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DISCOs Monthly Revenue Shortfalls Rise to N25bn in 2016



  • DISCOs Monthly Revenue Shortfalls Rise to N25bn in 2016

Electricity Distribution Companies, DISCOs’ remittances to Nigeria Bulk Electricity Trading, NBET, dropped to about 35 percent in 2016 from an average of 65 percent in 2015, with monthly revenue shortfalls rising to N25 billion in 2016 as against N9 billion in 2015.

According to a report by Proshare, a Nigerian financial information service firm, “The revenue shortfall of the DISCOs has triggered systemic risk in the sector since the generation companies, GENCOs, who rely on the DISCOs for revenue, have largely been stifled.

“The core drag at the bottom of these challenges relates to revenue and funding strain, despite the steps taken to improve operations of the GENCOs and DISCOs as well as the TCN failure to address the huge debt profile, foreign exchange burden, revenue shortfall and working capital of companies, expectations of momentous advance by firms will be a head in the clouds,” it stated.

The report also said that firms were already facing difficulties in servicing over N700 billion loans which they collectively took to purchase the plants when they were privatised in 2013, thus leading to liquidity crisis that had reduced their ability to pay for gas supplies and in whole threatening to completely undermine the electricity value chain and ability to continue to serve customers.

Upward tariff adjustments

The Proshare report further stated: “Given public resistance to upward tariff adjustments to meet revenue shortfalls, the power companies have clamoured for Federal Government intervention which would come in form of subsidy.

“Indeed, based on the current power sector model (2005), revenue shortfalls, were anticipated and modelled as high ATC&C losses embedded in the entire value chain, were to be funded by the Federal Government through monthly subsidies.” The proposed rulemaking on transitional trading arrangement and financial settlement system published by Nigeria Electricity Regulation Commission, NERC, in July 2008 states that.”

Given the revenue inadequacy which will now be funded by the subsidy in the first three years of the MYTO, the shortfall between the obligated payment and actual revenues collected, will be met by the Government monthly.”

In the event of revenue shortfalls from DISCOs, the Bulk Trader was expected to use its capitalisation to bridge the revenue shortfall and ensure GENCOs and other market participants are paid in full for power generated.

NBET overtime, has been deficient in meeting its obligations due to under-capitalisation. Consequently, NBET sought to issue a N300 billion medium-term note (MTN) with an embedded risk guarantee from the FG to enhance its capitalisation but was rebuffed by the National Assembly in April 2016.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and, with over a decade long experience in the global financial market.

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Barclays Tell High Net Worth Investors to Shun Africa and Other Emerging Economies



Barclays Bank

Barclays to High Net Worth Clients, Stay Off Africa and Other Emerging Economies

Barclays, one of the world’s largest investment banks, has started advising high net worth clients to stay off Africa and other emerging economies.

According to Barclays, despite the recent recovery noticed in emerging-market stocks, investors are better off avoiding the risks that still abound in emerging nations. Barclays Plc, however, advised high net worth clients to focus on U.S equities despite the S&P’s breakneck rally.

The investment bank said emerging economies do not have enough fiscal buffers to spend their way out of the COVID-19 pandemic and will likely continue to struggle in the near-time compared to the US with 12 percent of gross domestic product fiscal-support.

It said the huge US stimulus may halt rebound in emerging-markets stocks as more money is expected to flow into the world’s largest economy and its European counterparts.

“Compared to the U.S., emerging-market economies appear more vulnerable,” said Haider, the London-based managing director and head of global growth markets. “Their central banks have less room to maneuver, their governments may not be able to provide unlimited support and equity markets, given their sector mix, can be more challenged by an economic slowdown.”

Barclays added that even after 33 percent rebound in stocks of emerging markets since the panic selloff subsided in March, stocks are still down by 9 percent from year-to-date while the US S&P 500 stocks are up by 45 percent. Presently, their stocks trading at a 36 percent discount to US stocks, up from 25 percent three months ago.

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Crude Oil Rises to $43.1 Per Barrel on Production Cuts Extension



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  • Crude Oil Hits $43.1 Per Barrel Following OPEC’s Production Cuts Extension

Brent crude oil, against which Nigerian oil price is measured, rose by 1.25 percent on Monday during the Asian trading session following OPEC and allies’ agreement to extend crude oil cuts to the end of July.

OPEC and allies, known as OPEC plus, agreed to extend production cuts of 9.7 million barrels per day reached in April to July on Saturday.

In the virtual conference, delegates agreed that members, including Nigeria and Iraq presently struggling to attain a 100 percent compliance level must keep to the agreement or be forced to do so in subsequent months.

Nigeria, Iraq and others failed to keep to the cartel’s agreement in May after reports show that Nigeria only managed to attain a 19 percent compliance level during the month while Iraq struggled to attain just 38 percent in the same month.

Russia and Saudi Arabia, the two largest producers of the group, warned members to stick to the agreed quota if they want to rebalance the global oil market.

While the errant producers such as Iraq and Nigeria have vowed to reach 100% conformity and compensate for prior underperformance, we still think they will likely continue to have some commitment issues over the course of the summer,” said Helima Croft, head of global commodity strategy at RBC Capital Markets.

The potential return of Libyan output could also cause considerable challenges for the OPEC leadership.

Earlier on Monday, Brent crude oil hits $43.1 per barrel, more than a month record-high, before pulling back slightly to $42.83 per barrel.

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Gold Dips by 2 Percent on Better Than Expected Job Report



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  • Gold Dips by 2 Percent on Better Than Expected Job Report

Gold prices declined by 2 percent on Friday following a better than expected US non-farm payroll report.

The report showed an increase of 2.5 million payroll numbers against a decline of 7.5 million predicted by many experts.

The surprise number boosted investors’ confidence in US recovery as many dumped their haven investment (gold) for the stock market.

“We had significantly stronger-than-expected U.S. payroll numbers – an increase of 2.5 million versus an expectation of a decline of 7.5 million – that 10-million swing has brought forward expectations of the economic recovery in the United States,” said Bart Melek, head of commodity strategies at TD Securities.

Spot gold immediately declined by 1.9 percent per ounce to $1,678.81 while the U.S. gold futures slid 2.6 percent to settle at $1,683.

Gold was also being pressured by stronger yields and a slightly firmer dollar, “meaning the opportunity cost to hold gold in the portfolio has gone up,” Melek added.

The surprise didn’t stop there, US Dow Jones was up 614 points despite the protest going on the US and US-China tension.

Also, NASDAQ rose by 29 points while the S&P index added 50 points increase.

Note: Investors generally increase their investments in gold and other haven assets during a crisis to avert risk exposure and do the opposite once they sense a better economy.

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