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Operators Want FG to Float JVs Equity on NSE

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Nigerian stock market - Investors King
  • Operators Want FG to Float JVs Equity on NSE

Capital market operators have called on the Federal Government to dilute its equity holdings in the Joint Venture (JV) oil and gas operations in Nigeria and list some percentage of its shares on the Nigerian Stock Exchange (NSE), which lists companies’ equities for daily trading.

This, they said, will relieve government of the burden of JV cash calls, estimated at $6-9billion annually, in addition to about $6.8billion in arrears for five years, which it is struggling to exit through a new funding arrangement.

Cash calls refer to the counterpart funding which the Federal Government, represented by the Nigerian National Petroleum Corporation, (NNPC), pays yearly as its 60 percent equity shareholding in various oil and gas fields operated by international oil companies (IOCs) and indigenous oil firms.

By mid-November last year, the Minister of Petroleum Resources, Dr. Ibe Kachikwu, announced the cancellation of the JV cash calls, following approval from the Federal Executive Council (FEC).

Prior to the announcement, the NNPC Group Managing Director, Maikanti Baru, had claimed the JV cash call debt burden had been reduced to $2.5billion in 2016, and also disclosed that the exit model government is pursuing becomes effective from January 1st.

According to him, the exit model, “guarantees government most of the revenue that normally accrues to it from the joint venture operations by lifting the royalty and tax oil upfront.”

But NNPC spokesman, Ndu Ughamadu, could not confirm the development when contacted by The Guardian to find out if the exit model had taken off as envisaged.

Indeed, stakeholders who spoke in a telephone interview argued that if some percentage of government’s equity in “the IOCs JVs is floated on the Exchange, the market would strategise for economic growth and facilitate capital raising and mobilise savings for huge projects and investment.”

They argued that the listing of the JV shares on the stock market will become a platform for capital formation and distribution of wealth as well as offer many Nigerian investors the opportunity to share from the profits of these companies.

Already, stakeholders had lamented that the oil and gas sectors, particularly the upstream exploration and production, are narrowly represented in the market, stressing that the stock market is currently in dire need of a broader variety of stock options.

They added that the listing of some percentage of government holdings in the IOCs would deepen the stock market and boost retail investors’ confidence and participation in the market.

For instance, the President, Institute of Capital Market Registrars (ICMR), Bayo Olugbemi, explained that listing a percentage of the equity in nation’s stock market would improve the depth of the nation’s capital market and turn around the fortunes of the market.

“Selling of government assets will definitely bring money into the National Treasury provided such income will be spent on capital project, which will bring about multiplier effect on the economy.

“As for the capital market, divestment such as this will improve the depth of our capital market and the benefits will be phenomenal and of course has the potential to turn around the fortune of the market and make it more active.”

Corroborating his assertions, the former President, Independent Shareholders Association of Nigeria (ISAN), Sonny Nwosu, said: “Government do not have shares in the stock exchange. What we are asking is for the demutualisation of the exchange, so that all of us will be owners of the institution. For others, we have asked for the floating of the portion of capital of these corporations bearing in mind of existence of JVC; it the right thing to do.”

The new President of ISAN, Adeniyi Adebisi, noted that across the board, shareholders have been clamoring for the deepening of the capital market.

According to him, if government can dilute its equity holdings in international oil companies and float some portions (of the equities) on the exchange, it will be providing a direct answer to the clamour.

“It has been said often that government has no business in business. If the government is holding equity for the purpose of generating revenue that will be wrong in the sense that it will be holding up itself in competition against the private sector.

“Moreover, government does not need to hold majority interest before it can control any foreign corporation as appropriate clause can be inserted to give required control. From what we know, government retains direct interest in companies not necessarily for the consideration of instilling good governance or anything of the sort, but usually to create more avenues that can provide further areas for patronage for political party supporters and cronies.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Experts Predict Nigeria’s Free Trade Zones Could Generate More Than N11.11tn

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Economic experts are optimistic about the potential of Nigeria’s Free Trade Zones (FTZs) to boost the nation’s economy significantly.

According to recent analysis, these zones could generate more than the N11.11 trillion they have already remitted to the Federation Account as of October 2023.

The Director of the Centre for the Promotion of Private Enterprise (CPPE), Muda Yusuf, said the FTZs will help facilitate forex.

“Nigeria’s urgent need for foreign exchange necessitates leveraging our free zones to enhance non-oil export revenue and reduce dependency on crude oil earnings,” Yusuf stated.

He pointed out the success stories of other countries, notably Dubai, which has effectively utilized its free zones to generate foreign exchange and attract significant investments.

“Our free zones must strive to do more, as we are still heavily reliant on oil and gas for our foreign exchange earnings. Increased investment in these areas is crucial,” he added.

Supporting this perspective, the Managing Director of the Nigeria Export Processing Zones Authority (NEPZA), Olufemi Ogunyemi, recently highlighted the economic contributions of the FTZs while addressing the Senate Committee on Industry, Trade, and Investment.

Ogunyemi noted that these zones have created substantial wealth for the states hosting them and generated significant revenue for various agencies.

“Agencies such as the Nigeria Customs Service, the Immigration Services, and the Nigerian Ports Authority have seen revenues of N59.38 billion, N828.7 million, and N8.738 billion, respectively, while states have received N998 million in Pay As You Earn (PAYE) remittances,” Ogunyemi reported.

He also highlighted the broader impact of the FTZs, noting that as of the end of 2023, the 46 licensed zones had provided 38,429 direct jobs and an additional 172,930 indirect jobs.

Foreign direct investment (FDI) worth $491.8 million and local direct investment amounting to N1.15 trillion have flowed into these zones, with N1.62 trillion worth of cargo imported from 2019 to 2023, saving scarce foreign exchange.

David Adonri, Vice President of Highcap Securities Limited, praised NEPZA’s achievements, suggesting that the government use these successes to encourage more Nigerians to start manufacturing businesses within the FTZs.

“The remittances from the free trade zones are commendable and should be a marketing tool to attract more investments,” Adonri said.

However, some experts believe there is room for improvement. Professor Olusegun Ajibola of Babcock University argued that while the remittances are noteworthy, they are not yet at a level worth celebrating.

“The government needs to intensify efforts in revenue generation from these zones as they were established at a significant cost to the host states,” Ajibola remarked.

He called for a review of the 32-year-old NEPZA Act to address any challenges and enhance the performance of the FTZs.

As Nigeria continues to seek ways to diversify its economy and reduce reliance on oil, the FTZs present a promising avenue. With strategic investments and robust management, these zones could indeed surpass their current contributions, fostering economic growth and stability for the nation.

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Nigeria’s Dangote Refinery Breaks Into Asian Market with LSSR Shipment

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Aliko Dangote - Investors King

In a historic move, Dangote Refinery is set to ship low-sulfur straight-run fuel oil (LSSR) from Nigeria to Singapore this week, its entry into the Asian market.

This development represents a significant milestone for the refinery, which began operations in January following a $20 billion investment.

According to ship tracking data and market sources, the refinery will initiate a new trade route from Nigeria to Asia, a region that consistently demands low-sulfur fuel oil for ship refueling at Singapore, the world’s largest bunker hub.

The Glencore-chartered vessel, Front Brage, will deliver approximately 124,000 metric tons (787,400 barrels) of LSSR to Singapore, with the shipment expected to arrive on Wednesday.

The Dangote Refinery, with a processing capacity of up to 650,000 barrels of products per day, is poised to become the largest refinery in Africa and Europe once it reaches full capacity.

Since March, the refinery has increased its LSSR exports, primarily sending cargoes to the Americas and Europe, as reported by ship tracking data from Kpler and Vortexa.

“This first shipment to Asia marks a new chapter in Dangote Refinery’s expansion strategy,” said a market analyst. “Breaking into the Asian market underscores the refinery’s growing influence and its capability to meet diverse global fuel demands.”

Market sources suggest that the cargo was redirected to Asia due to weaker demand in Europe. Data from LSEG indicates that the east-west spread for front-month 0.5 percent LSFO, reflecting the price difference between these regions, stayed above $40 per ton this week.

Dangote’s LSSR cargoes are priced against Rotterdam’s 0.5 percent LSFO quotes on a free-on-board basis, although the specific pricing differential for this shipment was not disclosed by market sources.

This pioneering shipment is the beginning of a series of exports to Asia. Another LSSR shipment from the Dangote refinery, containing around 157,000 tons, is expected to reach Singapore in July aboard the vessel Stena Suede, based on ship tracking data.

LSSR is typically blended with other fuels to create low-sulfur fuel oil (LSFO) for bunkering or used as feedstock in various refinery processes.

This export initiative not only diversifies Dangote Refinery’s market reach but also enhances Nigeria’s position in the global energy market.

In February, Dangote began exporting oil products and started purchasing crude oil, mainly from the Nigerian National Petroleum Company (NNPC) Ltd, in December 2023.

The refinery’s successful entry into the Asian market is anticipated to drive further growth and establish new trade relationships, reinforcing its status as a key player in the global oil industry.

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This landmark export not only demonstrates Dangote Refinery’s operational capabilities but also signals Nigeria’s expanding influence in the global energy sector. As the refinery continues to innovate and expand, it is well-positioned to meet the increasing global demand for cleaner, more efficient fuels.

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Nigerian Refiners Pursue Afreximbank Financing Amid $18bn Funding Plan

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Investors in Nigeria’s modular refineries are actively engaging with the African Export-Import Bank (Afreximbank) to secure a portion of the $18 billion fund earmarked by the bank for the development of refineries in Nigeria and other African nations.

This initiative follows the successful financial backing provided by Afreximbank to the $19 billion Dangote Petroleum Refinery, which has commenced production of refined petroleum products for both domestic use and export.

Sources within the modular refining sector confirmed that discussions are underway, with significant interest from Clairgold Refinery and Shinjin Petro Chemicals.

Both companies have initiated talks with Afreximbank officials to source funds for their refinery projects in Nigeria.

However, the modular refinery operators have expressed concerns regarding the feedstock supply for their plants, which is a critical guarantee required by financial institutions for funding.

The operators, represented by the Crude Oil Refinery Owners Association of Nigeria (CORAN), praised Afreximbank’s support for the Dangote Petroleum Refinery during its construction phase.

“We are in active discussions with Afreximbank, although no modular refinery has received financing from the bank yet,” said Eche Idoko, Publicity Secretary of CORAN. “Shinjin Petro Chemicals, which is constructing a 3,000 barrels per day plant, and Clairgold Modular Refineries are among those in talks with Afreximbank and the Bank of Industry. We are hopeful for positive outcomes.”

Afreximbank’s commitment to supporting refinery construction was reiterated at the 2024 Afreximbank annual meetings in Nassau, The Bahamas.

The bank’s president, Benedict Oramah, highlighted the strategic objective to refine 50% of Africa’s crude oil production within the continent.

Oramah emphasized the bank’s role in the successful financing of the Dangote refinery as a model for future projects.

“We are proud to be associated with these transformational projects, which demonstrate the critical role of African capital in financing our development,” Oramah stated. “Our broader strategy includes supporting the construction of a new refinery in Cabinda, Angola, and refurbishing the Port Harcourt refinery in Nigeria. Our goal is to ensure that at least 50% of the crude oil produced in the Gulf of Guinea is refined in Africa.”

Despite the optimism, modular refinery operators have identified several challenges in accessing these funds.

These include securing guarantees related to feedstock supply and completing necessary engineering designs.

“The issue of feedstock remains a significant hurdle, as financiers require assurances on this front,” Idoko noted. “We are optimistic that Afreximbank will address these concerns given their recent declaration to support modular refineries.”

The ongoing discussions come at a time when Nigeria is grappling with its highest inflation rate in 28 years, driven largely by food costs.

The economic strain is exacerbating poverty and reducing the purchasing power of the nation’s 231 million residents, 60% of whom are classified as multidimensionally poor.

Modular refineries, which require significantly less capital investment compared to traditional full-scale refineries, are seen as a viable solution to boost local refining capacity and reduce dependence on imported refined petroleum products.

However, the operators have raised alarms about systemic issues within the oil sector that impede in-country refining, echoing concerns voiced by Aliko Dangote regarding the influence of entrenched interests.

As negotiations with Afreximbank continue, the modular refinery operators remain cautiously optimistic, hoping that the bank’s support will pave the way for enhanced domestic refining capabilities and contribute to Nigeria’s economic resilience.

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