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China Considers Changing Yuan Fixing Formula to Curb Swings

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  • China Considers Changing Yuan Fixing Formula to Curb Swings

China is considering changes to the way it calculates the yuan’s daily reference rate against the dollar, a move that’s likely to reduce exchange-rate volatility while undermining efforts to increase the role of market forces in Asia’s largest economy.

Policy makers may add a “counter-cyclical factor” to the yuan’s daily fixing, according to a government statement on Friday, which confirmed an earlier report by Bloomberg News. Analysts said the change would give authorities more control over the fixing and restrain the influence of market pricing.

While a more tightly-managed currency could give China breathing room to push forward with a deleveraging campaign that’s popular among Western investors, it would mark a step back from President Xi Jinping’s 2013 pledge to give markets a central role. The central bank’s existing fixing system won international plaudits for being more market-oriented and helped the yuan win a spot in the IMF’s basket of reserve currencies.

“The counter-cyclical adjustment factor sounds like an increased role for the fixing to be nudged away from where markets would set it,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “The authorities’ actions give the impression that they are more worried about yuan stability than declared in their public statements.”

Propping up the yuan has been a policy priority this year as Chinese authorities try to stem capital outflows and prevent financial shocks before an important leadership reshuffle in the ruling Communist Party at the end of 2017. The stakes have increased in recent weeks after the regulatory clampdown on leverage roiled domestic bond and equity markets.

Under the new reference rate formula communicated to lenders by the People’s Bank of China this week, institutions that provide quotes for the fixing will add a counter-cyclical factor to their existing models, which take into account the previous day’s official closing price at 4:30 p.m. local time and changes in baskets of currencies, according to people familiar with the matter, who asked not to be identified because the matter is private. Banks are currently tweaking and testing their models and will start providing quotes using the new system soon, the people said.

China’s foreign-exchange market can be driven by irrational expectations, resulting in “unreal” supply and demand that increases the risk of overshooting, according to an official statement on Chinamoney.com, which is run by China Foreign Exchange Trade System. The counter-cyclical factor may ease “herd actions” and help guide investors to pay more attention to economic fundamentals, according to the statement.

The yuan is restricted to moves of no more than 2 percent on either side of the reference rate.

For China’s government, the existing market-based fixing system’s downside is that it makes the exchange rate more difficult to control. The yuan’s 6.5 percent slide in 2016 created a vicious circle of capital outflows and currency weakness, prompting officials to burn through more than $300 billion of foreign-exchange reserves and introduce tighter capital controls.

Authorities may see the new fixing formula as a cheaper way to stabilize the yuan. Officials have already used the reference rate to guide the currency higher in recent weeks, setting the fixing at levels that were consistently stronger than analysts predicted.

“The PBOC has been fixing with a major dose of discretion,” said Sue Trinh, head of Asia foreign-exchange strategy at RBC Capital Markets in Hong Kong. “We can consider this ’counter-cyclical adjustment factor’ as using that discretion.”

While the yuan has fluctuated in a narrow band around 6.9 per dollar for most of this year, the currency strengthened out of that trading range over the past two days amid suspected government intervention. The yuan gained 0.1 percent to 6.8622 per dollar as of 5:57 p.m. local time Friday, heading for the biggest two-day advance since late March.

By taking steps to scale back the market’s role in the fixing formula, authorities may undermine efforts to make the currency more freely traded, according to Tim Condon, head of Asia research at ING Groep NV in Singapore.

“If the yuan endgame is a free float like the other major currencies, refining the PBOC fixing mechanism is a retrograde step,” he said.

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.

Energy

Equatorial Guinea to Launch Vision on Post-COVID Energy Transition Plans with Report and Film

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The Africa Energy Series (AES): Equatorial Guinea 2021 campaign – comprising a report and a documentary – will serve as a critical tool to navigate the energy investment landscape in one of Africa’s more mature petroleum producing markets; Equatorial Guinea has largely been able to sustain its pace of engagement with global investors in the face of COVID-19, forecasting $1.1 billion in FDI in oil and gas activities in 2021; The third edition of the AES: Equatorial Guinea 2021 report will be released at Africa Oil & Power’s U.S. Africa Energy Forum 2021 networking event in Washington, D.C. this July.

Africa Oil & Power is proud to announce the upcoming launch of its Africa Energy Series (AES): Equatorial Guinea 2021 investment report and documentary, as part of a multimedia campaign set to champion the domestic energy sector and shape the West and Central African energy narrative.

The dual-language publication will target key developments driving a post-COVID-19 recovery in Equatorial Guinea – namely, the growth of petroleum and power industries; regional gas monetization initiatives; a clean energy transition; the impact of environmental, social and governance criteria; and expansion of the national diversification agenda.

A 30-minute documentary will provide a visual complement to the publication, featuring first-hand interviews with government officials, private sector players, industry regulators and energy experts discussing Equatorial Guinea’s unparalleled ambition and future plans.

“From spearheading regional gas monetization initiatives to drilling new exploration wells as early as Q2 2021, Equatorial Guinea continues to cement its reputation as a progressive, dynamic force on the African energy stage,” said H.E. Gabriel Obiang Lima, Minister of Mines and Hydrocarbons. “The Africa Energy Series publication in conjunction with a detailed documentary format, gives us the voice to showcase the depth of our full-stream investment opportunities to a global audience.”

Since the onset of COVID-19, Equatorial Guinea has been proactive in safeguarding opportunities for foreign investors and continuing to drive capital into its hydrocarbon resources. In February, Chevron achieved first gas flow from the successful execution of its Alen Gas Monetization project, a $475-million investment representing the first phase of Equatorial Guinea’s Gas Mega Hub masterplan.

The Ministry of Mines and Hydrocarbons is currently promoting several capital-intensive projects – including the construction of modular oil refineries, a gold refinery, liquefied petroleum gas strategic tanks, a urea plant and the expansion of a compressed natural gas project – which are open for investment. Last December, the Ministry of Mines and Hydrocarbons announced a forecast of $1.1 billion in foreign direct investment in oil and gas activities in 2021.

Active in Equatorial Guinea since 2015, AOP released its first AES documentary on the country in 2016, followed by investment reports in 2018 and 2019.

The AES: Equatorial Guinea 2021 investment report will be launched at the U.S. Africa Energy Forum 2021 online seminar and in-person networking event in Washington, DC. (July 12). The documentary will be launched at the U.S. Africa Energy Forum conference in Houston (October 4-5) and broadcast globally on news networks.

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U.S. Africa Energy Forum 2021 Launches: Promotes U.S. Role as Primary Investor in African Energy

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The U.S. Africa Energy Forum 2021 – organized by Africa Oil & Power, in partnership with the African Energy Chamber’s U.S.-Africa Committee – will foster alignment between U.S. and African governments’ energy policies and highlight African oil, gas, power and renewable projects across the energy value chain for U.S. investors; the multi-day forum unites U.S. and African policymakers, energy executives and industry leaders to create new linkages and foster discussions that drive long-term policy formation and project execution; the in-person, two-day summit and gala dinner will be hosted in Houston, Texas (October 4-5, 2021) and an online seminar and in-person networking event will be held in Washington D.C. (July 12).

Africa Oil & Power (AOP) and the African Energy Chamber are excited to announce the launch of the first-ever U.S. Africa Energy Forum (USAEF). This event aims to create deeper cooperation between the U.S. and Africa on energy policy, to reach alignment on long term sustainability goals, to stimulate greater American investment in the African oil, gas and power sectors, and to engage and reposition the U.S. as the primary partner of choice for African energy developments.

Under the theme “New Horizons for U.S. Africa Energy Investment” the forum will explore diverse foreign investment and export opportunities across the continent, including natural gas as a vital fuel for the energy transition; energy storage and battery minerals; Africa’s place in global energy supply chains; the benefits of the African Continental Free Trade Area; evolving energy technologies and how they relate to the future role of petroleum resources; and on-and off-grid power developments.

An online seminar and in-person networking event will be held in Washington D.C. on July 12, 2021, building up to the in-person U.S. Africa Energy Forum summit and gala dinner, to be hosted in Houston, Texas, on October 4-5, 2021. Africa Oil & Power and the African Energy Chamber invite all U.S.-based companies with an interest in engaging with African industry leaders and project developers to participate in the USAEF Houston summit.

This initiative comes at an important juncture in U.S.-Africa relations. The Biden Administration’s announcements of its intentions to proactively build a stronger U.S.-Africa partnership coincides with the fact that African projects are seeing rising interest from U.S. companies and lending institutions alike. The USAEF event is thus dedicated to enabling dialogue between its participants that advances these developments.

“Our mission has always been to showcase the resource potential that Africa has to offer while at the same time showing its growing preference for sustainable energy policies and technologies. Toward that end, we hope it becomes evident that Africa does not just want investment capital: it wants smart capital and an accompanying partnership with the investors,” says James Chester, Senior Director of Africa Oil & Power. “The U.S. Africa Energy Forum represents the first-of-its-kind opportunity to catalyze U.S. participation in Africa’s energy transformation – via technology, policy support, capital injection and skills development – and turns a new page in the chapter on global energy investment.”

In partnership with the African Energy Chamber’s U.S.-Africa Committee, AOP will introduce American companies to African opportunities and advance an agenda of sustainable, long-term investment in African energy and other sectors by U.S. organizations.

“The rise in support from the U.S. to the continent is a credit to Africa itself, which is increasingly viewed as a favored destination for global investors, multilaterals and export credit agencies,” says Jude Kearney, President of Kearney Africa and former Deputy Assistant Secretary for Service Industries and Finance at the U.S. Department of Commerce during the Clinton Administration. “Africa continues to command a healthy share of global FDI in oil and gas industries. It has for decades shown that investment in those sectors is favorable compared to other jurisdictions and can be successful by many measures. Even as Africa and the rest of the world wrestles with a global pandemic, Africa’s energy sector shows vitality and resiliency – not only in hydrocarbons but in regard to new opportunities in mining, liquefied natural gas, and agriculture.”

Both African governments and private sector sponsors of African energy projects value highly the combination of investment and partnership that US investors famously convey. The USAEF seeks to enable successful partnerships between its participants such that the energy development goals of U.S. investors and strategic partners and their African counterparts can be achieved.

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Angola’s Petroleum Agency Outlines Timeline for Ongoing Bid-round

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Angola’s National Oil, Gas and Biofuel’s Agency (ANPG) has outlined its timetable for the evaluation of its ongoing 2020 bid round, as interest in the acreage on offer continues to grow.

In line with its statutory duties as national concessionaire in charge of the attribution of petroleum exploration blocks, the ANPG has sought to adjust its processes to remain competitive in the current market environment, which is dominated by concerns around COVID-19, long-term demand considerations and stiff competition from new and promising frontiers like Guyana and Suriname.

The ongoing bid-round is a manifestation of Angola’s strategy for the continuous attribution of petroleum concessions 2019-2025 which was approved and codified by Presidential Decree no. 52/19, of 18 February 2019. The aim of the strategy is to provide access to promising acreage to competent explorers in an effort to increase geological knowledge about Angola’s hydrocarbons potential and ultimately increase proven reserves.

A hybrid online and physical roadshow for the current bid-round is scheduled for April 6 in at the Talatona Convention Centre in Luanda. This event will provide the opportunity for investors to engage with the agency regarding the blocks on offer, the data packages and the accessibility studies, as well as touch upon environmental, logistical and local content issues.

This will kickstart a series of both digital and in-person roadshows and technical presentations to promote the blocks to be awarded in key international markets. The acreages on offer include:

  • Three blocks of the lower Congo onshore Basin CON1, CON5 and CON6
  • Six of the Kwanza onshore Basin (KON5, KON6, KON8, KON9, KON17 and KON20)

In line with the provisions of Presidential Decree No. 86/18, of 2 April 2019, which establishes the rules for the organization of bid rounds, the ongoing 2020 bid round will unfold as follows:

  • Tender Launch
  • Proposal submission
  • The opening of offers from potential suitors in a public setting
  • The evaluation and qualification of proposals
  • The submission of the evaluation report to the Ministry of Mineral Resources and Petroleum and Gas
  • Contract negotiation with the winners of the bid-round
  • Signature

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