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Nigeria’s Refineries More of Liabilities than Assets

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refineries
  • Nigeria’s Refineries More of Liabilities than Assets

An energy expert, Mr. Dan Kunle has said that Nigeria’s three refineries in Port Harcourt, Kaduna and Warri are more of liabilities than assets, thus questioning the government’s continued insistence on holding on to them.

Kunle, who spoke on the background of recent debates generated from suggestions by Aliko Dangote and some others that the federal government should consider selling its stakes in some national assets to raise money to reflate the country’s economy, said that the three refineries have remained unprofitable and drainpipes on the country’s finances.

He explained that a continued politicisation of the sale of the refineries was not in the interest of the country, adding that their values would continue to decline for as long as they are left operating below par.

According to Kunle, “The more you politicise the privatisation of the three or four refineries, the more those refineries are technically going obsolete and into decadence that no credible investor will come near them anymore.”

“In fact, they become worthless because they have become technically insolvent. When you have assets that have become technically insolvent, it means, if you want to buy it you are buying liability because all the equipment you are supposed to produce with are obsolete.

“They have decayed, corrosion has taken place. That means you are going to invest money in building a new refinery. So, why will an investor come and take such a technically liable refinery,” Kunle added.

He said beyond the technical insolvency, the refineries are also socially insolvent, insisting that any investor who takes them up will have loads of labour and social issues to deal with.

“The labour problem you are going to have in the refineries, unless government insulates you away from all these labour issues, and take away all the staff and pay them. These social problems include the community you are going to interface with, because you need their social license to operate there,” he added.

Speaking then on the debate about the suggestions made by Dangote, he said: “All these noise that people are making, if you get down to the details, you will see that there is no refinery selling. They are all technically insolvent.

“Take the case of NITEL, there was no equipment there. The buyer of NITEL only bought the spectrum more or less and may be some old buildings that were harbouring those base stations.”

“When Nigerians are sentimentally attached to all these things, I sympathise with them because of one reason – they feel they have been short-changed. There are certain things that must be explained in the right perspective to the people but we mix up things, we jaundice information,” he said.

“If the labour wakes up and say don’t sell our patrimony, your children and everybody is going into more deficit by keeping that asset. We could not run Nigerian Airways. Government in this part of the world and anywhere in the world is not meant to run businesses.

“Aliko Dangote is building a refinery that is going to produce near sufficiency of petroleum products to the market. Anybody who decides to buy the three existing refineries will have to invest money to upgrade the refineries to a standard that can produce up to 70 and 80 per cent of installed capacity.”

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

IMF Staff Completes Virtual Mission to Lesotho

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Lesotho has been struggling with the fallout from the pandemic and a sharp decline in revenues from the Southern African Customs Union (SACU); The authorities and the mission team made significant progress in their discussions on policies that could be supported by the IMF under a financial arrangement.

A team from the International Monetary Fund (IMF), led by Mr. Aqib Aslam, conducted a series of virtual missions, most recently from September 7 to October 15, 2021, to discuss the authorities’ economic and financial program and their request for IMF financial support.

The authorities and the mission team had productive discussions on policies that could be supported by the IMF under a financial arrangement. The program under discussion would aim to support a durable post-pandemic recovery, restore fiscal sustainability, strengthen public financial management, and ensure the protection of the most vulnerable. Other key structural reforms to be implemented include strengthening governance and fostering private sector investment to spur inclusive growth and employment over the medium term.

At the end of the visit, Mr. Aslam issued the following statement:

“Lesotho has been experiencing twin economic shocks resulting from the pandemic and a decline in revenues from the Southern African Customs Union (SACU) that have proved to be highly volatile. Public expenditures have been increasing while SACU revenues were buoyant but have not adapted to their decline and the limited growth in other revenue sources. At the same time, the economy has been in recession since 2017. The resulting fiscal and external imbalances, if left unaddressed, would continue to put pressure on international reserves and lead to government payment arrears.

“Discussions emphasized the need to support a robust and inclusive post-pandemic recovery. To this end, the mission discussed with the authorities a number of options for containing the fiscal deficit to a level that is sustainable and can be fully financed. The team noted that the adjustment should be focused on expenditure measures while boosting poverty-reducing social spending to protect the most vulnerable. Complementary actions include efforts to broaden financial access and inclusion; strengthen financial supervision; modernize the legal frameworks for bank lending, business rescue, and restructuring, and digitalize payment systems.

“On the fiscal front, efforts should focus on addressing the public sector wage bill, which is one of the largest in the world compared to the size of the economy; saving on public sector and official allowances; better targeting education loans; streamlining the capital budget and initiating gender-responsive budgeting. Discussions also considered measures to modernize tax policy and improve domestic revenue mobilization. The mission noted the need to address long-standing PFM issues to ensure the provision of reliable fiscal data, the integrity of government systems, and the sound use of public resources.

“Significant progress was made during the visit, and discussions will continue in the coming weeks. If agreement is reached on policy measures in support of the reform program, an arrangement to support Lesotho’s economic program would be proposed for the IMF Executive Board’s consideration.

“The IMF team thanks the authorities for their hospitality and constructive discussions.”

The IMF mission met with Prime Minister Majoro, Minister of Finance Sophonea, Central Bank Governor Matlanyane, and other senior government officials. The team also met with representatives of the diplomatic community, private sector, civil society, and multilateral development partners.

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Nigeria’s Inflation: Prices Increase at Slower Pace in September 2021

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Consumer Confidence

Prices of goods and services moderated further in Africa’s largest economy, Nigeria in the month of September 2021, the latest report from the National Bureau of Statistics (NBS) has revealed.

Consumer Price Index (CPI), which measures the inflation rate, grew at 16.63 percent year-on-year in September, slower than the 17.01 percent rate achieved in the month of August.

On a monthly basis, inflation rose by 1.15 percent in September 2021, representing an increase of 0.13 percent from 1.02 percent filed in August 2021.

Food Index that gauges price of food items grew at 19.57 percent rate in the month, below the 20.30 percent rate recorded in August 2021.

The increase in the food index was caused by increases in prices of oils and fats, bread and cereals, food product N.E.C., fish, coffee, tea and cocoa, potatoes, yam and other tuber and milk, cheese and egg.

However, on a monthly basis, the price of food index rose by 0.20 percent from 1.06 percent filed in August 2021 to 1.26 percent in September 2021.

The more stable twelve months average ending in September 2021 revealed that prices of food items grew by 0.21 percent from 20.50 percent in August to 20.71 percent in September.

Prices of goods and services have been on the decline in Nigeria in recent months, according to the NBS. However. on masses are complaining of the persistent rise in prices of goods and services across the nation.

Some experts attributed the increase to Nigeria’s weak foreign exchange rate given it is largely an import-dependent economy.

 

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Global Debt Rises by $27 Trillion to $226 Trillion in 2020 – IMF

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IMF - Investors King

The pandemic has led to an unprecedented increase in debt—issued by governments, nonfinancial corporations, and households the IMF estimated in the latest Fiscal Monitor report. In 2020 global debt reached $226 trillion and increased by $27 trillion, the IMF estimated Wednesday  (October 13) in Washington, DC.

High and growing levels of public and private debt are associated with risks to financial stability and public finances, said Vitor Gaspar, Director of the IMF’s Fiscal Affairs Department.

“According to preliminary estimates from the Global Debt Database, global debt by governments, households, and non-financial corporations reached $226 trillion. That represents an increase of $27 trillion relative to 2019. Both the level and the pace of increase are record highs. We know that high and rising debts increase risks to financial stability and public finances,” Gaspar said ahead of the Fiscal Monitor release.

Gaspar emphasized that countries with a high credibility fiscal framework benefit from better bond market access. They also experience lower interest rates on sovereign bonds.

“A strong message from the fiscal monitor is that fiscal credibility pays off. Countries that have credible fiscal frameworks benefit from better and cheaper access to bond markets. That’s a precious asset to have in an uncertain and difficult times like COVID 19. Fiscal credibility pays off!,” added Gaspar.

He also recognized that while the international community has provided critical support to alleviate fiscal vulnerabilities in low-income countries, still more is needed.

“In 2020, the IMF’s rapid financing and the G20 Debt Service Suspension Initiative contribute to make resources available to the countries that need it the most. But more is needed. With a general allocation of SDRs of $650 billion, liquidity has been provided, but much more could be achieved if rich countries would make part of their resources available to the developing world. By doing so, donors would be contributing to fighting the pandemic and to the achievement of sustainable and inclusive growth,” said Gaspar

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