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FG Owes Oil Firms N2.6tn in Cash Calls

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  • FG Owes Oil Firms N2.6tn in Cash Calls

The cash call arrears owed oil companies by the Federal Government have swollen to over $8.5bn (N2.6tn), a development that has seen the government making moves to exit the Joint Venture cash call system.

The Group Managing Director, Nigerian National Petroleum Corporation, Dr. Maikanti Baru, disclosed this on Tuesday at the Nigerian Association of Petroleum Explorationists’ 34th Annual International Conference and Exhibition in Lagos.

The nation’s oil and gas production structure is split between JV onshore and in shallow waters with foreign and local companies, and Production Sharing Contracts in deep water offshore.

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

“In 2016 alone, underfunding of the NNPC cash calls is estimated to be about $2.5bn. This is aside the inherited arrears estimated at over $6bn,” Baru said.

He noted that the chronic JV funding shortfalls being experienced in the industry had resulted in declining JV oil production from about one million barrels of oil per day three to five years ago to about 800,000 bpd.

The NNPC GMD said, “This is coupled with the vandalism of critical production infrastructure that have to be repaired as emergency cases at exorbitant costs, at most times, which further compounds the utilisation of the available funds.

“The truth is that it is difficult to deliver the volumes without adequate funding. With an average JV cash call requirement of about $600m a month, coupled with flat low budget levels over the past years, this has led to underfunding of the industry by the government, which has stymied production growth. Consequently, managing these funding issues is part of our most immediate challenge.”

According to him, production from the PSC arrangement, where NNPC does not provide the funding, has increased almost proportionately to the JV production decline over the same period, thereby making national oil production relatively flat.

Baru said, “Unfortunately, unlike the PSC arrangement, the JV system provides more revenue to the government through equity liftings and higher royalties and taxes due to the higher fiscal take from onshore and shallow waters’ fiscal terms. The low crude oil price regime further amplifies this anomaly.

“We are working assiduously with our JV partners to see that we exit the JV cash call system and also clear our funding arrears.”

Noting that the structural funding problem had been worsened by the security challenges in Niger Delta, the NNPC GMD said, “We are exploring an alternative funding mechanism that allows the JV business to finance itself by retaining its operating costs and capital allowances (fiscal costs) in order to sustain and grow the business.

“Where the fiscal costs for any year are not sufficient to fund the budgetary requirements of the joint venture, part of the profit margin could be retained to fund the budget, and where necessary, external financing could also be sought to finance commercially viable and bankable capital projects without recourse to government treasury.”

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.

Economy

Once Again The National Grid Collapsed

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Nigeria’s electricity transmission system, also known as the National grid, has suffered another system collapse, plunging Lagos, the country’s commercial capital, Kano and other major cities into a blackout.

The collapse, which occurred about 11.00 am on Tuesday, was confirmed by two of the country’s electricity distribution companies in separate messages to their customers.

“We regret to inform you that the power outage being experienced across our franchise – Kaduna, Sokoto, Kebbi and Zamfara states – is as a result of the collapse of the national grid,” Kaduna Electric said on Twitter.

Eko Electricity Distribution Company Plc, in a text message to its customers, said: “Dear customer, there is a partial system collapse on the national grid. Our TCN partners are working to restore supply immediately. Please bear with us.”

The grid, which is being managed by the government-owned Transmission Company of Nigeria, has continued to suffer system collapse over the years amid a lack of spinning reserve that is meant to forestall such occurrences.

Spinning reserve is the generation capacity that is online but unloaded and that can respond within 10 minutes to compensate for generation or transmission outages.

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Economy

FG Consider Diversification To Generate Revenue

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As revenue from oil nosedives following incessant global price fluctuations, the Federal Government is now channeling efforts to the development of minerals in the mines and steel industry to shore up foreign exchange earnings.

Officials of the Federal Ministry of Mines and Steel Development said on Wednesday that while there had been concerted efforts to develop various minerals in the sector, much emphasis had been placed recently on the development of bitumen, barite and gold.

They told our correspondent in Abuja that the government through the mines and steel ministry was striving to diversify the Nigerian economy away from oil as the major foreign exchange earner for Nigeria.

They also confirmed that large quantities of gold had been discovered in various locations in Zamfara and Osun states.

Asked if the government had initiated programmes to explore the minerals and boost revenues now that the country’s income had plunged, the Special Assistant on Media to the Minister of Mines and Steel Development, Ayodeji Adeyemi, replied in the affirmative.

He said, “Indeed, the ministry has the mandate to generate revenue and diversify the economy through the mines sector.

“And bitumen is one of the key resources which the nation is abundantly endowed with, that has been identified for strategic development.”

To buttress his position, Adeyemi shared some recent presentations of the Minister of Mines and Steel Development, Olamilekan Adegbite, where the minister said his ministry was gathering data on some bitumen fields across the country to attract investors.

“A lot of people are interested in bitumen, which is coming from both local and foreign investors. However, we are still acquiring data in some of the fields,” the minister stated.

On barite, the minister said the mines and steel ministry was working on raising the quality of barite produced in Nigeria to an internationally acceptable standard, as certified by the American Petroleum Institute.

Adegbite said his ministry had contracted a consultant to help raise the standard in the local production of barite to ensure that oil industry players make use of barite produced in Nigeria as against importing the commodity from other countries.

He said, “Barite is a critical weighting material in drilling fluids used in the oil industry. We have a lot of barites but the issue is that it is not produced to API standards. However, we are putting a system in place which would be ready to launch in about July.

“We have got the millers who can produce barite to API standard. Hence we will be able to compete with foreigners and it would save Nigeria a lot of foreign exchange in import substitution.”

On the development of gold, officials at the ministry further stated that the commodity had been aggregated for the production of bullion bars and that this was the first time that such aggregation was happening in Nigeria.

They stated that the gold was sourced from artisanal miners, while the final refining to bullion was done in Turkey.

The sources stated that the ministry had registered two refineries that would now refine to LBMA standard when they come on stream. LBMA is the de facto standard, trusted around the world.

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Economy

Nigeria Sovereign Investment Authority Generates N160.06 Billion in 2020

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The Nigeria Sovereign Investment Authority (NSIA) generated revenue of N160.06 billion in 2020, according to the latest audited financial reports announced by the Managing Director of NSIA Mr. Uche Orji.

The NSIA income came from devaluation gain of N51 billion, and core income of N109 billion compared to N33.07 billion in 2019.

But Orji lamented: “Covid-19 adversely affected logistics around infrastructure projects, especially the toll road projects and the presidential fertiliser initiative.

Despite the pandemic, the Authority achieved 33 percent growth in Net Assets to N772.75 billion compared to the previous year’s performance of N579.54 billion.

Orji said the NSIA “received additional contribution of $250 million; and provided first stabilisation support to the Federal Government of $150 million withdrawn from Stabilisation Fund last year.”

The same year, the NSIA received $311 million from funds recovered from the late General Abacha from the United States Department of Justice and Island of Jersey for deployment towards the Presidential Infrastructure Development Fund (PIDF) projects of Abuja-Kaduna-Kano Highway, Lagos Ibadan Expressway and Second Niger Bridge.

In response to COVID-19, Orji said: “NSIA partnered the global Citizen, a not-for profit group, to form the Nigeria Solidarity Support Fund. Separately NSIA acquired and distributed oxygen concentrators to the 21-teaching hospital as part of corporate social responsibility; in addition to staffing support to the Presidential taskforce on COVID-19.”

In 2020, the NSIA “invested additional capital into NG Clearing, the first derivative clearing house in Nigeria to maintain NSIA’s shareholding at 16.5 per cent following the company’s rights issue of 2020″ Orji said.

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