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China Fine-tunes Oil Deals with FG, Seeks Sovereign Guarantee on Investments

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China Nigeria
  • China Fine-tunes Oil Deals with FG, Seeks Sovereign Guarantee on Investments

Nigeria and China on Tuesday began to put finishing touches to the multi-billion dollar oil deals both countries had initiated, and which will see Chinese firms invest heavily in Nigeria’s energy sector.

But while the terms in the business deals are being worked out, the firms have indicated that they would be requesting a sovereign guarantee from the Nigerian government to back their planned investment on pipeline construction.

To this end, a delegation of Chinese companies had a meeting with officials of the Nigerian government at the headquarters of the NNPC in Abuja.

The meeting, where the Memorandum of Understanding (MoU) for the oil deals was fine-tuned, followed the inauguration of an inter-ministerial implementation committee on Monday by the government to meet with the investors.

Present at the meeting yesterday were members of the committee comprising representatives from NNPC, Ministry of Finance, the Debt Management Office (DMO), Budget Office of the Federation, and Ministry of Power, Works and Housing, among others.

A representative of the Chinese delegation, Julie Zhu, in her presentation, highlighted some of the investments which the MoU will cover in 2017.

In the upstream sector, Zhu, said the China North Industries Corporation (NORINCO) would support Nigeria with an oil-backed loan of $5.5 billion to ramp up upstream oil production.

She said the CINDA consortium – made up of many leading Chinese state-owned companies – would invest in setting up one new gas central processing facility (CPF) at a cost that would be between $3 billion and $3.54 billion.

Zhu also stated that they plan to build a new petroleum pipeline that would run from Port Harcourt to Kano at the cost of between $4.3 billion and $5.4 billion.

The Chinese delegation however said funding for the pipeline would be covered by a sovereign guarantee, because of the risk of vandalism associated with Nigeria’s petroleum industry.

“In China, the media coverage of Nigeria is actually very negative. You have Boko Haram in the north and militancy in the south keeps coming up. Nobody is going to invest, lay a pipeline and the next day you bomb it, that is why Nigeria as a government will need to guarantee they can deal with those issues,” Zhu said.

She equally explained that the Chinese companies were proposing to invest in the construction of three power plants to be located in Abuja, Kaduna and Kano at the cost of between $3.6 billion and $4.5 billion.

According to her, they will revamp the country’s four refineries with $0.9 billion and $1.1 billion to get them working so that they can refine more oil.

Zhu, however, said that after revamping the refineries, there were plans to add petrochemical units to increase the profitability of their operations.

All these, Zhu said, would be done at the same time. “It has to be (done at the same time) because the power plants cannot work if you don’t have the pipeline. The pipeline will not work if you can’t process the gas,” she said.

Cash Call Arrears

But as the federal government seeks to woo Chinese investors to increase their stake in Nigeria’s oil and gas sector, it remained focused on ensuring that international oil companies (IOCs) were not left out, with President Muhammadu Buhari assuring them that the Federal Executive Council (FEC) will soon consider a proposal to settle the cash call arrears owed the government’s joint venture partners.

Over the years, the federal government has found it difficult to fund its share of cash call obligations for the joint venture oil assets, forcing the IOCs to fund the projects singlehandedly. The government’s cash call arrears are estimated at $7 billion.

A statement issued by the president’s media aide, Mr. Garba Shehu, said Buhari spoke at the State House, Abuja‎ during a meeting with the Director, Global Upstream of Shell, Mr. Andrew Brown who met with the president yesterday.

The president also said that the security of oil infrastructure would continue to be prioritised side-by-side the dialogue with the stakeholder-communities in the Niger Delta.

He, however, urged oil companies to take more responsibility in the protection of oil installations to complement the efforts of Nigerian Navy in the region.

The president also restated the determination of his administration to restore the country to the “good old days of accountability”.

Buhari said he would leave a legacy of improved infrastructure, particularly in the power sector, and also ensure better security in the Niger Delta region.

“It is only by doing this that investor morale and confidence will return, and the economy will be positioned on the path of growth,” the president said.

Buhari, who commended Shell for its faith in the economy and staying power, assured his guest on some issues of concern raised by Shell.

In his remarks, Mr. Brown, informed the president of the resumption of oil exportation from the Forcados terminal following its restoration.

He called for continued protection by the Nigerian Navy, in view of repeated threats of attack by militants.

Brown commended the anti-corruption posture of the Buhari administration, as well as the efforts to streamline and stabilise the economy for long-term projects, saying all the efforts will go a long way to reinforce Shell’s investment plans in Nigeria.

No Plan to Increase Fuel Price

Meanwhile, NNPC has said there is no plan by the federal government to increase the price of petrol from its current N145 per litre.

NNPC was quick to make this clarification yesterday after its Group General Manager in charge of the Crude Oil Marketing Division, Mr. Mele Kyari, admitted on Monday that the current price was unsustainable due to the prevailing exchange rate.

He also said that under the current price regime, the subsidy element had crept back, but was categorical that the Buhari administration would not contemplate another hike in the price of the product.

Speaking on the issue yesterday, the Group General Manager, Public Affairs in NNPC, Mallam Garba Deen Muhammad, restated that there would be no need for the government to undertake an upward review of the price of petrol, because in its estimation, there was oversupply of the product in the country.

He also explained that in the wake of rising prices of crude oil in the international market, it had done long-term supply deals with suppliers to mitigate whatever price shock the development might bring on its downstream operations.

Muhammad also disclosed that a new regime that would allow petroleum marketers have more access to foreign exchange to aid fuel importation had been negotiated and taken off.

Although he refused to provide more clarity on the new FX arrangement, he said it was negotiated on the basis of complaints by the marketers, stressing that the arrangement was adequate for them.

“The statement was made within the context of technical terms and not downstream operations. But the bottom line is that there is absolutely no plan by government to increase fuel price above the N145 per litre maximum level,” said Muhammad.

He further said: “If there is going to be anything like that, the agency responsible for fixing price – the PPPRA – will definitely communicate to Nigerians and give reasons why that will happen, but as at this moment, there is absolutely no plan to do that and no need to do that because we have more than enough supply.

“We also have long-term procurement contracts with our suppliers and the usual reasons that would necessitate any review of the price at the moment have been well taken care of. We have long-term contracts and enough stock.”

On the new FX arrangement for marketers, Muhammad said: “They have been complaining and their complaints have been addressed adequately to their satisfaction.

“A new window has been opened to make adequate FX available to them for importation and they are satisfied with it. In fact, we are waiting for them to now deliver because we have fulfilled our own part of the bargain.

“Besides, we have a glut in the market, people have imported and are waiting for off-takers to buy their products to sell and it is the case in every part of the country.

“Discussions were held, negotiations were made within the committee that is making FX available to marketers including the CBN representatives and the marketers.

“The discussion started a few weeks ago and the window became effective two weeks ago. When people make complaints, you have to investigate and find solutions to the complaints.”

When asked if there was a subsidy element on petrol, Muhammad said: “There is no subsidy in the market now. What we were explaining is what the price modulation will do, we said it will make importation of petroleum products easier for everybody and the need to subsidise will not be there because prices will be determined by market forces.

“You buy and sell at prices that are acceptable to you. People sell at prices less than N145, and it is not magic but diligent pursuit of commonsense, and that is what has been responsible for the stability and we intend to maintain the momentum. There has been no shift in policy since the new management of NNPC took over.”

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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Energy

Africa Renewable Energy Fund II Secures €125 Million First Close With SEFA and CTF Investments

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Solar energy - Investors King

The Africa Renewable Energy Fund II has achieved its first close at €125 million, following a joint investment of €17.5 million from The Sustainable Energy Fund for Africa and the Climate Technology Fund through the African Development Bank.

AREF II, a successor to the original Fund, is a 10-year closed-ended renewable energy Private Equity Fund with a $300 million target capitalization. The Africa Renewable Energy Fund II, managed by Berkeley Energy, invests in early-stage renewable energy projects, thereby not only de-risking the most uncertain phase of power projects, but also promoting increased green baseload in Africa’s generation mix.

The Sustainable Energy Fund for Africa and the Climate Technology Fund will each contribute roughly €8.7 million to mobilize private-sector investment into Africa’s renewable energy sector. The Sustainable Energy Fund for Africa will also contribute financing to the AREF II Project Support Facility, which funds technical assistance and early-stage project support to improve bankability.

Other investors include the U.K’s CDC Group, Italy’s CDP, the Netherlands Development Finance Company (FMO) and SwedFund.

“We are proud to be associated with Berkeley Energy and other like-minded investors, and look forward to AREF’s continued success and leadership in promoting sustainable power development on the continent,” said Dr. Kevin Kariuki, the African Development Bank’s Vice President for Power, Energy, Climate and Green Growth.

In 2012, the African Development Bank selected Berkeley Energy, a seasoned fund manager of clean energy projects in global emerging markets to set up AREF. AREF II has a sharper strategic focus than its predecessor on “green baseload” projects that will deliver firm and dispatchable power to African power systems through hydro, solar, wind and battery storage technologies.

Luka Buljan, Berkeley Energy’s Managing Director, said: “We are very excited to have reached this milestone with strong support from our backers. The catalytic tranche from the Sustainable Energy Fund for Africa and the Climate Technology Fund will assist in mobilising private institutional investors up to full fund size of €300 million. We now look forward to concluding the fundraising and delivering projects that will provide clean, reliable and affordable energy across African markets.”

“AREF is intertwined with the Sustainable Energy Fund for Africa’s history and success, and we have worked closely over the last decade to create precedents in difficult markets and challenging technologies. We look forward to continued collaboration to accelerate the energy transition in Africa,” said Joao Duarte Cunha, Manager for Renewable Energy Initiatives at the African Development Bank and Coordinator of the Sustainable Energy Fund for Africa.

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Crude Oil

FG Earned $34.22B From Crude Oil and Gas in 2019 – NEITI

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Crude oil - Investors King

The Nigeria Extractive Industries Transparency Initiative (NEITI) on Thursday released its 2019 oil and gas industry audit report, which shows that Nigeria earned N34.22 billion from the oil and gas industry in 2019.

The audit, conducted by Adeshile Adedeji & Co. (Chartered Accountants), an indigenous accounting and auditing firm, reconciled payments from 98 entities. They include 88 oil and gas companies, nine government agencies and the Nigerian Liquefied Natural Gas (NLNG).

The 2019 figure is an increase of 4.88 percent over the $32.63billion revenue realised from the sector in 2018. A breakdown of the earnings showed that payments by companies accounted for $18.90billion, while flows from federation sales of crude oil and gas accounted for $15.32billion.

The report further showed that 10 years (2010-2019) aggregate financial flows from the oil and gas sector to government amounted to $418.544billion, with the highest revenue flow of $68.442 recorded in 2011, while the lowest revenue flow of $17.055 was recorded in 2016.

According to NEITI, the total crude oil production in 2019 was 735.244mmbbls, representing an increase of 4.87 percent over the 701.101mmbbls recorded in 2018. Production sharing contracts (PSCs) contributed the highest volumes of 312.042mmbbls followed by Joint Venture (JV) and Sole Risk (SR) which recorded 310,284mmbbls and 89.824mmbbls respectively. Others are Marginal Fields (MFs) and Service Contracts (SCs) which accounted for 21,762mmbbls and 1,330mmbbls respectively.

The report also showed that total crude oil lifted in 2019 was 735.661mmbbls, indicating a 4.93 percent increase to the 701.090 mmbbls recorded in 2018, with companies lifting 469.010mmbbls, while 266.650mmbbls was lifted by the Nigeria National Petroleum Corporation (NNPC) on behalf of the federation.

Analysis of crude oil lifted by NNPC showed that 159.411mmbbls was for export, while 107.239mmbbls was for domestic refining. 97 percent of the volumes for domestic refining (104.475mmbbls) was utilised for the Direct Sale Direct Purchase (DSDP) programme while the remaining 3 percent (2.764mmbbls) was delivered to the refineries.

NEITI reported that the value of the 2019 domestic crude oil earnings was N2.722 trillion. Of this figure, N518.074billion was deducted for Petroleum Motor Spirit (PMS) under-recovery by the NNPC.

This figure was N213.074billon above the approved sum of N305billion for under-recovery in 2019. Similarly, the sum of N126.664billion was incurred by the Corporation as costs for pipeline repairs and maintenances which showed a difference of N96.378billion from the approved sum of N30.287billion for that purpose.

The report also pointed out that N31.844billion was also deducted for crude and product losses due to theft.

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Crude Oil

Oil Prices Drop on Stronger U.S Dollar

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Crude oil - Investors King

The strong U.S Dollar pressured global crude oil prices on Thursday despite the big drop in U.S crude oil inventories.

The Brent crude oil, against which Nigerian oil is priced, dropped by 74 cents or 1 percent to settle at $73.65 a barrel at 4.03 am Nigerian time on Thursday.

The U.S West Texas Intermediate crude oil depreciated by 69 cents or 1 percent to $71.46 a barrel after reaching its highest since October 2018 on Wednesday.

Energy markets became so fixated over a robust summer travel season and Iran nuclear deal talks that they somewhat got blindsided by the Fed’s hawkish surprise,” said Edward Moya, senior market analyst at OANDA.

The Fed was expected to be on hold and punt this meeting, but they sent a clear message they are ready to start talking about tapering and that means the dollar is ripe for a rebound which should be a headwind for all commodities.

The U.S. dollar boasted its strongest single day gain in 15 months after the Federal Reserve signaled it might raise interest rates at a much faster pace than assumed.

A firmer greenback makes oil priced in dollars more expensive in other currencies, potentially weighing on demand.

Still, oil price losses were limited as data from the Energy Information Administration showed that U.S. crude oil stockpiles dropped sharply last week as refineries boosted operations to their highest since January 2020, signaling continued improvement in demand.

Also boosting prices, refinery throughput in China, the world’s second largest oil consumer, rose 4.4% in May from the same month a year ago to a record high.

This pullback in oil prices should be temporary as the fundamentals on both the supply and demand side should easily be able to compensate for a rebounding dollar,” Moya said.

 

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