve-month average, food index increased by 0.34 percent from 20.16 percent achieved in July 2021 to 20.50 percent in August 2021.

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Glo to Reconstruct 64km Ota-Idiroko Road Using Tax Credit Scheme – Fashola

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Mobile telecommunications giant, Globacom, has offered to reconstruct the 64 km Ota-Idiroko road in 2022, using Federal Government’s Tax Credit Scheme.

The Minister of Works and Housing, Mr. Babatunde Fashola, announced this on Wednesday during an inspection tour of the ongoing reconstruction of the Lagos-Ibadan Expressway.

“From Ota to Idiroko, we don’t have a contract there, but Chief Mike Adenuga of Globacom has offered to construct that road using the tax credit system.

“So, that has also started, they are doing the design, and hopefully, by sometime early next year, they should mobilize to site. The real reconstruction is going to happen if we have a deal with Glo,” Fashola said.

He said that FERMA would carry out rehabilitation works on the Ota-Idiroko road between October and December.

“But between now and December, FERMA has gone to take measurements there and they will move there from the end of September if the Ogun State Government does two things.

“Clear all the squatters, traders, and the settlers on the road and help us manage traffic and the governor as at last night has committed to doing that for us,” the minister said.

He said efforts were on to bring in Flour Mills of Nigeria Plc and Unilever to reconstruct the Badagry link to the Lagos-Ota-Abeokuta road under the Tax Credit Scheme of the Federal Government.

The minister said that the Lagos-Ota-Abeokuta road had become a problematic road due to years of neglect by previous administrations, as such the highway required a huge investment.

He commended Gov. Dapo Abiodun for his passion for fixing roads in Ogun State, adding that the reconstruction of the failed portions of the Lagos-Ota-Abeokuta road would be completed by December at the cost of N13. 4 billion.

The minister added that the project would be handled by the Federal Road Maintenance Agency (FERMA).

He called on federal lawmakers representing Lagos and Ogun States to ensure increased budgetary allocation for the roads to ensure their speedy completion to ease the hardship on road users.

“When people say Fashola is looking away, I am not looking away, I just can’t find the money,” he said.

He also called for support of citizens for parliamentarians to ensure more borrowing for infrastructure upgrades because the future depends on development strides today.

Also speaking during the inspection tour, Gov. Dapo Abiodun of Ogun said that the project became necessary because Ogun is the industrial hub of the nation that needed good roads for interconnectivity to boost commerce.

He said: “We have given the commitment that we will relocate traders, we will control and manage traffic, whatever that it is we need to do, we will ensure that we begin to bring succor and needed relief to our people.

“The state of that road today is pitiable. I went on that road myself and I felt bad for our citizens.”

Abiodun said the state government was ready to borrow to reconstruct the Lagos-Ota-Abeokuta Road should there be a delay in the Sukuk funding for the highway.

“If this Sukuk bond would not happen immediately, the state government is willing to go and borrow against that promise so that we can mobilize the contractor,” he said.

He thanked Fashola for the efforts to reconstruct roads in the state and pledged the support of the state government in fixing the highways.

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