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Reps Grill Adeosun, Udoma on Forex Crisis, Rising Inflation

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  • Reps Grill Adeosun, Udoma on Forex Crisis, Rising Inflation

Members of the House of Representatives, on Monday, grilled the Minister of Finance, Mrs. Kemi Adeosun, and the Minister of Budget and National Planning, Senator Udoma Udo Udoma, on the free fall of the naira against the US dollar and the rising inflation in the country.

Lawmakers said the economy remained bleak and had not shown signs that the measures, the Federal Government claimed it had introduced to lead the country out of recession, were picking up.

Adeosun and Udoma had appeared before the House Joint Committees on Finance, Appropriation and Aid/Loans/Debt Management at the National Assembly in Abuja to defend projections in the 2017-2019 Medium Term Expenditure Framework and Fiscal Strategy Paper.

The 2017 budget of N7.29tn, which is already before the National Assembly, was worked out by the government based purely on the projections contained in the MTEF.

The budget, by the provisions of the Fiscal Responsibility Act, 2007, cannot be approved by the legislature until it has first debated and passed the MTEF.

When the ministers appeared before the committees, lawmakers raised several issues, including the “clear and huge disparity” between the official rate of the naira and the street or parallel market value.

For example, while the government’s pairing of the local currency against the USD for the 2017 budget is N305/USD, the street rate is “almost N500/USD.”

Lawmakers also noted that while inflation had already hit “18 per cent,” the government projected that inflation would be 15 per cent in 2017.

The Lead Chairman, Mr. Babangida Ibrahim, stated, “There is something that is fundamentally wrong with these projections and the huge gaps that we are seeing.

“There are even differences in the MTEF document you submitted to us at the National Assembly and the 2017 budget, which Mr. President laid before the National Assembly.

“There has to be a position where all of us can be on the same page in the efforts to rescue this economy out of recession.”

In addition, members demanded details on the government’s plan to borrow N2.32tn to finance the deficit in the budget, including the repayment conditions.

They also noted another “inconsistency” in the drop in revenues to be generated by the Nigeria Customs Service from N862bn in 2016 to N717bn this year when government said it was focusing more on non-oil revenue sources.

Among lawmakers, who grilled the ministers, were the Chairman, Committee on Banking/Currency, Mr. Chukwudi Jones-Onyereri; Chairman, Committee on Aid/Loans, Mr. Adeyinka Ajayi; Deputy Chairman, Committee on Appropriation, Mr. Chris Azubuogu; and Mrs. Aisha Dukku.

In her response, particularly on the crash of the naira, Adeosun blamed it on the greed of market speculators.

She claimed that there was deliberate buying and stocking of dollars to cause panic, when in the real sense, the naira should not have crashed more than N305.

She added that the factors responsible for the naira’s fate were “irrational and emotional” reactions, resulting in unnecessary hike.

“There is nothing to justify what is happening; this difference between the official and the black market rates has no fundamentals to support it.

“In reality, the naira should not be affected more than the N305,” the finance minister stated.

She expressed optimism that the exchange rate hike would crash, while those responsible for the stockpiling of the dollar would lick their wounds.

On his part, Udoma tried to douse tension and explained that the government projected that the inflation rate would be 15 per cent because the current 18 per cent rise was not realistic.

He attributed the present rising trend to “panic” in the system, fuelled by the forex crisis.

The minister argued that during the year, the exchange rate would stabilise in the region projected by the government (N305), which would in turn cut down inflation and keep it at 15 per cent.

“Our target is 15 per cent because that is what we believe it will be.

“The exchange rate is what is causing it now, but we will soon attain stability and inflation will be down naturally at the 15 per cent,” he told lawmakers.

Udoma did not, however, specify how exactly the government would stabilise the market aside from promising that everything was being done to achieve it.

The budget and planning minister also defended the slash in Customs’ revenues from N862bn to N717bn.

He explained that in 2016, the projection could not be met due to the unhealthy state of the economy.

Udoma informed lawmakers that the government felt it was wise to cut down to N717bn, which was considered more realistic to generate in 2017.

“We looked at the performance of the economy and we looked at what was realistic.

“Even the World Bank constantly reviews its figures and projections on Nigeria,” he added.

He believed that there were “positive sides” like the expected royalties from some operations in the oil sector, including the $1.5bn expected from stepping-in rights.

The minister also told House members that early licensing would rake in about $926m, while marginal oil licences would generate over $100m.

The Director-General of the Debt Management Office, Mr. Abraham Nwankwo, admitted that the government would indeed borrow N2.32tn to finance the deficit in the budget.

When asked to specify how the money to be borrowed would be spent, Nwankwo replied that it would be spent in the manner “spelt out by the government in the budget.”

He also claimed that the loan had a “friendly” repayment plan of up to 25 years with a moratorium of between 10 and 15 years.

Incidentally, both arms of the National Assembly have yet to consider President Muhammadu Buhari’s request to borrow $29.96bn.

The Senate had rejected the request on November 1, 2016, while the House has not tabled it since the request was laid before the National Assembly in October 2016.

Is the CEO and Founder of Investors King Limited. He is a seasoned foreign exchange research analyst and a published author on Yahoo Finance, Business Insider, Nasdaq, Entrepreneur.com, Investorplace, and other prominent platforms. With over two decades of experience in global financial markets, Olukoya is well-recognized in the industry.

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Crude Oil

Oil Trades Lower on US Hurricane Ease, China Economic Worries

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Oil prices dropped in the international market on Friday as traders overlooked supply disruptions from a hurricane in the US Gulf of Mexico just as moves by China to help its economy failed to impress some oil traders.

The global benchmark Brent crude futures fell by 2.3 percent or $1.76 to $73.87 per barrel while the US West Texas Intermediate (WTI) futures settled at 70.35 per barrel, down by 2.7 percent or $1.98.

In the world’s largest oil-producing country, the US, producers shut in more than 23 percent of oil output in the US Gulf of Mexico by Friday to brace against Hurricane Rafael.

According to the US National Hurricane Center’s latest advisory, the storm weakened to a Category 2 hurricane on Friday, and this eased worries and oil prices.

Meanwhile, concerns about China proved to be more than examined even as the government announced a package easing debt-repayment strains for local governments.

However, these measures do little to directly target demand as concerns about weakening demand in China, the world’s largest oil importer, have also contributed to the oil price decline after data showed crude imports in China fell 9 percent in October.

The weakening of oil imports in China is due to weaker demand for oil as a result of the sluggish economic development and rapid advance of electronic vehicles (EVs) in one of the most advanced economies.

Despite Friday’s losses, oil prices gained more than 1 per cent week-over-week taking support from the emergence of Mr Donald Trump as the next president of the US and the US Federal Reserve’s decision to cut interest rates by a quarter percentage point.

Oil producers are looking forward to fewer regulations on crude production under a Trump presidency, meaning higher oil supply and consequently lower prices.

On the flip side, a Trump administration also means more sanctions on Iranian and Venezuelan barrels, which could cut oil supply to global markets and potentially boost prices.

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Crude Oil

Brent, WTI Crude Prices Rise in Response to Expected Trump’s Policies

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Oil prices rose nearly 1 percent on Thursday as the market considered how US President-elect Donald Trump’s policies would affect supplies.

Brent crude oil futures settled up 71 cents, or 0.95 percent at $75.63 a barrel while the US West Texas Intermediate (WTI) crude rose 67 cents, or 0.93 percent to $72.36.

Prices gained support from expectations that Trump’s incoming administration may tighten sanctions on Iran and Venezuela.

On Wednesday, the election of former Republican President Trump initially triggered a sell-off that pushed oil down by more than $2 as the US dollar rallied.

A strong Dollar makes oil expensive and this typically leads to a drop in prices.

In his first term, Mr Trump put in place harsher sanctions on Iranian and Venezuelan oil, limiting supply and supporting oil prices.

However, his successor, Mr Joe Biden briefly rolled back the sanctions but he would later reinstate them.

Such a move would raise the cost of China’s imports, piling pressure on a refining sector grappling with weak fuel demand and tight margins.

However, China and Iran have built a trading system that uses mostly Chinese Yuan and a network of middlemen, avoiding the Dollar and exposure to US regulators, making sanctions enforcement tough.

However, analysts say that the US government has been reluctant to take steps that would remove supply from the global market as a result of the Russia-Ukraine war.

Also supporting prices, the US Federal Reserve cut interest rates by a quarter of a percentage point at the close of its policy meeting on Thursday.

The US Federal Reserve said it will continue assessing data to determine the pace and destination of interest rates as officials reset tight monetary policy to account for inflation that has slowed markedly in the past year and is nearing the US central bank’s 2 percent target.

Interest rate cuts typically boost economic activity and energy demand.

Support also came as some companies cut supply in the US due to Hurricane Rafael. According to the US Bureau of Safety and Environmental Enforcement (BSEE), over 22 percent equivalent to 391,214 barrels per day, of crude oil production was shut in response to the hurricane.

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Petrol

Three Oil Companies Ask Court To Stop NMDPRA From Seizing Their Petrol Import Licences, Accuse Dangote Refinery of Monopoly

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In response to Dangote Refinery N1 billion suit, three oil companies including Matrix Petroleum Services Limited, A.A. Rano Limited, and AYM Shafa Limited, have prayed the Federal High Court in Abuja to stop the Nigeria Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) from reviewing or withdrawing their import licenses.

The oil companies also urged the court not to block them from importing petrol in the interest of energy security and promotion of healthy competition in the Nigerian oil and gas sector.

Dangote Refinery had approached the court and filed and a N100 billion suit in damages against NMDPRA for allegedly continuing to issue import licenses to NNPCL, Matrix, and other companies for importing petroleum products such as Automotive Gas Oil (AGO) and Jet Fuel (Aviation Turbine Fuel), despite that the refinery is producing the products in quantity that meets Nigerians’ needs.

The refinery also dragged NNPCL, AYM Shafa Limited, A.A. Rano Limited, T. Time Petroleum Limited, 2015 Petroleum Limited, and Matrix Petroleum Services Limited in the suit.

Counsel to Dangote Refinery, Ogwu James Onoja SAN, in the originating summons, dated September 6, 2024, claimed that NMDPRA contravened Sections 317(8) and (9) of the Petroleum Industry Act (PIA) by issuing import licenses for petroleum products.

Onoja stated that such licenses should only be granted in cases of petroleum product shortages and not when Dangote Refinery is meeting the needs of the populace.

According to Onoja, NMDPRA has been discouraging local refiners such as Dangote Refinery by its actions.

Responding to the suit through their written address and counter-affidavit, dated November 5, 2024, and filed by Ahmed Raji SAN, the three oil companies said their businesses do not in any way hamper, disrupt, or harm Dangote Refinery’s operations.

The three defendants claimed the plaintiff allegedly sought to monopolise the petroleum industry in Nigeria, where it alone would control supply, distribution, and pricing.

In the defendants’ affidavit, deposed by Ali Ibrahim Abiodun, Acting Managing Director of AYM Shafa (with the consent and authority of Matrix, A.A. Rano, and AYM), it was stated that the defendants are qualified and capable of being licensed as importers of refined petroleum products under Section 317(9) of the PIA and that their licenses to import such products were lawfully issued by the appropriate authority, NMDPRA.

The deponent claimed that it typically takes an average of two months for Dangote Refinery to fulfill orders and that it rarely meets demand, with trucks waiting for months to be loaded at the refinery.

In contrast, he claimed it takes about three weeks to import petroleum products from offshore refineries.

The affidavit revealed that A.A. Rano’s oil depot in Lagos has a storage capacity of 55,000,000 liters and can load about 200 trucks per 24 hours.

The deponent stated that the company also owns 220 filling stations and another 85 affiliates and leased filling stations.

According to the deponent, AA Rano was one of the first to take delivery of AGO from Dangote Refinery, loading 20,000 MT of AGO on or about April 16, 2024, and has since purchased and loaded additional cargoes totaling approximately 190,000,000 liters.

Despite this patronage, the affidavit claimed that Dangote Refinery has continued to place obstacles that make it difficult for A.A. Rano to purchase products solely from the refinery.

The oil companies called on the court to dismiss the suit.

Meanwhile, the court adjourned the matter till January 20, 2025, for a status report.

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