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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.

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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OPEC+ Production Cuts Set to Balance Global Oil Market, Says Russian Deputy PM

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In a statement on Monday, Russian Deputy Prime Minister Alexander Novak expressed confidence that the global oil market will achieve balance in the second half of 2024, thanks to the production cut strategies implemented by the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+.

OPEC+, which includes major oil-producing countries such as Saudi Arabia and Russia, has been actively managing oil output to stabilize the market since late 2022.

In their most recent meeting on June 2, the group agreed to extend their latest production cut of 2.2 million barrels per day (bpd) until the end of September. This cut is scheduled to be gradually phased out starting in October.

“The market will always be balanced thanks to our actions,” Novak stated, emphasizing the importance of the coordinated efforts by OPEC+ in maintaining market equilibrium.

The U.S. Energy Information Administration (EIA) recently projected that global oil demand will surpass supply by approximately 750,000 bpd in the latter half of 2024 due to the continued reduction in OPEC+ output.

This outlook was echoed in a report by OPEC last week, which highlighted an anticipated oil supply deficit in the coming months and into 2025.

Novak’s remarks come at a crucial time for the global oil market, which has experienced significant volatility over the past year.

The OPEC+ alliance has been pivotal in mitigating some of this instability by adjusting production levels in response to fluctuating demand and other market dynamics.

Analysts suggest that the measures taken by OPEC+ will play a vital role in ensuring that the oil market remains stable as the world continues to navigate economic uncertainties and fluctuating energy demands.

The production cuts are expected to support oil prices by limiting supply, thereby helping to balance the market.

The impact of these production cuts is already being felt, with oil prices showing signs of stabilization.

However, the market remains sensitive to geopolitical developments and economic trends, which could influence future supply and demand dynamics.

As OPEC+ prepares to unwind some of its production cuts in the coming months, industry observers will be closely monitoring the market’s response.

The gradual phasing out of the cuts is designed to prevent any sudden shocks to the market, allowing for a smoother transition and sustained balance.

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Oil Prices Steady Amid U.S. Political Uncertainty and Middle East Tensions

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Oil prices held firm on Monday as the political uncertainty in the United States and ongoing tensions in the Middle East persist.

Brent crude oil, against which Nigerian oil is priced,  fell slightly by 13 cents, or 0.2%, to $84.90 a barrel after a 37-cent drop on Friday.

Similarly, U.S. West Texas Intermediate crude stood at $82.15 a barrel, down 6 cents, or 0.1%.

The dollar’s strength, which followed a failed assassination attempt on U.S. presidential candidate Donald Trump, exerted some pressure on oil prices.

A stronger dollar typically makes oil more expensive for buyers using other currencies, leading to reduced demand.

“I don’t think you can ignore the uncertainty that the weekend’s assassination attempt will cast across a deeply divided country in the lead-up to the election,” said Tony Sycamore, market analyst at IG.

In the Middle East, efforts to end the Gaza conflict between Israel and Hamas stalled over the weekend.

Talks were halted after three days, although a Hamas official indicated that the group had not withdrawn from discussions.

The situation escalated further when an Israeli attack targeting a Hamas military leader killed 90 people on Saturday, maintaining the geopolitical premium on oil.

Despite these geopolitical tensions, oil markets remain supported by supply cuts from OPEC+. Iraq’s oil ministry has pledged to compensate for any overproduction since the beginning of the year, reinforcing the market’s stability.

Last week, Brent fell more than 1.7% after four weeks of gains, while WTI futures slid 1.1%. The decline was largely attributed to a fall in China’s crude imports, which countered robust summer consumption in the United States.

“While fundamentals are still supportive, there are growing demand concerns, largely emanating from China,” noted ING analysts led by Warren Patterson.

China’s crude oil imports fell 2.3% in the first half of this year to 11.05 million barrels a day, with disappointing fuel demand and reduced output by independent refiners due to weak profit margins.

Also, crude throughput at Chinese refineries dropped 3.7% in June from a year earlier to 14.19 million barrels per day, marking the lowest level this year, according to customs data.

China’s economy has slowed in the second quarter, weighed down by a protracted property downturn and job insecurity, keeping alive expectations that Beijing will need to implement more stimulus measures.

In the United States, the active oil rig count, an early indicator of future output, fell by one to 478 last week, marking the lowest level since December 2021, according to energy services firm Baker Hughes.

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Nigeria Awards $21M Contract to Meter 187 Crude Oil Flow Stations

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The Federal Executive Council (FEC) has approved a $21 million contract to meter 187 crude oil flow stations across Nigeria.

The decision was announced by the Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, during a press briefing in Abuja.

Minister Lokpobiri highlighted that this initiative is part of the government’s broader strategy to reorganize the oil and gas sector, ensuring accurate accounting of the country’s crude oil production and exports.

The contract, awarded to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), aims to install metering systems at flow stations within the Niger Delta region.

“This project marks a major development that has never happened in this country. The metering of our 187 flow stations will provide proper accountability of our oil production and exportation,” Lokpobiri stated. The project is expected to be completed within 180 days.

In addition to the metering contract, the FEC also approved the deployment of advanced software to monitor the movement of Nigeria’s crude oil from the point of loading to its final destination.

This technology will allow real-time tracking of crude oil shipments, addressing long-standing issues of oil theft and misreporting.

Lokpobiri explained, “With this advanced cargo tracking technology, we will know from the point of loading in Nigeria up to the final destination. This step is crucial in ensuring Nigerians get maximum value for the crude oil produced.”

The metering and monitoring initiatives come at a time when Nigeria faces significant challenges in its oil production.

Domestic refineries have complained of insufficient crude supplies, and there have been persistent concerns about the transparency of actual crude oil volumes produced in the Niger Delta.

Nigeria’s current production stands at less than 1.3 million barrels per day, below the 1.5 million barrels daily quota approved by the Organisation of Petroleum Exporting Countries (OPEC).

The initiatives are part of the government’s efforts to ramp up crude oil production and increase revenue.

“Oil remains the fastest way to raise the funding needed to address our economic and social problems,” Lokpobiri noted.

The accurate tracking and metering of oil production are expected to bolster investor confidence and contribute to the country’s economic stability.

The minister also hinted at ongoing efforts to rekindle investor confidence in Nigeria’s oil sector, which has seen a decline in major investments over the past 12 years.

“Since the inception of this administration, we have been working hard to bring back the confidence of the investing community,” Lokpobiri declared.

In a related development, the Port Harcourt refinery is expected to come on stream soon, although Lokpobiri did not specify a date for its operational commencement.

The refinery’s activation is anticipated to further boost Nigeria’s oil processing capacity and reduce dependence on imported refined petroleum products.

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