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Power Sector Loses N549b Yearly to Gas Constraints

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  • Power Sector Loses N549b Yearly to Gas Constraints

Nigeria’s power sector is losing an average of N549 billion yearly to gas supply challenges. The situation has continued to deprive the country of over 2,479 Mega Watts (MW) daily.

According to the Nigerian Electricity Supply Industry (NESI), the sector is losing an estimated N1.525 billion daily due to power generation constraints.

Further analysis showed that losing N1.525 billion daily to lack of gas to power plants, translated to N45.75 billion monthly.

NESI said, in its daily power generation analysis, that the country recorded line constraint of 394.5MW and high-frequency constraints of 303MW as at October 12, 2016. It explained that the revenue losses were calculated using a net, average and levelised tariff of N20/kWh. The agency stressed that in gross terms, this implies average end-user tariffs of circa N32/kWh inclusive of all Aggregate Technical and Commercial losses (ATC&C) and export sales if one adopts the assumptions contained in MYTO 2.1.

NESI, which noted that 85 per cent of the combined installed capacity of power plants in Nigeria was fuelled by gas, added that “availability of gas molecules is low due to insufficient production, economic disincentives, inadequate infrastructure and frequent vandalism.”

Corroborating NESI, the Nigerian National Petroleum Corporation (NNPC) stated that gas supply dropped from the 619 mmscfd in August 2015 to 405 mmscfd in July this year to generate an average power of about 1,911mw compared with 2,694mw generated in the same period of the previous year.

Specifically, power generation from gas-fired plants has been dropping steadily from 3,472mw in August 2015 to 2,017mw in May 2016 and to 1,911mw in July 2016.

On individual basis, Eko Electricity Distribution Company Plc (EKEDP) is losing about N2.5 billion monthly in revenue.

The Chief Executive Officer, Oladele Amoda, said that the company used to generate above N4 billion monthly but it had dropped to about N1.5 billion.

“The drastic drop in power supply within our network has affected the company’s operation deeply. It has also impacted on the revenue and business activities significantly,’’ he said. According to him, the shortfall has adversely impacted on the ability of the company to make capital investment in metering, network expansion, equipment rehabilitation and replacement that are critical to service delivery.

Speaking on the solutions to gas supply crisis, the President, Nigerian Gas Association (NGA) and Chief Executive Officer of Oando Gas & Power, Bolaji Osunsanya, described the current challenge as man-made, noting that it would require a multifaceted approach to address the key drivers of the disruption.

The approach, he said, would include a combination of dialogue, an alignment of interests, applicable sanctions, and fair treatment.

“For one, the creation of an appropriately constituted and independently audited host community fund would be a way of further positioning the oil and gas communities as key stakeholders.

“In the interim, the government needs to increase the engagement and involvement of community leaders and influencers to create the necessary awareness regarding the crippling effects of the current disruptions in the Niger Delta on the environment and the local economy.

“The government must also consider other initiatives to expand the supply of gas into the market. Such an initiative would be tailored to ensure that the gas is deliberately developed for supply into the market.”

To the Managing Director of Frontier Oil Limited, Dada Thomas, Nigeria’s gas-to-power value chain itself is terminally sick in the emergency ward and infested with a number of crippling diseases chief among which are the primary diseases of vandalism of oil and gas facilities and sector illiquidity.

According to him, vandalism of oil and gas facilities is topical and has brought the Nigerian oil and gas industry and the power sector on its knees.

Thomas stated: “We are all witnesses to the impact that this is having in all sectors of the Nigerian society presently. Indeed the government has only achieved 51.3 per cent of its half-year budget target in 2016.

“This is because there has been vandalism of not only oil facilities, but gas facilities and pipelines. In the past six weeks, the third party-owned gas evacuation system through which our company – Frontier Oil Limited – transports gas has been sabotaged twice resulting in the loss of about 450 megawatts of power from the nation’s generation capacity thereby worsening an already dire situation.”

He emphasised the need for the Federal Government to introduce quick win initiatives that will put a stop to vandalism of oil and gas assets and ensure oil and gas production ramps back up to circa 2.2 million barrels of oil production per day and 5,000mw of power generation.

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

AfCFTA: Nigeria-South Africa Chamber Advocate Single Africa Passport, Free Visa

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African Continental Free Trade Area (AfCFTA)- Investors King

The Nigeria-South Africa Chamber of Commerce (NSACC) has called for a single Africa passport and a free visa to ensure the success of the Africa Continental Free Trade Area (AfCFTA) agreement.

Speaking on Thursday in Lagos during the chamber’s September Breakfast Forum, with the theme: `Perspectives on the Africa Continental Free Trade Area in Relation to Nigeria’, its President, Mr. Osayande Giwa-Osagie noted that AfCFTA would boost intra-African trade by 22 percent, adding that its implementation would impact positively on the Nigerian economy.

AfCFTA is a single continental market that adopts free flow of goods, services, and capital, supported by the free movement of persons across Africa.

Giwa-Osagie however said Nigeria must diversify its economy in order to harness the gains of the agreement.

“Current intra-African trade rated at 15 to 17 percent is low and the AfCFTA is expected to boost intra-African by 22 percent. Challenges to its implementation are lack of infrastructure, political instability and lack of economic diversification.

“This gives rise to the need for Nigeria to diversify its economy to harness the gains of the agreement. Given the importance of the free movement of people, there is a need for a free visa for Africa and a single Africa passport.

“While the implementation would help boost the Nigerian economy, the impact would be limited if there are no free movement of people,” he said.

Mr Jesuseun Fatoyinbo, Head, Trade and Transactional Services, Stanbic IBTC Bank, said the business community needed more clarification on tariff reduction or elimination under the agreement.

According to him, the little information available to corporate organisations with regards to tariffs may lead to holding back on investments.

“We have noted increased interests from global multinationals and other corporates in setting up facilities in Africa aimed at serving the continent and exporting abroad.

“So more transparency around tariff reductions both in terms of timelines and details of goods could prompt companies to act,” he said.

Fatoyinbo also called for more attention to the digitisation of trade processes across the continent. “Currently, trade in Africa is largely reliant on physical documentation and this is a major impediment. Policymakers need to prioritize regulatory amendments that allow for the digital signatures, a digital certificate of origin, digital bills of lading, and other documentation,” he added.

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Nigeria Borrows $4 Billion Through Eurobonds as Order Book Peaked at $12.2 Billion

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Eurobonds - Investorsking

The Federal Government of Nigeria has raised a fresh $4 billion through Eurobonds, according to the latest statement from the Debt Management Office (DMO).

Nigeria had set out to raise $3 billion but investors oversubscription peaked at $12.2 billion, enabling the Federal Government to raise $1 billion more than the $3 billion it announced.

DMO said “This exceptional performance has been described as, “one of the biggest financial trades to come out of Africa in 2021” and “an excellent outcome”.

Bids were received from investors in Europe, America, Asia and several local investors. The statement noted that the quality of investors and the size of the Order Book demonstrated confidence in Nigeria.

The Eurobonds were issued in three tranches, details, namely seven years–,$1.25 billion at 6.125 per cent per annum; 12 years -$1.5 billion at 7.375 per cent per annum as well as 30 years -$1.25 billion at 8.25 per annum.

The DMO explained that the long tenors of the Eurobonds and the spread across different maturities are well aligned with Nigeria’s Debt Management Strategy, 2020 –2023.

The Eurobonds were issued as part of the New External Borrowing stipulated in the 2021 Appropriation Act. DMO noted that the $4 billion will help finance projects state in the 2021 budget.

Nigeria’s total debt stood at $87.239 billion as at March 31, 2021. However, with the $4 billion new borrowing, the nation’s debt is now $91.239 billion. A serious concern for most Nigerians given the nation’s weak foreign revenue generation and rising cost of servicing the debt.

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CIBN Banking and Finance Conference 2021: Structural Transformation and Growth

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Coronation Merchant Bank - Investors King

Today we highlight one of the sessions, ‘Economic Recovery’, at the recently concluded CIBN Banking and Finance conference. This was a hybrid event in Abuja, Lagos and partially virtual last week. The Covid-19 disruptions have created demand and supply shocks in the global system while unlocking new opportunities for growth.

Given the pre-existing financing challenges and growing spending needs, many developing countries are in dire need of financial support. As a result of the pandemic, the financing gap for the sustainable development goals increased by 70% (over USD4.2bn). The speaker on this session, Amina J. Mohammed, Deputy SecretaryGeneral of the United Nations and Chair of the United Nations Sustainable Development Group focused on structural transformation, technology, finance and sustainability.

Recent developments such as the allocation of the USD650bn in Special Drawing Rights (SDR) were highlighted during the session. Although the SDR offers improved liquidity into the system, Africa is set to receive only USD32.2bn (or 6.4% of the total amount). Therefore, it is important that the funds are channeled towards well-targeted sectors that can contribute to sustainable development.

The banking and finance sector plays a crucial role. The Africa Continental Free Trade Area (AFCFTA) agreement offers an opportunity for the financial sector to work within a continental market of 1.2 billion people. According to Amina J. Mohammed, three main actions areas will reshape the financial sector and support stronger recovery.

The first, better customer engagement with a dynamic range of relevant products and services that go beyond bank-based financing mechanisms and offer innovative financial products tailored to specific needs of business ecosystems. Second, the adoption of new operating models to drive efficiency and inclusion. Third, a deliberate focus on enabling sustainable development investing.

Furthermore, Nigeria’s banking and finance industry is well positioned to drive specific UN sustainable development goals such as inclusive and affordable credit, especially for micro, small and medium-sized enterprises. The industry can also provide support towards climate change.

Technology also featured in the discussion points. Undoubtedly, technology is a catalyst for growth across economies and the pandemic has further exposed the deficit within the sector across developing countries. Investments in digital infrastructure need to be rapidly expanded and scaled up to boost socio-economic development.

The speaker commended the FGN’s efforts on its push towards sustainable economic recovery. Some policy and regulatory reforms highlighted include, regulation of fintechs and related services to strengthen payment systems and regulate data protection; the green bonds which Nigeria first issued in 2017 in support of green projects, including solar energy and the modernisation of the Nigerian stock exchange that has given rise to a new operational structure and leadership.

These are laudable steps. However, we note that there is still room for improvement. To achieve double-digit GDP growth and sustainable development, structural transformation should remain on the FGN’s priority list.

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