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FG Pays IOCs $400m as Part Settlement of Cash Call Debt

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oil
  • FG Pays IOCs $400m as Part Settlement of Cash Call Debt

The federal government has begun redeeming its pledge to settle outstanding joint venture cash call debts it owes international oil companies (IOCs), with $400 million released to them last week, the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu has disclosed.

Kachikwu told reporters on Tuesday on the sidelines of the 2017 Offshore Technology Conference (OTC) in Houston, Texas that the $400 million payment was part of the $1.2 billion cash call debt owed the IOCs in 2016.

This, he clarified, was different from the discounted $5.1 billion cash call arrears it negotiated in December 2016 with the IOCs.

Nigeria produces more than half of its oil under joint operating agreements (JOAs) with five IOCs comprising ExxonMobil, Shell, Nigeria Agip Oil Company (NAOC), Chevron and Total.

The minister also revealed that a monthly repayment plan of $70 million has also been worked out with the Central Bank of Nigeria (CBN) to offset the $1.2 billion debt in one year.

The negotiated $5.1 billion debt, he emphasised, would be repaid from incremental oil production by the IOCs.

The minister explained that on the basis of the payment, the IOCs were beginning to regain confidence in Nigeria’s oil industry, adding that the country’s oil production could increase by 700,000 barrels per day (bd) by 2018 from the development.

“At the time that we did the joint venture review that we came up with, we had two components to it. The first was the $6.8 billion of arrears covering about six years which were owed the oil companies.

“In our negotiations, we were able to trim that down to about $5.1 billion, so we knocked off $1.7 billion out of it and then spread the $5.1 billion over the next five years to be paid from incremental production, not from existing production.

“In other words, they will have to go find new oil and from that new oil, recover their money because we didn’t want to imperil the 2.2 million that everybody is already used to,” said Kachikwu.

He added: “The second tranche of the money which was not in the $6.8 billion or the $5.1 billion, depending on where you land, was a figure of about $1.2 billion which represented only 2016 arrears, and the oil companies insisted that it needed to be repaid completely because they couldn’t begin to add that to the $5.1 billion.

“We eventually agreed to pay in several tranches. $400 million out of that for the first tranche and then the remaining $700 million paid in monthly installments for a period of one year; that will roughly be about $60 or $70 million every month after the first $400 million.”

According to the minister, the payment of the first $400 million would jumpstart the whole process of crystallising the agreement that had been reached on JV funding and which was paid a couple of days ago.

“That was a major milestone and we have made provisions through the central bank for the payment of the balance on a monthly basis,” Kachikwu explained.

He said this would incentivise the IOCs to invest in existing and new projects in the country.

“But more important and significant even more than the payment of the outstanding debt, was the restructuring of the JV cash calls.

“Previously, what happened was that all income went back to the Federation Account and from then you budgeted and sent back to them some money.
“Invariably, even when there was a budget, we never met that, we ate both the cost and revenue.

“What this has done now is to skew that to the other direction such that from production after royalties, you take away the cost of production on a budgeted basis and then the balance goes back to the Federation Account. So, hopefully, going forward, we shouldn’t have that problem again.

“What we cannot cover in terms of the budget, the oil companies will go out to raise loans from third parties to enable them continue with their exploration and production programmes,” Kachkwu explained.

Listing some of the immediate impacts of the restructuring, he said: “What this would do will be that it addresses arrears, current cash call requirements and then investment funding requirements.

“That’s the beauty of what is happening and the net effect over the last two months is that we have seen the Zabazaba signing and Bonga coming back.

“We have today, cumulative number of projects that are coming back which should between now and next year, give us additional 700,000 barrels over and above the 2.2 million barrels per day.

“That is why I can say with confidence that we are in a position to move up to 3 million barrels per day very quickly.”

The Nigerian National Petroleum Corporation (NNPC) also announced on Tuesday that the first batch of the three new gas fired power plants it plans to build in Abuja, Kaduna and Kano with its joint venture partners would be completed by 2019 to boost power generation in the country.

The corporation also stated that within the same period, it would increase the crude oil production of its exploration and production (E&P) arm, the Nigerian Petroleum Development Company (NPDC) to 300,000 barrels per day (bpd), before moving it further to 700,000bpd.

NNPC’s Group Managing Director, Dr. Maikanti Baru, said this on Tuesday at the 2017 edition of the OTC in Houston.

Baru, who was represented by NNPC’s Chief Operating Officer (COO), Gas and Power, Saidu Mohammed, at the conference, added that the three plants combined will generate up to 3,000 megawatts (MW) of electricity.

According to him, NNPC currently has interest in two power plants in Okpai, Delta State and Afam, Rivers State, which were built under its joint venture (JV) partnership with NAOC and Shell, respectively. The two plants collectively generate up to 1,000MW.

Mohammed said the corporation would be providing up to 4,000MW of electricity to Nigeria’s grid when the three plants are completed.

“They will all come at different times but the first batch will come in 2019,” Mohammed said, before explaining that the plants would be built by Incorporated Joint Venture (IJV) companies involving the NNPC, international power firms and Nigerian investors, and taking the business format of the Nigerian Liquefied Natural Gas (NLNG).

Equally, the NNPC recently said it was already in the process of extending its gas pipelines to connect the cities that would host the power plants, starting from Ajaokuta to Abuja to Kaduna and then to Kano. The line is often referred to as the AKK gas pipeline.

“We are focusing on the transformation that is going on in the NNPC in terms of reforms,” the GMD said.

On NPDC, Baru added: “We are not doing it alone, that’s why we are coming here to showcase to those who have the capacity and competencies to come to Nigeria to invest and increase our reserves and also enhance the only E&P company that we have, NPDC.

“We have a target of raising the production of NPDC within the next two years. We are talking about nothing less than 200,000 to 300,000 barrels per day.

“Essentially we want to raise the entire NPDC production to about 700,000 with other partners, then increase Nigeria’s production to up to 3 million barrels per day.”

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

Emefiele Says CBN Will Resist All Attempts to Continue Maize Importation

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Farm input

The Central Bank of Nigeria (CBN) has vowed to resist all attempts to continue the importation of maize into the country.

Godwin Emefiele, the governor, CBN, in a statement titled ‘Emefiele woos youths to embrace agriculture’, said: “the CBN would resist attempts by those who seek to continually import maize into the country.”

Emefiele, who spoke in Katsina during the unveiling of the first maize pyramid and inauguration of the 2021 maize wet season farming under the CBN-Maize Association of Nigeria Anchor Borrowers’ Programme, said maize farmers in the country had what it takes to meet the maize demand gap of over 4.5 million metric tonnes in the country.

With over 50,000 bags of maize available on this ground, and others aggregated across the country, maize farmers are sending a resounding message that we can grow enough maize to meet the country’s demand,” Emefiele said.

He explained that the maize unveiled at the ceremony would be sold to reputable feed processors.

He added that this would in turn impact positively on current poultry feed prices, as over 60 per cent of maize produced in the country were used for producing poultry feed.

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Economy

Nigeria’s Spending Structure Unsustainable, Budget Head Says

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interbank

Nigeria’s current trend of spending more money on running the government than on building new infrastructure is unsustainable, the country’s top budget oversight official said.

Low revenue collection and high recurrent costs have resulted in actual capital expenditure below two trillion naira ($4.88 billion) a year for a decade, Ben Akabueze, director-general of the Budget Office, said Tuesday in a virtual presentation.

“Hence, the investments required to bridge the infrastructure gap are way beyond the means available to the government,” Akabueze said. Recurrent spending, allocated towards salaries and running costs, has accounted for more than 75% of the public budget every year since 2011, he said.

Africa’s largest economy requires at least $3 trillion of spending over the next 30 years to close its infrastructure gap, Moody’s Investors Service said in November. The country’s tax revenue as a proportion of gross domestic product is one of the lowest globally, according to the International Monetary Fund.

“Huge recurrent expenditure has constrained the provision of good roads, steady power supply, health care services, quality education and quality shelter,” Akabueze said.

Nigeria should amend its constitution to create six regions to replace the existing 36 states, which each have their own governments, Akabueze said. The country also needs to reduce the number of cabinet ministers to a maximum of 24 from more than 40 and cut federal ministries to fewer than 20 from the current 27, he said.

“No country can develop where a large part of its earnings is spent on administrative structures rather than on capital investment,” Akabueze said.

 

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Economy

Consistent Drop in Revenue Forced FG To Review Cost of Governance

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The federal government has initiated an order to cut the cost of governance in the face of dwindling revenue occasioned by the headwinds of the COVID-19 pandemic and the attendant global economic tailspin.

Minister of Finance, Budget and National Planning, Zainab Ahmed, said yesterday in Abuja that the measures were targeted at reducing recurrent expenditure, which is projected to gulp about 41.5 per cent of the total provisions of N13.588 trillion in the 2021 budget, amounting to N5.64 trillion.

She stated that President Muhammadu Buhari had directed the salaries and wages committee to review the payroll of public servants as well as consider the merger of some agencies.

Besides, the government will also remove some unnecessary items from the budget as a move to cut the cost of governance.

Ahmed spoke at a policy dialogue on ‘corruption and cost of governance in Nigeria,’ organised by the Independent Corrupt Practice and other Related Offences Commission (ICPC).

Also at the occasion, the Director-General, Budget Office, Mr. Ben Akabueze, proposed a constitutional amendment to pave the way for the restructuring of the country into six regions instead of the present 36 states structure. This, he said, would help to reduce the rising cost of governance.

Ahmed stated that the proposed cost-saving measures was aimed at streamlining government expenditure with revenue.

She said: “We still see government expenditure increase to a terrain twice higher than our revenue.”

She urged all government agencies to come together to trim the cost amid the country’s dwindling revenue.

According to her, the nation’s budgets are filled every year with projects that are recycled and that are also not necessary.

“Mr. President has directed that the salaries committee that I chair, work together with the head of service and other members of the committee to review the government pay rolls in terms of stepping down on cost,” she added.

The minister said the federal government would also review the number of government agencies in terms of their mandates, adding that the government will consider merging two agencies with the same mandate.

She said: “We need to work together; all agencies of the government to cut down our cost. We need to cut down unnecessary expenditures–expenditures that we can do without.

“Our budgets are filled year-in-year out with projects that we see over and over again and also projects that are not necessary.”

Akabueze, in a paper titled: ‘Reducing the Cost of Governance in Nigeria,’ described the country’s current system of democratic governance as very expansive and expensive.

He said the constitutional provision that mandated the president to appoint a minister from at least each of the 36 states, should be amended to reduce the number of federal cabinet members.

He cited the large federal structure to be one of the drivers of the high cost of governance and engendering public outcry that government spending is largely on recurrent activities at the expense of capital projects.

While describing the subsisting fiscal policy as unsustainable, Akabueze said the persistent call for the reduction of governance cost had continued to gain momentum in view of its impact on government fiscal situation.

He stated that the cost of governance is considerably cheaper in the United States from where Nigeria copied the presidential system of government.

According to him, the general cost of administration in the United States is less than 10 per cent of the total annual budgets while the United States, with a higher population than Nigeria, has only 15 secretaries and executive departments as against Nigeria, which has 27 ministers, 16 ministers of state and 27 ministries.

He lamented that the federal government is maintaining 943 Ministries Departments and Agencies (MDAs) with many of them having duplicated functions.

“There are 541 federal government-owned public corporations and enterprises. We need to cut these in order to install efficiency in governance. Also, we have a bloated civil service. The current civil service structure and size is clearly unsustainable for Nigeria’s economy,” he said.

He warned against the tendency where the civil service is accorded political, ethnic and religious patronage.

“A comprehensive staff auditing and job available is imperative to determine the right size of the federal civil service without having any adverse effect on the service. And to avoid duplication in the civil service, the staff rationalisation programme should be gradual,” he added.

Akabueze said the federal government’s recurrent spending accounted for more than 75 per cent of the actual MDAs expenditure between 2011 and 2020, in addition to personnel cost which accounted for government significant spending.

He accused the MDAs of incurring excessive personnel costs and wilfully indulging in wide range of underhand practices that are driving governance cost out of the ordinary.

According to him, in 2016, personnel cost was N1.87 trillion while at the moment the same cost has spiralled to over N3 trillion.

The effect of the rising cost of running government, Akabueze added, is the reason why only 30 percent of the budget is available for capital project and the cause behind many abandoned capital projects nationwide.

He said: “Personnel cost accounted for 31 per cent and 63 per cent of the total spending and retained revenue in 2020. In the USA, the general administration cost is less than 10 per cent of total budget.’’

He challenged Nigerians to task themselves on governance, saying that the success story of the Asian Tiger was a product of sound leadership and determination.

ICPC Chairman, Prof. Bolaji Owasanoye, described the cost of governance as the driver of corruption in Nigeria.

He said the government was committed to improving the country’s revenue by focusing on new and existing sources and by streamlining payroll.

He added that the federal government would also ensure removal of subsidies and reduction in the cost of contracts and procurement are for the benefits of the vulnerable.

He listed critical area of concern to include payroll padding and the phenomenon of ghost workers.

The federal government’s intended cost-cutting approach is coming amid a report by a public finance transparency advocacy firm, BudgIT that the 2021 federal budget contains over 316 duplicated capital projects worth N39.5 billion.

BudgIT, a public finance transparency advocacy firm, said in a report that the duplication of projects was just one among other loopholes for corruption in the budget.

It said: “Our investigations into the 2021 budget revealed at least 316 duplicated capital projects worth N39.5 billion, with 115 of those duplicate projects occurring in the Ministry of Health. This is very disturbing, especially considering the health infrastructure deficit and the raging COVID-19 pandemic affecting Nigeria.

“BudgIT also found zero audit records of the N10.02 trillion received by the security sector between 2015 and 2021.”

It also alleged that budgetary provisions were made for agencies for projects that are beyond their execution. It added: “Even worse, agencies now receive allocations for capital projects they cannot execute. For example, the National Agriculture Seed Council has an allocation for N400m to construct solar street lights across all six geopolitical zones, while the Federal College of Forestry in Ibadan in Oyo State got N50m for the construction of street lights in Edo State.

“These are aberrations that need to be corrected.”

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