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NERC Puts Power Sector Q1 Shortfall at N112 Billion

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  • NERC Puts Power Sector Q1 Shortfall at N112 Billion

The Nigerian Electricity Regulatory Commission (NERC) has put the total financial shortfall recorded by Nigeria’s electricity market within the first quarter of 2018 at N112 billion.

The NERC said in its first quarter (Q1) 2018 operational report of the sector, that out of the total sum of N163.1 billion invoice for energy the Nigerian Bulk Electricity Trading Plc (NBET) issued to the electricity distribution companies (Discos) in the market, as well as for service charged by the Market Operations (MO) department of the Transmission Company of Nigeria (TCN), only N51.2 billion representing 31.4 per cent of the invoice was settled by Discos.

It explained that this created a huge shortfall of N112 billion in the market within the period.

There are however other financial shortfalls that had built up in the past.

The quarterly report was obtained from the NERC website.

The commission also disclosed it was planning a review of the retail tariff used by the Discos to sell electricity to consumers, as well as, taking a look at how they spent the capital budgets approved for them by it so far.

“The commission has initiated a process for thorough technical assessment of Discos’ utilisation of capital expenditure allowances for relevance and cost efficiency.

“The commission is also planning a tariff reset that adequately provides for revenue requirement necessary for TCN and Discos’ optimal performance.

“Similarly, to resolve the issue related to gas supply shortage, the government has started the implementation of gas payment assurance facility for power generation to enable Gencos fulfil their payment obligations to gas suppliers,” said the commission in the report.
On the commercial performance of the industry, the NERC noted that financial illiquidity had remained the most significant challenge affecting the industry’s sustainability.

It explained that: “This serious liquidity challenge is partly attributed to non-cost-reflective tariffs, and high technical and commercial losses aggravated by consumers’ apathy to payment arising from estimated billing and poor quality of supply in most load centres.

“Out of the N171.1 billion billed to customers in the first quarter of 2018, only N106.6 billion was recovered, representing 62.3 per cent collection efficiency.

“Therefore, out of every N10 worth of electricity sold during the quarter under review, N3.8 is uncollected,” it added.

According to it: “The liquidity challenge in NESI was further reflected in the Discos’ remittances relative to NBET’s and MO’s invoices. In the first quarter of 2018, whereas Discos were issued a total invoice of N163.1 billion for energy received from NBET and for the service charge by MOs, only N51.2 billion (31.4 per cent) was settled by Discos, creating a huge shortfall of N112.0 billion.”

NERC stated that in the period under review, the total invoice issued to international customers to Nigeria’s power market, and which included Benin and Niger Republics, as well as a special customer, was N12.2 billion.

It however said no payment was received from these customers, and that the Nigerian government has continued to engage governments of the neighbouring countries to ensure payments for the electricity purchased.

In the quarter under review, NERC stated that total collapse of the electricity grid worsened and increased from one recorded in the last quarter of 2017 to six in Q1-2018.

“Five of the system collapse incidents occurred in January 2018 while one occurred in February 2018. The system collapse was attributed to lack of generation by Egbin, Olorunsogo and Omotosho power plants, among others, due to gas constraints which resulted from the breakdown in the Escravos gas pipeline.

“This incident confirms the concern that the commission expressed in the previous reports, on how sudden operational disruption in some plants could affect grid stability given the share of the industry output contributed by those plants,” it noted.

It equally said that the system collapse incidents were partly attributable to lack of adequate ancillary services which the System Operator could have used to offset the impact on the grid of the plants that suddenly shut down their operation, adding that it has started work with the TCN to procure adequate ancillary capacity that could forestall frequent system collapse.

August Inflation Predicted to Remain Unchanged. Analysts at FSDH Merchant Bank Limited have predicted that inflation rate (year-on-year) will remain unchanged at 11.14 per cent in August 2018, same rate recorded the previous month.

Although the Lagos-based firm stated that it observed moderation in prices of some food items in August, the contraction in the agriculture sector may place pressure on food prices in coming months.

The National Bureau of Statistics (NBS) will release the inflation rate for August this Friday.

The Food Price Index (FPI) of the Food and Agriculture Organisation (FAO) published in August 2018, had noted that food prices in the international market increased marginally in August from the July levels.

The prices of sugar, edible oil and dairy dropped in August compared with July while the prices of cereal and meat increased.

The depreciation of currencies in Brazil and India against the dollar resulted in the decrease in sugar prices.

However, tight export in wheat and maize forced prices up, the report stated.

“FSDH Research’s analysis indicates that the value of the naira depreciated at both the Nigerian Autonomous Foreign Exchange (NAFEX) and the parallel market at end-August 2018.
“At the NAFEX and parallel markets, the value of the naira depreciated by 0.40 per cent and 0.08 per cent to close at $/N362.65 and $/N306.15 respectively at the end of August. “The marginal increase in the international prices of food coupled with the depreciation in the value of the naira placed an upward

pressure on prices of some consumer goods in August.

“The prices of food items that FSDH Research monitored in August 2018 moved in varying directions. The movement in the prices of food items during the month led to a 1.10 per cent increase in our Food and Non-Alcoholic Index. This Index increased year-on-year by 12.76 per cent, up from 251.66 points recorded in August 2017.”

The firm also observed an increase in the prices of Transport and Housing, Water, Electricity, Gas & Other Fuels divisions between July and August 2018.

Therefore, FSDH estimated an increase in the Composite Consumer Price Index (CCPI) in August, which it stated would produce an inflation rate of 11.14 per cent, same as the figure recorded in July.

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.

Crude Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

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Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Oil retreated from an earlier rally with investment banks and traders predicting the market can go significantly higher in the months to come.

Futures in New York pared much of an earlier increase to $63 a barrel as the dollar climbed and equities slipped. Bank of America said prices could reach $70 at some point this year, while Socar Trading SA sees global benchmark Brent hitting $80 a barrel before the end of the year as the glut of inventories built up during the Covid-19 pandemic is drained by the summer.

The loss of oil output after the big freeze in the U.S. should help the market firm as much of the world emerges from lockdowns, according to Trafigura Group. Inventory data due later Tuesday from the American Petroleum Institute and more from the Energy Department on Wednesday will shed more light on how the Texas freeze disrupted U.S. oil supply last week.

Oil has surged this year after Saudi Arabia pledged to unilaterally cut 1 million barrels a day in February and March, with Goldman Sachs Group Inc. predicting the rally will accelerate as demand outpaces global supply. Russia and Riyadh, however, will next week once again head into an OPEC+ meeting with differing opinions about adding more crude to the market.

“The freeze in the U.S. has proved supportive as production was cut,” said Hans van Cleef, senior energy economist at ABN Amro. “We still expect that Russia will push for a significant rise in production,” which could soon weigh on prices, he said.

PRICES

  • West Texas Intermediate for April fell 27 cents to $61.43 a barrel at 9:20 a.m. New York time
  • Brent for April settlement fell 8 cents to $65.16

Brent’s prompt timespread firmed in a bullish backwardation structure to the widest in more than a year. The gap rose above $1 a barrel on Tuesday before easing to 87 cents. That compares with 25 cents at the start of the month.

JPMorgan Chase & Co. and oil trader Vitol Group shot down talk of a new oil supercycle, though they said a lack of supply response will keep prices for crude prices firm in the short term.

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Crude Oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

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Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

Oil prices rose on Monday as the slow return of U.S. crude output cut by frigid conditions served as a reminder of the tight supply situation, just as demand recovers from the depths of the COVID-19 pandemic.

Brent crude was up $1.38, or 2.2%, at $64.29 per barrel. West Texas Intermediate gained $1.38, or 2.33%, to trade at $60.62 per barrel.

Abnormally cold weather in Texas and the Plains states forced the shutdown of up to 4 million barrels per day (bpd) of crude production along with 21 billion cubic feet of natural gas output, analysts estimated.

Shale oil producers in the region could take at least two weeks to restart the more than 2 million barrels per day (bpd) of crude output affected, sources said, as frozen pipes and power supply interruptions slow their recovery.

“With three-quarters of fracking crews standing down, the likelihood of a fast resumption is low,” ANZ Research said in a note.

For the first time since November, U.S. drilling companies cut the number of oil rigs operating due to the cold and snow enveloping Texas, New Mexico and other energy-producing centres.

OPEC+ oil producers are set to meet on March 4, with sources saying the group is likely to ease curbs on supply after April given a recovery in prices, although any increase in output will likely be modest given lingering uncertainty over the pandemic.

“Saudi Arabia is eager to pursue yet higher prices in order to cover its social break-even expenses at around $80 a barrel while Russia is strongly focused on unwinding current cuts and getting back to normal production,” said SEB chief commodity analyst Bjarne Schieldrop.

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Crude Oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

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Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

Oil prices rose to $65.47 per barrel on Thursday as crude oil production dropped in the US due to frigid Texas weather.

The unusual weather has left millions in the dark and forced oil producers to shut down production. According to reports, at least the winter blast has claimed 24 lives.

Brent crude oil gained $2 to $65.47 on Thursday morning before pulling back to $64.62 per barrel around 11:00 am Nigerian time.

U.S. West Texas Intermediate (WTI) crude rose 2.3 percent to settle at $61.74 per barrel.

“This has just sent us to the next level,” said Bob Yawger, director of energy futures at Mizuho in New York. “Crude oil WTI will probably max out somewhere pretty close to $65.65, refinery utilization rate will probably slide to somewhere around 76%,” Yawger said.

However, the report that Saudi Arabia plans to increase production in the coming months weighed on crude oil as it can be seen in the chart below.

Prince Abdulaziz bin Salman, Saudi Arabian Energy Minister, warned that it was too early to declare victory against the COVID-19 virus and that oil producers must remain “extremely cautious”.

“We are in a much better place than we were a year ago, but I must warn, once again, against complacency. The uncertainty is very high, and we have to be extremely cautious,” he told an energy industry event.

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