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Growing Expectations as FG Plans to Reduce oil Asset Stakes

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  • Growing Expectations as FG Plans to Reduce oil Asset Stakes

Industry stakeholders are keen on the planned divestment of stakes in joint venture oil and gas assets by the Federal Government, ’FEMI ASU writes

The planned reduction of government stakes in joint oil ventures with private oil companies, especially international oil companies, has sparked interest from some industry stakeholders.

The President Muhammadu Buhari-led administration had, in its Economic Recovery and Growth Plan released in 2017, said it would reduce its stakes in JV oil assets, refineries and other downstream subsidiaries such as pipelines and depots.

The 2019 approved budget public presentation obtained by our correspondent revealed that President Muhammadu Buhari had directed that immediate action be commenced to restructure the JV oil assets “so as to reduce government shareholding to not less than 40 per cent and that this exercise must be completed within the 2019 fiscal year.”

It disclosed that the proceeds of oil assets ownership (JV equity) restructuring would constitute 10.1 per cent of expected Federal Government’s revenue this year.

The document said, “The overall revenue performance in 2018 is only 55 per cent of the target in the 2018 Budget partly because some one-off items such as the N710bn from Oil Joint Venture Asset restructuring and N320bn from revision of the Oil Production Sharing Contract legislation/terms have yet to be actualised and have thus been rolled over to 2019.

The nation’s oil and gas production structure is majorly split between JV onshore and in shallow water with foreign and local companies and PSC in deepwater offshore, to which many IOCs have shifted their focus in recent years.

The Nigerian National Petroleum Corporation owns 55 per cent stake in its JV with Shell and 60 per cent stakes with others, including Chevron and ExxonMobil.

Under the JV arrangement, both the NNPC and private operators contribute to the funding of operations in the proportion of their equity holdings and generally receive the produced crude oil in the same ratio.

But the NNPC failed to meet its share of cash call obligations for many years, resulting in significant debts owed to oil companies.

In 2016, the international oil companies operating in Nigeria agreed to give the Federal Government a discount of $1.7bn from the $6.8bn cash call arrears owed by the NNPC.

The Managing Director/Chief Executive Officer, Seplat Petroleum Development Company Plc, Mr Austin Avuru, said the divestment would generate badly needed fund for the government to support the funding of the 2019 budget.

The Managing Director, Aiteo Eastern Exploration and Production Company, Mr Victor Okoronkwo, described the government’s proposed sell-down of its joint venture participation as a very good way to help the existing private joint venture partners to further capitalise and consolidate their positions.

He said, “Our expectation is that in line with the joint venture agreements between us and the Federal Government, the existing joint venture partners will have the right of first refusal. The first wave of asset sale by the international oil companies happened in a period when oil price was really high; so, they were able to make a lot of money.

“But I believe that the government expects to reap a lot more multiplier effect out of this sell-down of assets rather than just carting cash away, and the existing indigenous joint venture partners will be willing to work with the government to ensure that that materialises.

“Of course, we are an existing joint venture partner; so, we expect the right of first refusal. We have 45 per cent of OML 29 and the government owns 55 per cent.”

As part of efforts to surmount cash-call challenges and put the upstream sector on a path of sustainable growth, the Nigerian National Petroleum Corporation has said it would introduce the Incorporated Joint Venture model to replace all the JV exploration and production projects.

The Group Managing Director, NNPC, Dr Maikanti Baru, said at a panel session on Wednesday at the Nigeria Oil and Gas Conference in Abuja, that the consideration for the IJV model was born out of the need to encourage healthy business culture and growth in the energy sector.

The GMD, who was represented by the Chief Operating Officer, Mr Bello Rabiu, said the IJV model, when implemented, would make oil and gas business more productive and beneficial to investors.

Baru explained that the current alternative funding arrangement was a temporary measure and that the objective of the IJV model was to create a robust business system “that allows for projects self-financing and guarantees a win-win situation for all stakeholders.”

He said, “The only option which is the same everywhere in the world is for any project or any business to fund itself and the only way it can fund itself is for the business to see itself as both funded by equity and debt.

“The incorporation element of IJV allows it to operate as an independent entity that can source capital to fund its projects and deliver dividends to shareholders at the end of each financial year.”

Responding to the question on apparent lack of trust between the government and IOCs, the GMD said that the trust level on both sides had significantly improved since 2015 till date.

He noted that prompt payment of cash-call arears and other measures initiated by the corporation contributed in restoring the confidence of the IOCs.

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

NNPC To Resume Oil Exploration In Sokoto Basin

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The Nigerian National Petroleum Corporation on Thursday announced plans to resume active oil exploration in Sokoto Basin.

A statement issued in Abuja on Thursday by NNPC spokesperson, Kennie Obateru, said the corporation’s Group Managing Director, Mele Kyari, said exploration for crude would resume in the Sokoto Basin.

The statement read in part, “Kyari also hinted of plans for the corporation to resume active exploration activities in the Sokoto Basin.”

The NNPC boss disclosed this while receiving the Governor of Kebbi State, Atiku Bagudu, who paid Kyari a courtesy visit in his office on Thursday.

In October 2019, the President, Major General Muhammadu Buhari (retd.), had during the spud-in ceremony of Kolmani River II Well on the Upper Benue Trough, Gongola Basin, in the North-East, said the government would explore for oil and gas in the frontier basins across the country.

He outlined the basins to include the Benue Trough, Chad Basin, Sokoto and Bida Basins.

Buhari had also stated that attention would be given to the Dahomey and Anambra Basins which had already witnessed oil and gas discoveries.

Kyari restated NNPC’s commitment to the partnership with Kebbi State for the production of biofuels, describing the project as viable and in tandem with the global transition to renewable energy.

He said the rice production programme in the state was a definite boost to the biofuels project.

Kyari said the linkage of the agricultural sector with the energy sector would facilitate economic growth and bring prosperity to the citizens.

He was quoted as saying, “We will go ahead and renew the Memorandum of Understanding and bring in any necessary amendment that is required to make this business run faster.”

The Kebbi State governor expressed appreciation to the NNPC for its cooperation on the biofuel project.

Bagudu said the cassava programme was well on course but the same could not be said of the sugarcane programme as the targeted milestone was yet to be attained.

Kebbi state is one of the states that the NNPC is in partnership with for the development of renewable energy.

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Economy

Nigeria To Benefit As G-20 Approves Extension Of Debt Relief Till December

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Finance ministers of G-20 countries have approved an extension of debt relief for the world’s poorest nations till December 2021.

David Malpass, World Bank president, made the announcement at the virtual spring meeting, on Wednesday.

TheCable had earlier reported that the G-20 countries will meet this week to consider an extension of the debt freeze.

The G-20, is a group of finance ministers and central bank governors from 19 of the world’s largest economies, including those of many developing nations, along with the European Union.

G-20 countries had established a debt service suspension initiative (DSSI) which took effect in May 2020.

Nigeria had benefited from the initiative which delivered about $5 billion in relief to more than 40 eligible countries.

The suspension period which was originally set to end on December 31, 2020 was extended to June 2021.

Malpass said the extension to December 2021 will boost economic recovery and promote job creation in low income countries.

He urged countries to be transparent in their approach to the debt service payment extension.

“On debt, we welcome a decision by the G20 to extend the DSSI through 2021. The World Bank is also working closely with the IMF to support the implementation of the G20 Common Framework,” he said.

“In both these debt efforts, greater transparency is an important element: I urge all G20 countries to disclose the terms of their financing contracts, including rescheduling, and to support the World Bank’s efforts to reconcile borrower’s debt data more fully with that of creditors.

“Participation by commercial creditors and fuller participation by official bilateral creditors will be vital. I urge all G20 countries to instruct and create incentives for all their public bilateral creditors to participate in debt relief efforts, including national policy banks. I also urge G20 countries to act decisively to incentivize the private creditors under their jurisdiction to participate fully in sovereign debt relief efforts for low-income countries.

“Debt relief efforts are providing some welcome fiscal space, but IDA countries need major new resources too, including grants and highly concessional resources. From April to December 2020, the first DSSI period, our net transfers to IDA and LDC countries were close to $17 billion, of which $5.8 billion were on grant terms.

“Our new commitments were almost $30 billion, making IDA19 the single largest source of concessional resources for the poorest countries and the key multilateral platform for support. To recover from COVID, much more is needed, and we welcome the G20’s support for advancing IDA20 by one year.”

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Economy

IMF / Fiscal Monitor Report April 2021 Forecast

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Unprecedented fiscal support by governments during the pandemic has prevented more severe economic contractions and larger job losses, but risks remain of long-term scarring the International Monetary Fund says in its Fiscal Monitor report released on Wednesday (April 7) in Washington, DC.

Meanwhile, such support, along with drops in revenues, has raised government deficits and debt to unprecedented levels across all country income groups, said Vitor Gaspar, Director of the Fiscal Affairs Department at the IMF.

The first lesson one year into COVID-19 is that fiscal policy can act timely and decisively. The fiscal policy response was unprecedented in speed and size looking across countries. We also learned that countries with easier access to finance or stronger buffers were able to give more fiscal support. They’re also projected to recover faster,” said Gaspar.

Average overall deficits as a share of GDP in 2020 reached 11.7 percent for advanced economies, 9.8 percent for emerging market economies, and 5.5 percent for low-income developing countries. Countries’ ability to scale up spending has diverged.

“So, what have we learned? We’ve learned that fiscal policy is powerful and that sound public finances are crucial in order to enable that power to be used to the fullest,” stressed Gaspar.

Gaspar urged policy makers to balance the risks from large and growing public and private debt with the risks from premature withdrawal of fiscal support, which could slow the recovery.

“In the spring 2021, we emphasize differentiation across countries. Moreover, COVID-19 is fast evolving, as are the consequences from COVID-19. The fiscal policy must stay agile and flexible to respond to this fast-evolving situation.” Said Gaspar.

He also warned that the targeting of measures must be improved and tailored to countries’ administrative capacity so that fiscal support can be maintained for the duration of the crisis—considering an uncertain and uneven recovery

“Moreover, countries are very different in their structures, in their institutions, in their financial capacity and much else. Therefore, policies and policy advice have to be tailored to fit.” Said Gaspar

Gaspar concluded his remarks by emphasizing that global vaccination is urgently needed, and that global inoculation would pay for itself with stronger employment and economic activity, leading to increased tax revenues and sizable savings in fiscal support.

“A fair shot, a vaccination for everybody in the world may well be the highest return global investment ever. But the Fiscal Monitor also emphasizes the importance of giving a fair shot at life success for everyone. It documents that preexisting inequalities made COVID-19 worse and that COVID-19 in turn made inequalities worse. There is here a vicious cycle that threatens trust and social cohesion. Therefore, we recommend stronger redistributive policies and universal access to basic public services like health, education, and social security,” said Gaspar.

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