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286
News & Happenings / Austerity - Realities, Fallacies Behind the Alarm
« on: December 08, 2014, 08:55:43 AM »
Nigeria's Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, on Sunday November 16, while unveiling measures designed to mitigate the negative impact of the falling global oil prices on the nation's economy, gave a succinct picture of what lies ahead.

Without mincing words, she said, "The drop in oil prices is a serious challenge which we must confront as a country," adding that Nigerians must be prepared to "make sacrifices where necessary".

Trully, the oil price dropped to $69 per barrel from $77 as at Wednesday, with the possibility of dropping even as low as $60 per barrel before the end of the year.

With the benchmark for the 2013 budget put at $78 per barrel, the handwriting was clear on the wall that hard times are ahead if the steep fall of the oil price persists. This trend has already seen the Federal Government consider an 11per cent downward review of the 2015 Budget benchmark to $65 per barrel, from the earlier $73 per barrel.

For Nigeria, whose economy is largely driven from oil proceeds, this prediction poses a major threat, hence the need to cut down on expenditure.

Economic analysts have been far from satisfied by the way the government has been run, saying they have not been prudent enough at all levels, hence have been unable to save for the rainy days. The obvious consequence, they say, is the inability of the government to prevent the external reserves from being depleted, and its inability to cushion the effects of the drop in oil price.

Okonjo-Iweala, however, expects the government to take the lead in making such sacrifices by tightening its belt and reducing government expenditure to avert austerity, being the consequence of the dwindling oil price. Among the austerity measures listed by the minister is the restriction on international travels in the public service.

According to her, foreign trips by public officials will be permitted only when they become compellingly, while local travel will also be curtailed drastically.

Not done, she said that the government has started compiling the list of luxury goods with the aim of increasing revenue from non-oil sectors.

But, she was quick to douse fears, assuring that the austerity measures will not affect salaries of public sector workers as well as key initiatives in education, health and other critical areas vital to the development of the country.

However, one of the significant measures taken by the government is the devaluation of the naira by the Central Bank of Nigeria (CBN) by 8.4 per cent from N155 to N168, raised the benchmark interest rate (Monetary Policy Rate) from 12 per cent to 13 per cent, and increased the Cash Reserve Ratio of private sector deposits in banks from 15 per cent to 20 per cent

This move, announced by the Monetary Policy Committee (MPC), the CBN says is aimed at strengthening the nation's economy in the wake of the dip in oil prices.

Notwithstanding, the business community across the country, especially in Lagos, is apprehensive of the effects the austerity measures and the devaluation of the naira would have on them.

Already, there are complaints from financial institutions suggesting that the oil price crash is hitting the economy as much, just as the devaluation is taking a huge toll on the real sector.

Experts are also worried that the current devaluation of the naira could impact more on the masses and small and medium scale enterprises than the financial industry as the full ripple effects of the current devaluation eventually unfolds in the economy.

While some financial experts believe the situation is critical and could spell doom for the nation's economy, others are of the view that the period is not a lost course, but one that affords the nation an opportunity to retrace its step and put its economy back on track.

For the Nigeria Union of Petroleum and Natural Gas Workers (NUPENG) the adoption of austerity measures by the federal government to cushion the effect of sliding global oil price is unnecessary.

President of the union, Achese Igwe, is of the opinion that the FG should have been prepared long before now for any shock to the nation's economy, submitting that the measures are a ploy to further pauperise the downtrodden masses of this country.

http://allafrica.com/stories/201412080099.html?viewall=1

287
For the Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, dwindling revenue occasioned by falling oil prices have provided a window of opportunity for Nigeria to take difficult decisions for future gains. Fielding questions from Ndubuisi Francis just before her ministry resubmitted the Medium Term Expenditure Framework (MTEF) to the National Assembly with a lower oil benchmark of $65 a barrel, the minister said, although the times will be tough, appropriate measures are being taken to stabilise the economy.

Don't you think that the budget benchmark (even with the revised budget benchmark of $73/barrel), which the executive arm of government has submitted under the MTEF is still too ambitious, given the trajectory of oil prices? I know the size of government can be daunting in terms of meeting its obligations, but isn't there a way we could sit down with state governments to reach a compromise on how to bring down the budget benchmark?

Thank you very much for the question. That is the crux of the matter. If you recall, I had always said as recently as three, four days ago that we have a central scenario around the reduced budget benchmark of $73 because when we talked to a lot of analysts, and the Director General, Budget Office is here, we got ranges of $60 to $85. And so, we took a mid-point and that was the $73. But we have always been clear that the price could certainly fall lower, and that's why we took this scenario-based approach. I have said openly that we have done a scenario benchmark around $70, we've done $65, we've done $60, and we will kick those scenarios in as the situation evolves. So, yes, we have looked at it and we decided that we are going to propose a lower benchmark than what we had, short of $70. In this regard, we have sent the proposal to Mr. President, and we have been going back to the National Assembly as the situation evolves. We have been prepared, that's why the turnaround has not been that long from $73 to where we are going now.

To what extent does this affect the ability of the executive to present the budget since the MTEF has to be approved by the National Assembly before you present the budget and with elections around the corner, only God knows when the budget will be approved? Well, we have to commend the National Assembly because they've been very collaborative with us. Also, I think this time people see the situation the country is in and we are in it together. You would recall that the other time when we had to revise, they quite understood and asked us to bring it. Similarly, what we've been doing is that we've not been waiting. To take the kind of approach we took, it means that we were already preparing the budget, so we will have the central budget. And we said if oil goes to this price, what are the costs; what are the new revenue regime measures and we will address them, etcetera. That makes it easier to just pick up and then move in and bring in those scenarios. We are hoping to have the budget pretty soon, and we hope to send it to the National Assembly in the not-too-distant future.

In the area of economic diversification, apart from increasing the revenue stream, there are some low hanging fruit that Nigeria can turn to, such as getting our refineries fixed so that we start exporting petroleum products. We also know that Nigeria is more of a gas-endowed country than oil, and then there are the Liquefied Natural Gas (LNG) projects that have been kept in abeyance. I know this is not your field, but you are still the Coordinating Minister for the Economy. Why is it that we have not been able to get our gas projects off the burner, get our existing refineries fixed and created the environment for investment in new refineries?

Well, the technical ministry responsible for this would really be the best people to respond to you; but let me answer you this way: First of all, we realise the issue of refineries is important, and something very important happened. One of our private sector persons, Aliko Dangote, decided to build a refinery, and I think by the time it is built, it will probably take care of whatever capacity we need. It is better rather than the government venturing again into the business of building refineries or again saying we are going to repair the existing ones that we have repaired so many times. Having the private sector coming in and invest their money and to build refineries; I think it is the appropriate thing to do. And so, with that now on the cards, I think that's what we are waiting for and Mr. Dangote is going to do this with a full petrochemical complex. I think it's better for us. He is investing $9 billion, which he has raised. So I don't think government should again go into that business but allow the private sector to do it. You recall he (Dangote) is not the only one. There is a modular refinery that is being built in Anambra State by Orient Refinery and I think they are sourcing for the last bit of capital to be able to complete it. So we may indeed see not just that one but one or two other refineries by the private sector.

But they are doing that in a sector that is still partly regulated...

Well, we will see what happens as we go forward. Oil prices are falling, and we see the trend going downwards. Let us see where it goes. The trend is downwards, for sure. So when the market settles and clears, we will then see whether this will be a profitable business. I am sure that people like Mr. Dangote will not go into it if he is not going to make the margins. Profit remains good because they work on margin spread between the cost of crude and the added value, and if anybody is going into that business, one of the things he will be looking at is if I land it here, who will buy it from me? And they will definitely get the market here in future. I believe that whatever the international price is; the value they will be adding is where they will be making some extra. A refinery is a volume business. The margins are very thin, but then, it is a volume thing. That's why I think he is building a complex and a big refinery so that you get the requisite volume. As for the gas projects, I think that the gas master plan has been delivering in its own quiet way. Obviously, we need to do more and faster with that, but we have commenced this journey of being a gas economy with these gas projects lined up. The first thing is for us to use our own gas domestically, and I think that they are focusing more on that. If you asked me what we need to do to make it, the Sovereign Wealth Fund (Nigeria Sovereign Investment Authority) has had access to some resources from the Eurobond to co-invest with the private sector. They got about $200 million that they are managing for co-investment. Some private sector investors indicated that they wanted to build a gas pipelines and other infrastructure. However, the problem is with gas infrastructure, and that's what we really need to build on. We also think that it is a good way to go, so it is not just government building but encouraging as many public-private partnerships and IPPs as possible. So they are starting with that and more resources. I think the Ministry of Petroleum Resources has a little bit of money with which they will work on the gas pipeline and so on.

But the problem with domestic gas is the fiscal regime. It is the fiscal regime that attracts investment to the sector for investment in gas infrastructure.

No, it's both-the infrastructure and fiscal regime. The fiscal regime, everybody agrees, needs to be fixed, and Nigeria is operating a regime that has both. There are some private sector people who are getting the gas at market clearing prices and there are others who are subsidised. Even within here, there are companies that are purchasing the gas at market prices. They just want to be sure of the supply. Already, within the country, we have a fiscal regime that is partially working between private sector to private sector - the private sector is delivering gas to other private sector participants at market clearing prices. So I think we just need to make the overall regime conform with prices that can attract investors; you are absolutely right about that. If the overall regime improves, then more people will be attracted, but it seems to me that within the same country, we have two regimes existing side by side and we need to really move to a regime where the prices are market clearing prices.

The cargo sheds at the Murtala Muhammed International Airport Lagos were closed for almost two weeks. As such, inbound cargo was diverted to neighbouring countries leading to loss of revenue at a time Nigeria is in dire need of revenue from other sources in the face of dwindling oil prices. We hear the customs controller who was said to be at the centre of this development was given a slap in the wrist by a mere redeployment. Do you think this is enough sanction for such impunity?

I don't want to comment on that because the customs Comptroller General is coming to see me tomorrow (last Wednesday) to discuss and explain to me exactly what happened, and why these customs sheds were closed, and what is being done about it. I can't comment on this now. I've just sent for him, he's going to come and see me tomorrow to explain the whole situation. Until then, I don't think I want to jump in and pre-judge. I want to listen to all sides of the story.

This government has spoken so many times about consolidating and rationalising a lot of its MDAs. The Oronsaye report was concluded and statements were issued telling us that some MDAs would be rationalised. There was even a focus recently on those in the aviation sector. What has happened to all these? Moreover, there is linkage between the cost of governance and the high budget benchmark determined by government.

I want to correct one thing: First of all, the executive has never wanted to peg the budget benchmark. We have consistently argued for a reasonable budget benchmark, and for as much savings as we could have. And it's clearly on record that time after time, when we brought the budget, we suggested a reasonable benchmark. That is why we had floated the idea that this country needs an independent mechanism for taking the benchmark. And we should still go for that. You would recall the debate of 2012 when we put it out there and said we should not be emotional, so we could find something that both the executive and legislature can be comfortable with. That being said, the country has a history. Let us just go back to 2010 when there was a 53 per cent salary increase. It is not common for a country to see a 53 per cent increase in wages and salaries in one year. Prior to that, we also had increases for ASUU (Academic Staff Union of Universities) and for doctors. So there was that large increase in our wage bill. At that time, the sentiment was yes, this needs to happen and it did. That time, the country even actually had to borrow to pay because resources were not available after the increase had been effected. The wage bill therefore went from N827 billion to N1.7 trillion, and now, it is well over N1.8 trillion, so in four years, it more than doubled. People today are shouting about the high cost of governance, yet when the demand for wage increase was going on, I did not see that much of a debate to caution the government to hold back. Sorry I have to put it on the table, with all due respect particularly because I was at the World Bank at that time and I actually wrote a speech protesting about this. So it is a very sore point with me to now hear people talking about the high cost of governance. Where was everybody when this was being done; all those who are now protesting should have come out with their banners saying government shouldn't do this. Having done that, you are faced with that reality. Once you have taken that step, it is always difficult to roll it back and tell people you can no longer earn that. So that is the problem we face. And facing that, you know we need to take some steps. Obviously from day one, when we came into this government, we said look, it's really not acceptable that the country's recurrent expenditure continues to take the bulk of the resources, and it could be worse in this time of crisis because with diminished resources (wages are fixed cost and you have to pay). By the time you take the whole of those fixed costs, there will be very little left for other expenditure. So you are right, we should look at the Oronsaye report. I think the executive did look at it-the president looked at it. There was a list recently of MDAs, commissions and committees that need to be taken off the budget. But quite a few of those MDAs and commissions are underpinned by one law or the other and I know when we talked about it, the National Assembly said we could not close them without repealing the underpinning laws. For example, there is one we have been battling with for years without a repeal of the law. So I think that now that we are where we are, you raised a very vital issue. I think we have to bite the bullet. We totally subscribe to what you are saying. We have to look at those agencies that are duplicating efforts. Some analyses have been done and there has been a white paper on which ones are duplicating efforts. Those are the ones we have to act on. Mark you, we have to also remember that there is a cost to it because when you close some of these agencies, you have got to put aside resources to pay off the staff. But I think that it is something the nation needs to look at and take those steps because in the long run, this will pay off. Remember, we have said in taking care of the situation, we have some immediate measures to take on and some low hanging fruit. But we also have some medium term measures and I believe that the closure of some of these agencies and merge of others is what we need to set on that path. I think during the MTEF of 2015-2017, we should use that as the period to do this work and all Nigerians have to unite because if you want to close a certain agency, what will stall the whole process is when you see people carrying placards. People will start saying government is wicked, there is no employment; they want to lay people off. So there has to be a social contract or a social compact that for the country to move forward, some of these steps need to be taken. However, we need to open up other areas where our youths can be re-absorbed; even for those from some of the agencies who can also be reabsorbed productively. But to put a barrier and say you can't touch them at all, it will be very difficult. Also, the legislation underpinning the establishment of the agencies needs to be repealed, which the executive cannot do. As such, we will need all the cooperation of the National Assembly, and they have said to us, bring forth the list. So I hope we will be able to do that in the medium term.

Speaking about recurrent expenditure, the government tried about three years ago to remove the subsidy on petrol but met stiff resistance. At this period that we now have falling oil prices, don't you think this is the appropriate time to go about it?

Well, this is a decision that Mr. President and the governors and the states and everybody - all Nigerians - actually have to take together. But you see; there is already a natural diminution of the subsidy element: As the price goes down, that amount goes down by itself and if it continues, the subsidy is being wiped out. Look at the MTEF we submitted at the price of $73, you see that subsidy was already half of what we had when it was $78. And now, as we go down, it will be wiped out by itself. So let's just see how oil prices are faring and see what we can do. Let's wait for the natural forces and see what happens.

Somebody said if oil prices fall to $65 per barrel, there will be no subsidy...

We are doing the analysis now to be ready when it comes to that, but let's wait. I think the states are equally involved. The states Commissioners for Finance have been talking about it and I would expect that the states should also take a position. The petrol stations are located in the states and people buy petrol where they live. The states (Commissioners for Finance) have said at every FAAC (Federation Account Allocation Committee) that they are ready to come out and tell the country. But let's watch the natural process also unfold.

Read more at http://allafrica.com/stories/201412080297.html?viewall=1

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The Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) has concluded plans to embark on a three-day warning strike in protest against the delay in the passage of the Petroleum Industry Bill (PIB) and other anti-labour activities of employers in the oil and gas sector.

The warning strike follows the expiration of the 14-day ultimatum issued by the National Executive Council (NEC) of PENGASSAN to the federal government and other concerned employers' and agencies in the sector.

It said the ultimatum had since expired without any meaningful resolution or commitment from either the government or the concerned employers' and agencies at resolving the issues.

A statement issued by the oil workers union said all organs of the union have been fully mobilised for the industrial actions that will affect every value chain in the upstream, midstream and downstream oil and gas industry.

The anti-labour activities listed by the oil workers include, retardation of staff promotion in the Petroleum Technology Development Fund (PTDF), non-standardisation of nomenclature and collective bargaining agreement of the Nigerian Nuclear Regulatory Agency (NNRA), in line with what obtains in other agencies in the oil and gas industry, refusal of the management of Addax/Petrostuff Nigeria Limited and Chevron/Sudelletra to recall sacked staff, Petrobras managment unprocedural release of staff and its refusal to renew expired collective agreement and the unjust termination of appointment of the Port Harcourt Zonal Secretary and Treasurer of PENGASSAN and NUPENG respectively.

Other issues are the perilous state of the nation's strategic and industrial roads and highways, non-beneficial deductions of National Housing Fund (NHF) from our workers, un-abating measures of addressing pipeline vandalism and crude oil theft, and divestments by International Oil Companies (IOCs) without clear guidelines to check the resultant arbitrary job losses and heightening insecurity of members/families in the troubled parts of Northern Nigeria.

The union noted that plans are at the final stage with its sister union, the Nigerian Union of Petroleum and Natural Gas Workers (NUPENG), to mobilise members for a nationwide industrial actions that will disrup operations in the oil and gas sector until the federal government show genuine intention to earnestly attend and resolve the issues of industrial dispute.

The union explained that the purported termination of the appointment of its Port Harcourt Zonal Secretary, the NUPENG Zonal Treasurer was an ill-conceived act of victimisation by their employers and which the NNPC, Federal Ministries of Petroleum Resources and Labour and Productivity, the Department of Security Services (DSS), Department of Petroleum Resources (DPR) had advised their management against this act but they remained unbending.

On crude oil theft and vandalism, PENGASSAN alleged high level collaboration of the security agencies, politicians and highly placed Nigerians in the buccaneering racket of oil and gas installations, adding that the ugly trend signifies a looming extinction of the oil and gas industry with attendant job losses.

The association described the deduction from workers' salaries for the National Housing Fund (NHF) as sheer exploitation and demand that the deduction should be stopped forthwith, warning that it would resort to whatever necessary action it deems appropriate to protect its members from further exploitation of the non-beneficial policies that has serve no member's interest in the sector.

http://allafrica.com/stories/201412080395.html?viewall=1

289
Oando Energy Resources Inc. ("OER" or the "Company") (OER), a company focused on oil and gas exploration and production in Nigeria, today is pleased to announce the completion of the 45,000bbls/d, 51km Umugini pipeline. The pipeline will provide an alternative evacuation route for crude oil produced from the Ebendo Field through the Trans Forcados export pipeline.

Following the successful drilling of Ebendo wells 5, 6, and 7 over the past 12 months, oil production capacity within OML 56 has grown to 7,140boepd gross for OER and Energia Limited the operator of the asset (3,052boepd net to OER). However, export had been constrained at 3,093boepd (1,322boepd OER Share) via the Agip operated Kwale-Brass NAOC/JV infrastructure, in which OER currently has a 20% interest through the recent $1.5Bn acquisition of ConocoPhillips Nigerian Oil & Gas Business. The completion and commencement of operations on the Umugini pipeline ensures that the Ebendo field can now produce at its full capacity.

Commenting, Pade Durotoye, CEO Oando Energy Resources said: "The completion of the Umugini pipeline now allows us to maximize the value of our investments to date on the asset and provides the latitude for further profitable development of prospects and resources identified in Ebendo".

Ebendo is located onshore, in the central Niger Delta approximately 100 km north-west of Port Harcourt and covers an area of 65 km2 (16,062 acres). The License includes two fields, Ebendo (producing) and the Obodeti field (undeveloped). Oando Energy Resources holds a 42.75% working interest on the field.

About Oando Energy Resources Inc. (OER)

OER currently has a broad suite of producing, development and exploration assets in the Gulf of Guinea (predominantly in Nigeria). OER's sales production was 14,909 boe/d in the first nine months of 2014, with only 61 days of production from OMLs 60 - 63 attributed to this period. However production from OML's 60 - 63 has contributed an average of 46,858boe/d for the 61 days from July 30, 2014 to September 30, 2014.

Cautionary Statements

Oil and Gas Equivalents

Production information is commonly reported in units of barrel of oil equivalent ("boe" or "Mboe" or "MMboe") or in units of natural gas equivalent ("Mcfe" or "MMcfe" or Bcfe"). However, boe's or Mcfe's may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf = 1 barrel, or a Mcfe conversion ratio of 1 barrel = 6 Mcf, is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Readers are cautioned that boe may be misleading, particularly if used in isolation.

Forward Looking Statements:

This news release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are intended to identify forward-looking information or statements. In particular, this news release contains forward-looking statements relating to intended acquisitions.

Although the Company believes that the expectations and assumptions on which such forward-looking statements and information are reasonable, undue reliance should not be placed on the forward-looking statements and information because the Company can give no assurance that such statements and information will prove to be correct. Since forward-looking statements and information address future events and conditions, by their very nature they involve inherent risks and uncertainties.

Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to: risks related to international operations, the integration of assets acquired under the COP acquisition, the actual results of current exploration and drilling activities, changes in project parameters as plans continue to be refined and the future price of crude oil. Accordingly, readers should not place undue reliance on the forward-looking statements. Readers are cautioned that the foregoing list of factors is not exhaustive.

Additional information on these and other factors that could affect the Company's financial results are included in reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com) under the Company. The forward-looking statements and information contained in this news release are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

SOURCE Oando Energy Resources Inc.

To view this news release in HTML formatting, please use the following URL: http://www.newswire.ca/en/releases/archive/December2014/04/c8096.html

290
Nigeria has slashed the oil price assumed in its 2015 budget by 11 percent to $65 a barrel from $73, in light of lower world oil prices, a Finance Ministry spokeswoman said on Thursday.

It was the second time in a month the benchmark has been cut, after initially being lowered from $78 a barrel.

Other oil exporting countries including Russia and Mexico have said they expect oil prices to be lower next year than assumed in their budgets, which may be revised.

The spokeswoman gave no further details but said Finance Minister Ngozi Okonjo-Iweala was working on a statement. No time was given for when the statement would be issued.

Nigeria depends on oil for around 75-80 percent of government revenues and its finances have been hammered by a steep drop in oil prices since June.

Its oil money is distributed between three tiers of government -- local, state and federal, with the federal portion being used to fund finance ministry budgets, along with tax receipts. The budget assumes a benchmark price that is usually conservative, so money over and above that is deposited into an oil savings account to cushion against shocks.

The minister has often wrestled with parliament to keep the benchmark low and accumulate more savings, but the Excess Crude Account (ECA) is all too easily raided for spending. It has declined by billions of dollars to around $4 billion over the past two years even while oil prices were at record highs.

The allure of Africa's biggest economy to foreign investors has been growing, especially for buyers of its attractively priced debt, but they worry about its tendency to squander its oil windfall in bloated government spending and patronage.

Nigeria's central bank devalued the naira by 8 percent and raised interest rates sharply last week, as it sought to stem losses to its foreign reserves from defending the currency against weaker oil prices..

The naira has consistently tested the lower end of the new band.

Okonjo-Iweala has said Nigeria still has funds to pay salaries and keep debt obligations but with crude likely to fall, the government would increase taxes on luxury items and ban non-essential government travel to cut expenditure.

http://www.reuters.com/article/2014/12/04/nigeria-budget-idUSL6N0TO1X820141204?rpc=401

291
News & Happenings / Oil slump: Do we have Plan B?
« on: December 04, 2014, 03:46:14 PM »
Ever since Nigeria commenced oil exploration in 1958, experts have warned the nation against over-dependence on the oil revenue. Unfortunately, the advice was not heeded till today, and oil revenue is the mainstay of the economy and generates 70 per cent of government revenues. However, as oil prices decline, the country now seeks quick fix measures to cushion the effects of the revenue being lost as a result of the slide. As the country had no plans for diversifying the economy in the first place, the negative effect of the quick fix measures is that the masses are likely to bear the burden arising from the lost oil revenue.

During the Gulf War, the country derived $12.4bn from oil windfall. However the then Head of State, Ibrahim Babangida, and his collaborators failed to account for how the money was expended. Regrettably, despite being the subjects of legal actions by civil society organisations which urged the court to compel Babangida and accomplices to account for the windfall, the court dismissed the suit on technical grounds, with the result that no one has to date been held accountable for that sum. In some jurisdictions, the former Head of State and his collaborators would probably be languishing in jail for their action or inaction.

Yakubu Gowon, a former head of state during the civil war (1967-70), was once quoted as saying “Nigeria’s problem is not money, but how to spend it”. Really? Even when he tried to defend this statement, the defence lacked substance and unfortunately today, money is Nigeria’s problem, such that the Minister of Finance and the Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iweala, has warned Nigerians to tighten their belts in the coming days. Attempts are being introduced by the government as palliatives to resolve the impending doom. These include: changing the oil price benchmark in the 2015 national budget from the earlier $78 per barrel to $73; review of the Medium Term Expenditure Framework; cutting of excesses in the civil and public services; strict management of all parastatals as well as addressing overlapping responsibilities of agencies and parastatals; boosting non-oil revenues; plugging loopholes and wastages; cutting unnecessary expenditures; and increasing taxes on luxury goods. We must commend the minister for not succumbing to the temptation of printing and introducing more naira into the economy, as even the “market woman” knows the ripple effect of doing so. Also, the government must not dip into its Excess Crude Account or external borrowing as options for alleviating the problem likely to arise from the reduced revenue. The question which however needs to be answered is why did the various governments in Nigeria wait until now to take these measures?

The reality is that supply of oil has exceeded its demand and unfortunately this is where Nigeria and other oil producing countries find themselves. While the Organisation of Petroleum Exporting Countries tries to come up with solutions to address this reality, some of its members are not doing much to help the situation as they resist calls by OPEC to cut down oil production in order to prop up price. As recently as November 27, 2014, a cartel of oil producing countries comprising Saudi Arabia, Iran, Iraq, and Venezuela met in Vienna to discuss ways forward but in the end, the cartel couldn’t agree on how to respond and did nothing!

I am not so worried about other oil producing countries as many already have their Plan B in place in case prices continue to slide or their oil production oil dries up. The United Arab Emirates and Saudi Arabia have alternative sources of national revenue. For the Saudi Kingdom’s alternatives include other natural resources such as iron ore, gold, and copper. The UAE has invested significantly in tourism, trade and the retail sector, and overseas investments which support the economy. Is that not part of their Plan B? Do we have malls in Nigeria that can match what we have in Dubai? How many citizens of other OPEC countries come to Nigeria to shop?   Former President Hugo Chavez transformed Venezuela with their petrodollars. I was perplexed when I visited Malaysia in 1996 at a workshop hosted by PETRONAS, their version of our NNPC, who built twin towers among the tallest buildings in the world then. PETRONAS sponsored so many projects in the country including construction of rail lines, modern airport, etc.   Where did our petrodollars go? What do we remember our own NNPC for?

America is one of the top buyers of Nigerian oil. Kyoto XL Pipeline Project initiated by Canada and the USA will definitely change that equation. The 1,179-mile (1,897Km) pipeline would carry oil from Alberta, Canada, to the US state of Nebraska then to the state of Texas.   The aim of the project is to process heavy crude oil found in Canada so as to sustain America’s energy security and independence and replace imports from oil producing countries like Venezuela, Nigeria, and Saudi Arabia etc. TransCanada already invested $2.3bn and employed 4,844 Americans in this project. When completed, it has the capacity to carry 830,000 barrels of oil daily from Canada to refineries in the USA.

More hybrid trains and cars are built today in North America so as to limit oil imports from OPEC countries. In the coming days, expect more price slashes. More and more companies are encouraging working from home so as to use less fuels. ICT has made it easy to work from anywhere. Is Nigeria going to wait until she is told we no longer need your oil before thinking of diversification? We have not managed our oil revenue well and expect more austerity measures in the coming days. Nigeria, no doubt is the most religious country but not the most Godly, yet we failed to manage God’s gift to us.

What happed to the Steven Oronsaye committee report which advised us to prune down ministries and agencies? Why are so many graduates roaming the streets when there are less people to work on our agro-based sector?   What happed to Operation Feed the Nation initiated by the Obasanjo government?   Must every graduate take up white collar jobs? Why is government not providing the enabling environment for agriculture to grow?

Furthermore, the newly elected President of OPEC and the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, was also quoted saying, “Nigeria and other African countries will continue to be the net importers of petroleum products despite the availability of functional and quasi-functional refineries, and plans to build more refineries on the continent”.   When Nigeria continues to import finished petroleum products into the country, it depletes our foreign account and the needed jobs that would have been created are now gone elsewhere. The minister should use her position to stop importation of finished petroleum products into the country and stop the madness going on in the oil sector. This is what is expected of her.

Our political office holders should also be prepared for pay cuts, from the President to the councillors and not just pass the burden to the masses. This is what Nigeria needs to survive the downturn in the oil sector. The government must get serious with fighting corruption at all levels. It must also ban overseas medical treatment for all government officials without exceptions. Nelson Mandela died in South Africa and not in a foreign country because he believed in his country. The government must also ban all overseas training for government officials and begin to patronise local companies. It is not late for government to begin to think of investing oil money in some other countries just like the UAE and Saudi governments are doing. One thing is certain. Oil may not dry up in Nigeria but the demand will surely go down with time. Now is the time to think about diversification so that our unborn generations will see a better Nigeria. Not a Nigeria run by generators or a Nigeria without infrastructures or entrenched in corruption.

http://www.punchng.com/opinion/oil-slump-do-we-have-plan-b/?

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Alarmed by the fall inglobal oil prices, Petroleum Minister and President, Organisation of Petroleum Exporting Countries, OPEC, Mrs Diezani Alison-Madueke, has said that Nigeria needs to adopt a more strategic approach to sustaining the oil industry.

The oil minister, who addressed State House correspondents for the first time since her election as OPEC President last week, said the change of direction was necessary to enable Nigeria stay competitive in the dwindling international crude oil market.

Allison-Madueke warned that in order to stay afloat, Nigeria could no longer afford to do business as usual considering the prevailing decline in global demand for the product.

She said: “Nigeria has to become much more competitive at this time and going into the future. We cannot continue to do business as usual.

“We must ensure that we have the right enabling parameters and indices in this country to attract the right end-user markets and end-user demands for our products.

“This is because there are so many other countries that would be competing for those end user markets and to get that end user demand.

“So, we will have to sit down and re-formulate our entire approach over the next month or so. In fact, it should be immediately to ensure that we are at the cutting edge of competitiveness.

“We need to make ourselves competitive in the market, and we are able to garner and take those end user markets.”

…attributes her OPEC post to Jonathan

Reflecting on her recent election as the OPEC President, Alison-Madueke, said such recognition would never have been possible without her appointment as Petroleum Minister by President Goodluck Jonathan and praised him for the courage to do so in the face of daunting challenges.

She said: “First of all, it wouldn’t have happened if the President had not had the courage to appoint a woman into the portfolio of Ministry of Petroleum Resources, which meant that I now headed the country’s delegation to OPEC.

“I must say that was a daunting thing; it happened about three and half years ago. I went into a body, which is completely male-dominated and mostly Arab-dominated as well.

“But I have found that they have come to respect me and respect Nigeria’s voice over the last three years in OPEC very highly.”

…as OPEC president

The minister, who described her task as OPEC president as challenging, however assured that she would take necessary steps to stabilise global oil prices before anything else.

She said she would watch when it would be necessary to summon an extra-ordinary meeting of the body in order to consider appropriate strategies to shore up the market.

She explained that there had been a lot of differences among key oil players concerning what to do to bail out the market.

She said: “Quite clearly, there has been a battle of wills between certain OPEC countries, the big players and certain non-OPEC countries who are also big players in the world crude oil production markets at this time.

“Many countries, both OPEC and non-OPEC countries, are suffering immensely. Even as we speak Venezuela has gone into austerity measures and is rationing food because they were completely dependent on oil. Angola, Algeria and Iran are all under duress as is Nigeria because it has affected our budgetary benchmark. And even non-OPEC countries like Russia, who would not cut production, are already seeing a drop in the value of their Ruble.

“So, we will be watching very closely as president of OPEC at this time at what point we have to call OPEC Extra Ordinary meeting and reconvene to see whether other strategies can be put into play.”

- See more at: http://www.vanguardngr.com/2014/12/falling-oil-prices-business-usual-alison-madueke-warns/?#sthash.oNV7LROa.dpuf

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Newly-elected President of the Organisation of Petroleum Exporting Countries (OPEC), Mrs. Diezani Allison-Madueke has assured that she would use her new position working with other members of the oil cartel to work towards promoting Nigeria's interest.

She is also Nigeria's Petroleum Resources minister.

Meanwhile, there are fresh indications that Nigeria's economy currently hit by sliding crude oil prices may also be contending with declining production of the commodity.

Although Nigeria has the capacity to produce 2.5mbp, this target is far below the reality on ground, as the country's crude oil production has not risen to two million barrels since the first quarter of this year.

This has been attributed to crude oil theft, low investment in exploration as a result of the delay in the Passage of the Petroleum Industry Bill (PIB) and insecurity in the Niger Delta area.

Emerging from her first Federal Executive Council (FEC) meeting since her election last week, Allison-Madueke, instantly turned a heroine and was mobbed by her other colleagues in the body as they took turns to embark on photo sessions with her.

She later told State House correspondents that, not withstanding the current glut in crude oil in the global markets, Nigeria stood to gain a lot from her tenure since she was now in a position to influence certain decisions in favour of the country.

But the minister thanked President Goodluck Jonathan for his belief in her ability to steer the ship of the Petroleum Resources Ministry, which enabled her to have led powerful delegations of Nigerian officials to the conference.

According to her: "First of all, it wouldn't have happened if the President had not had the courage to appoint a woman into the portfolio of Ministry of Petroleum Resources, which meant that I now headed the country's delegation to OPEC. I must say that that was a daunting thing, it happened about three and half years ago when I went into a body which is completely male-dominated and mostly Arab-dominated. But I have found that they have come to respect me and respect Nigeria's voice very well over the last three years in OPEC.

"The position of presidency some years ago was administratively made rotational but OPEC ensures that it must still elect; therefore it states very clearly that 'we have elected' Diezani Allison-Madueke or whoever happens to be the President for that year into the position of the presidency of OPEC. And the reason in the constitution is very clear that it is elective because it reserves the right to reject any minister, head of delegation or person put forward by their country whom OPEC feels is not of the right capabilities and experience and level to seat as OPEC President.

"Because OPEC Presidency is highly influential and it is in fact a high ranking position to that of the Secretary-General of OPEC. It is the OPEC President that seats as chairman of all OPEC conferences at all times during that year. It is the OPEC President that calls for extraordinary meetings of OPEC‎ which will possibly happen in the next quarter of next year if the downward trend in crude prices continues among other things and responsibilities that the Presidency has today.

"This is a very challenging time as you know for OPEC and for the global crude oil wells as a whole. Quite clearly, there has been a ‎battle of wills between certain OPEC countries, the big players and certain non-OPEC countries who are big players in the world crude oil production markets at this time.

"So it is a challenging time to take over as OPEC President‎ at this time and our prayer of course is that we will be able to stabilise the crude oil prices per barrel over this period because it is critical. As many countries both OPEC and non-OPEC countries are suffering immensely.

"Even as we speak Venezuela has gone into austerity measures and is measuring food because they were completely dependent on oil. Angola, Algeria, Iran are all under duress as Nigeria because it has affected our budgetary benchmark. And even non-OPEC countries like Russia who will not cut production are already seeing a drop in the value of their rubble.

"So it is quite impactful on OPEC prices and what OPEC does in the global oil market. And so we will be ‎watching very closely as president of OPEC at this time at what point we have to call OPEC Extra Ordinary meeting and reconvene to see whether other strategies can be put into play."

She added that as OPEC President, she was now empowered to call together the entire body at points where they are critical impact in the market‎ from the price of the barrel and in this case the downward trend of the barrel of oil.

Asked what specific proposals she would put on the table as OPEC President‎ to ensure Nigeria did not really encounter serious crisis as a result of the glut in the international oil market, Allison-Madueke said: "Most certainly, quite clearly Nigeria has to be much more competitive at this time and going into the future.

"We cannot continue to do business as usual. We must ensure that we have the right enabling parameters ‎and indices in this country to attract the right end user markets, end user demand for our products because they are so many other countries that would be competing for those end user markets and to get that end user demand.

"So we will have to sit down and reformulate our entire approach over the next month or so, in fact, immediately to ensure that we are in fact at the cutting edge of competitiveness, we make ourselves competitive in the market and we are able to garner and take those end user markets."

Economic experts who spoke with The Guardian believed that there was need for the Federal Government to reduce the production figure to 2 .0 or 2.1mbd on the average and slide the 2015 budget benchmark to less than $60 a barrel.

For instance, the second quarter report of the Central Bank of Nigeria (CBN) put the country's crude oil production, including condensates and natural gas liquids, at 1.91 mbd or 173.81 million barrels (mb) in the review quarter, same level as in the preceding quarter.

The CBN said that crude oil production however, fell by 1.0 per cent, compared with the level in the corresponding period of 2013.

It said that crude oil export was estimated at 1.46 mbd or (131.4 million barrels) in the review quarter, same as the estimated level in the preceding quarter.

According to the CBN, despite the government efforts to curb incessant crude oil theft in the Niger Delta region, the menace has continued to dampen crude oil production.

Corroborating CBN's report, OPEC hinted that Nigeria produced 1.9 mbd in the month of October, representing 56,000bpd decrease from the previous month report.

Specifically, the country produced 1.898mbd in first quarter of this year, 1.894mbd; and 1.947mbd in the second and third quarter of this year respectively.

This decline, OPEC disclosed affected its general crude oil production in the month of October, which stood at 30.25mbd.

Analysts believe that if OPEC does not curb production, crude oil price may drop to as low at $50 per barrel, which is far below the Nigeria's budget benchmark of $73 per barrel.

This will make it tougher for independent producers to launch new drilling projects because they rely on high returns to finance the costly penetration and oil harvesting in those formations.

Already, the Energy Information Administration (EIA) made significant changes to its forecast global oil balance for this month's Short Term Energy Outlook (STEO).

EIA expects that global oil markets will be looser than projected in last month's STEO, as global oil supply outpaces consumption by a larger amount, resulting in a global stock build of 0.4 million bblpd in the fourth quarter of 2014 and a build of 0.4 million bblpd in 2015.

Specifically, EIA estimated that OPEC crude oil production averaged 29.9 million bblpd in 2013, a decline of almost 1.0 million bblpd from the previous year, primarily reflecting increased outages in Libya, Nigeria, Iran, and Iraq, along with strong non-OPEC supply growth.

EIA expects OPEC crude oil production to fall by 0.10 million bblpd in 2014 and by 0.15 million bblpd in 2015. In last month's STEO, OPEC crude oil production was projected to decline by more than 0.4 million bblpd in 2015, but the projected decline was reduced based on a reassessment of Saudi Arabia's willingness to cut production.

Reacting to this development, Professor of Economics and Director, Centre for Petroleum, Energy Economics and Law, University of Ibadan, Adeola Adenikinju, said that just like the case with oil price, fall in oil production will impact significantly on the budget given the weight of oil in government revenue at all levels.

According to him, states and the local governments in particular will be worse hit by the shortfall in government revenue given the weak capacity for Internally Generated Revenue (IGR) in most of those in the lower levels of government. "Public servants, contractors and other segments of the economy that depend directly or indirectly on government will be affected. Furthermore, the economy will be impacted if government resorts to borrowing from the local economy. Interest rates, inflation and exchange rates will all be affected".

Stressing on the need for the country to improve on the budgetary process, he said: "In the past, analysis of the budget performance would be presented along with budget proposals to show the deviation between projected and actual values of the various budgetary items. The fact is that Nigeria crude oil production has been facing serious challenges internally and externally. Internally, investments in new explorations have not been expanding as expected. In fact, some International Oil Companies (IOCs) have scaled down their production activities. Externally, with the shale oil and gas revolution, the slump in Europe and slowdown in the pace of economic growth in China, then we need to be more conservative in oil volume exports projection."

Adenikinju believed that a production figure of 2 .0 to 2.1mbd on the average may be more realistic.

He stated: "Perhaps the government has some information on new oil wells that will come on streams next year and the production plans that the oil companies have submitted for 2015. However, given the current rate of oil theft, the immediate historical trend in actual oil production and global developments in the oil market, we should err on the side of caution. However, since we can do a lot more to control oil theft if the political will is there, and hopefully the political environment before and after the elections will not deteriorate, then it is possible to attain higher production level than we have this year in 2015."

He also urged the government to review the fiscal terms in the PIB to attract investment in the sector.

"The passage of the PIB is very critical to revive the exploration and production activities in the upstream petroleum sector. The uncertainty surrounding the fiscal terms in the PIB as well as other commercial terms that will influence exploration and productions in the oil sector are great disincentive to boosting oil production. We are in competition with a number of emerging oil producers in the Gulf of Guinea and other parts of the world.

"Crude oil is also competing with new forms of energy like shale oil and gas, and renewable energy. Hence, the incentives in the sector should reflect these new developments. There is also the need to encourage marginal producers and other indigenous producers to start or expand their production and exploration efforts. The oil producing communities' interests must also be factored into overall policy factors to reduce non-economic risks associated with oil exploration and production in the Niger Delta basin."

Adenikinju also emphasised the need for the government to diversify the economy to reduce uncertainty of crude oil price and production target challenges. Nigeria will survive.

"The current challenges with oil prices also have their own opportunities. In the short term, we will all pay the price for lack of fiscal discipline and wastes. For well over a decade we have benefitted from oil boom as oil prices have been an upward trajectory. Actual oil prices have consistently been above the budgeted price. We should have saved enough to cushion the effects of current slide in oil price. Hence, ordinarily we should not be feeling the impact of the volatility almost instantaneously now on our economy. There should have been some decent lag for the effects of fall in oil prices to be transmitted to the economy. But we have been largely prodigal and wasteful in my view.

Another economist who spoke with The Guardian on condition of anonymity, said that the country should be prepared for face tougher times as the price of crude would still drop further.

According to him, the price of crude oil is likely to drop further than its ability to rebound up to $100 per barrels.

He stated: "If you look at the rate at which the price of crude oil has been declining in the last few months, you will agree with me that we may be facing serious economic issues in this country than we are currently expecting.

"This is why it is necessary for the country to look for ways to begin to refine our crude oil in other to reduce the importation of refined products. Petroleum has been our mainstay, and we have allowed the easy money from oil to strangulate other cash cows like agriculture, solid minerals, tourism and many others. We have been running a mono-product economy, Nigeria must now diversify now."

http://allafrica.com/stories/201412040591.html?viewall=1

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News & Happenings / Oil Price Rises After Hitting Five-Year Low
« on: December 02, 2014, 09:28:56 AM »

Brent crude oil rose yesterday to above $71 a barrel, recovering from a five-year low it hit earlier as investors looked for a price floor after last week's OPEC decision not to cut production, reported Reuters.

According to Reuters, Brent hit a low of $67.53 a barrel, the lowest since October 2009, before rising 85 cents to $71.00 a barrel by 1154 GMT yesterday. U.S. crude was up $1.01 at $67.16 a barrel, having slipped to an intra-day low of $63.72, the lowest since July 2009.

"The market is still very much in panic mode," said Energy Aspects' chief oil analyst Amrita Sen. "Once we get over the panic, Brent prices will probably stabilise at around $65-80 a barrel in the short term. We can expect such volatility in the near future given the market had overshot to the downside."

Saudi Arabia, the most influential member of the Organization of the Petroleum Exporting Countries, blocked moves by some smaller producers to curb oil output in response to huge oversupply in world markets.

Oil lost more than 12 per cent after OPEC's decision last Thursday, the report said.

Data suggested the new price environment has hit fast-growing US shale oil production, the main driver of global production growth in recent years, with a 15 percent drop in permits for new wells in November.

"The market is still looking for a new equilibrium below $70 (a barrel), which is a little surprising given that with the current prices, much of the shale oil production in the US, or part of it, will be unprofitable," Commerzbank analyst Eugen Weinberg said.

With oil prices down about 40 per cent since June, the impact is being felt around the world as oil producers from Iraq to Nigeria revise 2015 budgets to reflect lower prices.

Slower-than-expected growth in China's manufacturing sector may add further downward pressure on oil.

"In the fourth quarter, oil markets have lost the support of both the invisible hand of the US Fed and OPEC," Petromatrix analyst Olivier Jakob said, referring to the Federal Reserve's move to phase out monetary stimulus for the US economy.

http://allafrica.com/stories/201412020232.html?viewall=1

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The naira weakened to a record against the dollar and the yield on Nigeria’s Eurobonds rose to an eight-month high as a slump in oil prices dimmed the outlook for Africa’s biggest crude producer.

The currency depreciated 2.9 percent to 184.05 at 2:20 p.m. in Lagos after falling to 184.51. Yields on Nigeria’s dollar July 2023 bond climbed 36 basis points to 6.11 percent, the highest on a closing basis since March 25. The yield rose above similar-maturity debt for lower-rated Kenya, an oil importer, for the first time since the Nairobi-based government issued its bonds in June.

Surging supplies in the U.S. amid limited demand growth has created a glut, helping send crude prices down 37 percent this year. Nigeria, Africa’s largest economy, relies on oil for 70 percent of government revenue and over 90 percent of export earnings.

“The momentum in the market is quite negative,” Samir Gadio, head of African strategy at Standard Chartered Bank Plc in London, said by phone. “If you talk to international investors, they are concerned about the exchange rate outlook because of weaker oil prices and fiscal issues.”

Brent crude weakened 0.1 percent to $70.05 a barrel after earlier falling to a five-year low of $67.53. The Organization of Petroleum Exporting Countries, including Nigeria, kept output targets unchanged last week even as price of crude heads for its worst year since 2008.

http://sunnewsonline.com/new/?p=93479

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News & Happenings / The Naira and its misfortune
« on: December 01, 2014, 04:25:30 PM »

President Goodluck Jonathan formally unveiled the redesigned commemorative N100 banknote on November 12.  Paradoxically, the banknote, meant to mark Nigeria’s 100 years as a single united nation, can only buy a small loaf of bread, insufficient to kill hunger pangs in a child.

Thirteen days after the launch, like others, the new banknote, which will be issued to the public later this month, lost eight per cent of its value against the dollar. That was after the Central Bank-led Monetary Policy Committee (MPC) devalued the naira.

The local currency has been devalued by 35 per cent in the  last 13 years.  The CBN in 2001 cut its value by 27 per cent, followed by the current eight per cent slash.

In a country stricken by 8.1 per cent inflation, one of the world’s worst; and declining foreign exchange reserves, now at $37 billion from about $42 billion a year ago, the last devaluation was the straw that broke the camel’s back.

Last Friday on Nigeria’s burgeoning black markets, it was valued at about N186 to a dollar. At the official market, the naira fell 2.1 per cent to N178.65 per dollar.

Many pundits said the naira’s fair value was N200 to a dollar. That confirmed the widely held view that it had indeed fallen from Olympic heights both at the interbank market (official rates) and at the black market.

Same day, the Brent crude oil dipped 3.7 per cent to $69.94 per barrel – its lowest ever since 2010, according to auction results. Nigeria’s oil receipts have between September and November 2014, decreased by 21.05 per cent from $5.7 billion to $4.5 billion due to the falling oil prices.
 
What the MPC did
The committee had at the MPC meeting of November 25, moved the midpoint of the official window of the foreign exchange market from N155/dollar to N168/dollar.

It also widened the band around the midpoint by 200 basis points from plus or minus three per cent to plus or minus five per cent.

The committee also increased the Monetary Policy Rate (MPR), the base lending rate, by 100 basis points from 12 to 13 per cent while the Cash Reserve Ratio (CRR) on private sector deposits also rose by 500 basis points from 15 per cent to 20 per cent. It also retained public sector CRR at its current level of 75 per cent. The CRR is a portion of banks’ deposits kept with the CBN.
 
Market forces react
Less than 24 hours after the CBN Governor, Godwin Emefiele, announced the devaluation, the price of household goods, including bread, wheat, fish and rice, among others, shot up by 40 per cent or more. The services industry was also affected. At the Marina Park in central Lagos, operators raised vehicle parking fee from N300 to N500.

At a supermarket on Broad Street Lagos, Deborah Nwankwo, a mother of four, bought two cartons of soft drinks, two dozens of tin milk, a dozen imported small yoghurts, a crate of egg, some garlic and two cartons of biscuits. Her bill, she said, was N15, 000. Before now, she would have paid about N9, 000. “The first thing that comes to mind, and one keeps noticing, is how expensive everything is and it could get worse,” she said.

The former Executive Director, Keystone Bank Plc, Richard Obire, said the common man does not understand devaluation, but knows when his purchasing power has reduced. He explained that when a currency is devalued, consumers’ ability to demand and buy products would be drastically reduced. “It also means that people’s ability to spend on discretionary products will decline, as they focus on essential goods like food and shelter,” he said.

Obire said such a policy usually leads to salary delays in private and public sectors, as cash crunch set in, adding that the common man would be adversely affected. “Vital liquidity in pocket of people is crucial. The common man is already feeling pangs of hunger and with the devaluation, a bad situation can only get worse,” he said.

He said middle class earnings will also be affected. “The middle class send their children abroad for schooling. They are also the ones that feed the common man. They will now spend more money sending their children to school, and may have little left for the common man. The common man has very little flexibility for maneuvering at this time. He is at the receiving end,” he said.

The banker said implementation of 2015 budget would also likely suffer as revenues drop. “Imported inflation is also another issue for the Nigerian government. The refined petrol subsidy will go up because of the devaluation. I foresee oil price hike after the election, and that will lead to serious nationwide unrest,” he predicted.

Renowned economist Henry Boyo described the eight per cent devaluation of the naira as “a big mistake”. He said the policy shift remained a wrong concept that would persist because the CBN has learnt nothing from history. He said the devaluation would even move to 20 per cent as the black market continues to outstrip the official rate.

Boyo noted that the prices of goods and services would keep going up, as importers add the increase to the cost of goods and services. He equally sees the price of fuel going up, despite declining oil price.

He said Nigeria has learnt nothing from what happened to the Ghanaian and Zimbabwean currencies. “I see the naira being devalued by 20 per cent as time progresses. I have repeatedly said that mopping up the naira to achieve exchange rate stability is wrong. The CBN substitution of the naira allocations for dollar should be stopped. Allocations should be divided based on dollar certificates. The exchange rate for the naira will continue to fall,” he said.

Managing Director, Afrinvest West Africa Plc Ike Chioke said a strong positive correlation exists between the exchange rate and crude oil price in the country.

“Nigeria’s crude oil – bonny light, which traded at $110.2 per barrel in January this year, reaching $114.6 per barrel by June, is now trading at about $78 per barrel.

“With the discovery of the shale oil, crude oil prices are projected to moderate in coming years. In addition, the threat by the United States (U.S.) to reduce oil imports constitutes a downside risk on crude receipts of OPEC members. Consequently, the CBN must   establish a “real” and “sustainable” value for the naira as the opportunity cost of “substantial” support for the naira increases,” he explained in a report – Naira Trending Towards 2015.

Chioke said Nigeria’s dependence on crude oil (currently 70 per cent of total foreign exchange earnings) makes economic growth susceptible to oil price shocks. According to him, a decline in crude oil price would lead to a corresponding decline in oil receipts; “which will forestall the accumulation of external reserves, creating a negative signaling effect that leads to capital flight, thus depreciating the naira.”

“The current over reliance on oil receipts – oil receipts account for about 96.8 per cent of the country’s total exports – by the government poses a huge threat to the stability of the economy,” he noted.
 
Other policy-makers speak
Sub-Saharan Africa Economist at Renaissance Capital and co-Author of the Fastest Billion Yvonne Mhango said the CBN has shown absolute commitment to dealing with dwindling fortune of the naira.

The official devaluation of the naira, she said, allows the Retail Dutch Auction System (RDAS) to move within the range that straddles the interbank foreign exchange rate. “While the market reaction to the RDAS move in the near-term will be important, we think that these measures deal as comprehensively as possible with the challenges facing Nigeria.

“While Nigeria cannot do much to influence the oil price, the combination of measures sends a powerful signal to all stakeholders on the CBN’s intent to do what it can to preserve macroeconomic stability,” she said.

Head, Equities Market at FBN Capital Olubunmi Ashaolu said the CBN has by the policy, set clear cut objective on its monetary policy direction. He said the stock exchange positive reaction was an indication that local and foreign investors now understand where the naira is heading. “As long as there is clarity and good investment climate, the equities market will benefit,” he said.

He advised government to improve infrastructure, noting that such action would make Nigeria’s investment climate more attractive for foreign investors.
Managing Director, Financial Derivatives Company (FDC) Limited Bismarck Rewane said the MPC’s decision has reinforced the CBN’s independence and autonomy.

He said the currency adjustment has a direct impact on the cost of imports and may undermine the MPC’s efforts at ensuring price stability in a hugely import-dependent economy. The devaluation, he added, would slow down external reserves depletion. “Since the naira is closer to equilibrium, the need to intervene will be less,” he added.

To the President of National Association of Small Scale Industrialists, Chukwu Wachukwu, there are consequences wherever currencies are devalued. He said the naira devaluation would make government to jettison sole reliance on oil and pay attention to other sectors of the economy. “We can’t just continue to depend on oil, we need to diversify,” he advised.
 
Good times for exporters
However, for exporters, devaluation of the naira means increased cash flow and higher profit margins.

The Managing Director, Sunyprofit International Limited, Sunday Anjorin, who exports Nigeria timer to China and Vietnam, captured the excitement that came with the decision.

“For years, we have been waiting on the CBN to do the needful. When it finally came last Tuesday, we had no option but to celebrate. This policy will create more millionaire-exporters than ever before. I was so impressed with the news that I called my associates together to wine and dine with me,” he said.

Anjorin said although exporters’ cash flow will rise, “the celebration may be cut short given that their cost of production will equally increase, because cost of raw materials will be exorbitant, making nonsense of the higher profit margins.” Still, he said timber operators would take advantage of the policy shift and increase their profit margins.

Also to benefit are multinational oil companies and their expatriate workers whose salaries are in dollars. People who receive foreign exchange through Western Union and MoneyGram are also to benefit from the devaluation.
 
CBN takes action
 
Emefiele said the CBN under his leadership remains committed to safeguarding the value of the naira. For instance, the lender had last month, banned the sale of foreign exchange by banks to importers without the requisite shipping documents.

It also directed that only imports, which are backed with evidence of shipment and other relevant documents, will qualify for purchase of foreign exchange. Only such transactions will be eligible for foreign exchange purchase via the RDAS or the interbank window, it said.

The apex bank said that henceforth, all importations involving electronics, finished products, information technology, generators, telecommunication equipment and invisible transactions would be funded from the interbank foreign exchange market only.

The policy, the CBN said, was to maintain the existing stability in foreign exchange market and strengthen the various policy measures, already initiated, including the regulation of the Bureau De Change (BDCs) that cut dollar supply to operators from $50,000 to $15,000 weekly. These measures, Emefiele admitted, would help conserve the foreign exchange and support the naira.
 
Okonjo-Iweala on solutions
In the last six months, managers of the economy have known little or no rest. The Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, has been busy explaining what government is doing to wriggle out of the crises. She talked about plugging revenue leakages, increasing the drive for revenue as well as developing the non-oil sectors.

The minister, who spoke at the International Institute for Finance (IIF) African Financial Summit 2014 held in Lagos, argued that with the right policies, Nigeria and other nations in the continent would be able to sustain growth despite the economic headwinds.

She admitted that events unfolding over the last six months have cast a shadow on global economic recovery in the aftermath of the 2008/2009 financial crises.

She said: “Many countries on the continent depend on commodity exports as the main source of revenue. In Nigeria, our crude oil exports alone accounted for about 83 per cent of the value of our total exports in 2013, according to our National Bureau of Statistics.

“It is now imperative to drive up domestic resource mobilisation, especially taxes. In several African countries, including Nigeria, tax revenue to Gross Domestic Product (GDP) is below 15 per cent – the conventional International Monetary Fund threshold for satisfactory tax performance. There are many leakages and gaps to be plugged, and more effective tax administration could contribute to improving revenues.”

Continuing, she added that aside drop in oil prices, the price of gold, which peaked at about $1383 per ounce in March, this year, is now trading at around $1160 per ounce. Iron ore, which traded at around $130 per dry metric tonne at the beginning of the year, is now trading at around $76 per dry metric tonne, which is a loss of more than 40 per cent of its value this year.

Also, prices of some agricultural commodities are on a downward spiral, with the price of cocoa falling by about 10 per cent from $3,252 per tonne at the end of September, to about $2,900 per tonne now.

Dr. Okonjo-Iweala said: “We need to look into areas that for reasons that are not very clear, we have neglected and we need to change direction. We need to identify such sectors and create an enabling environment to attract private investments, while also channeling government’s spending into them”.

The minister listed and explained some of the more promising job creating sectors needed to lift Nigeria out of its present predicament.

The sectors, according to her and other financial experts, are:
 
Agriculture
The World Bank estimates that agriculture has three times potential to reduce poverty than any other sector. Already, government is carrying out a quiet revolution to increase food self-sufficiency, reduce imports, transform produce and create viable value chains for a number of important products.
 
Housing
This sector is seen in developed countries as an important sector for stimulating economic growth and job creation. Housing has brought the global economy out of every recession in the past. It is therefore not surprising that this sector is prominent in many of developed markets.
 
Sports
The sports industry, experts said, also holds huge potential for Nigeria because of its youthful population. New research by AT Kearney finds that the Africa market for sports events in 2014, including revenues from tickets, media rights, and sponsorships, will be worth close to $80 billion. When sporting goods, apparel, equipment, and health and fitness spending are added, the sports industry generates as much as $700 billion yearly or at least one per cent of global GDP.

The Nigeria market for Premiership football merchandise alone is worth tens of millions of dollars. Yet investment in organised sports, as a business, is very small. Therefore, experts urged more investment in the area.
 
Creative industry
This industry, if properly managed, holds the key to unlocking fast growth and job creation in the country.  In Nigeria, the Nollywood alone accounts for about 1.5 per cent of GDP and employs 200,000 people directly and nearly one million indirectly.
 
Ghana, others take policy measures
 Nigeria is not an outlier in the change in monetary policy stance. Ghana and Zambia also recently tightened further their benchmark interest rates to 21 per cent per annum and 12.5 per cent per annum respectively. On the other hand, Kenya and South Africa maintained the status quo on their policy stance.

With respect to the currencies, the Ghanaian cedi remains the worst performing currency in Sub-Saharan Africa, with a value loss of 26.27 per cent year-to-date, while the Zambian kwacha has lost 11.86 per cent year-to-date.
 
Historical view of the naira
From 1980 to 2000, the naira depreciated by N101.50 to N102.10 to dollar, when compared with N0.6 to dollar it traded as at 1981. Not even the   Structural Adjustment Programme (SAP) introduced in 1985 could have predicted this sharp slide.

The currency first hit double digits, moving from N9.9 to a dollar in 1991 to N17.2 to a dollar the following year. That constituted a significant 73.7 per cent change. Thereafter, a gradual slide ensued, attaining triple digits in 2000.
Although it was considerably stable between 2000 and 2003 (below N120 to a dollar), the recent adverse global capital flows and drop in oil price, among other factors, have culminated in the current all time low.

Moreover, decreasing the value of a currency is much easier than supporting it. When a country wants to depress its own currency, it can create and sell unlimited quantities. In contrast, if it wants to support its own money, it needs to sell the limited quantities of other currencies it holds or borrow from other central banks.

That explains why the CBN has found it increasingly difficult to defend the naira. The solution, according to Dr. Okonjo-Iweala, lies in diversification of the economy.

For now, the continued decline in oil receipts poses a threat to government revenues, limiting the fire power to regulate the naira. Should this continue unabated, the naira’s misfortunes will worsen and the N100 banknote will no longer buy a small loaf of bread for a minor, let alone kill hunger.

297
News & Happenings / ‘Manufacturing can rescue Nigeria’s economy’
« on: December 01, 2014, 04:16:23 PM »

Nigerian businessmen have been urged to emulate industrialist Aliko Dangote by investing in real manufacturing concerns as a way out of the declining crude oil price in the international market.

President of the Nigerian Institute of Quantity Surveyors (NIQS), Lagos State chapter, Mr. Olayemi Shonubi, said this when he led members and  students of the institute on a facility visit to the Ibese plant of Dangote Cement in Ogun State at the weekend.

He said three or four people of Dangote’s class would have made a huge difference in Nigerian economy.

The Lagos State NIQS president noted that most Nigerian businessmen were traders, adding that the nation’s economy needed entrepreneurs who would invest in manufacturing.

He explained that countries being referred to as developed world were industrialised nations and not trading countries.

Shonubi, who praised the magnitude and worth of the cement plant, noted that more of such plants in various sectors of the economy would have helped the nation, especially in this era of crude oil price declining.

He lamented that the falling oil price had reduced the nation’s revenue and currency value.

Shonubi called on the government to formulate policies to encourage more investors like Dangote to invest in manufacturing rather than trading.

“This will serve as an effective mechanism to industrialise the country, create more jobs and help lift the nation’s economy,” he said.

Chairman of the Council of Registered Builders of Nigeria (CORBON), Prof. Kabir Bala, has called for “a solid partnership” with Dangote Cement.

Bala, who spoke when he visited the Dangote Cement Obajana Plant, said the agency wanted the collaboration to be “project specific.”

He said he was impressed by the success recorded at the plant, adding: “We want to see Dangote-CORBON housing scheme. We are also interested in the training aspect.”

CORBON’s Registrar Dr. Peter Kuroshi said the 40 per cent slash in cement prices by Dangote had provided an opportunity to embark on a mass housing scheme to bring down the country’s rental fees.

The Obajana Plant Director, Mr. JV Gungune, explained the production process to the visitors, thanking the CORBON members for the visit.

He promised to forward the group’s requests to the appropriate quarters.
Explaining the achievements that have been recorded since the inception of the plant, its Operations Manager, Mr. Haruna Adinoyi, said with Line 4 on stream, the Obajana plant alone produces 13.25 million metric tons yearly.

He also added that the Dangote Cement Plc controlled 62 per cent of the nation’s market share.

He, however, said the country’s cement consumption is very low compared to South Africa.

He described the Obajana cement plant as the single largest plant in the world.

Dangote Cement Regional Director Sales Mr. Johnson Olaniyi, who coordinated the visit, said with the new brands of cement introduced by Dangote, the company had decided “to tackle the menace of re-bagging by unscrupulous elements as well as the evil of collapse building in the country.”

Other members of CORBON’s delegation were its immediate past registrar, Mr. Aliyu Ova and Mr. Karshima A.J., a building inspector.

298

The Minister of Finance, Ngozi Okonjo-Iweala, said on Thursday Nigeria has the capacity to initiate appropriate fiscal and monetary strategies to contend with the crisis and potential risks posed to the economy as a result of falling global oil prices.

The minister said government was considering sundry fiscal measures, including setting a target of increasing the non-oil revenues at about N480 billion within the next three years as well as introduction of tax reliefs for capital market operators, to mitigate the negative effect of the dwindling earnings from oil exports on the macro economy.

Mrs. Okonjo-Iweala, who was speaking at the 4th Annual Capital Market Retreat on Thursday in Abuja, said contrary to doubts by some Nigerians about government’s preparedness to contain the shocks as a result of the drop in oil prices, the crisis in the global oil market was long anticipated before it occurred.

She recalled the various fiscal measures adopted by government over the past decade, including the creation of the Excess Crude Account (ECA), which had savings in excess of $22 billion during the 2008-2009 global economic depression period.

The idea of having an ECA, she pointed out, was to create a fiscal buffer to help mitigate the impact of falling oil prices being witnessed at the moment.

Even when the ECA had been drawn down remarkably, the minister said the National Economic Management Team, NEMT, was fully conscious of the mono-commodity base of the economy, with crude oil export accounting for over 70 per cent of the country’s foreign exchange earnings, and was working on short to medium term strategies to cope with the current situation.

Though she admitted tough times ahead for Nigeria to effectively respond to the risks posed by the drop in crude exports earnings, the minister allayed fears that the country may not survive it.

According to her, based on extensive discussions with international experts within the context of emerging developments in the global oil market, the NEMT used three scenario-based approaches to arrive at the revised $73 oil benchmark price proposed for the 2015 budget.

She, however, maintained that even if oil prices were to fall below the proposed benchmark, the NEMT would still use $70, $65 or even $60 benchmark oil price for the 2015 budget without the economy crumbling as some critics of the measures have predicted.

“Panic is not a strategy,” the minister said, adding that government was managing the situation to keep the economy on a stable sustainable course, and would not listen to those who want distract them.

“Our scenario based-approach to managing the impact of the oil price drop is proactive and comprehensive. Even if the price drops to $60 per barrel, government is ready,” she said.

“The common man’s interest is a priority in government strategy for the fall in oil price. That’s why even in implementing cuts in capital budget for 2015, the areas that are of most benefit to the common man – critical infrastructural projects like the Lagos Ibadan expressway, the second Niger Bridge, rail and power projects, that would create jobs and enhance the comfort of our people, will go on.”

She said the pro-common man’s focus can also be seen in the safety nets as a major priority of the present administration, adding that the projection was for two to three million families across Nigeria to benefit from a conditional cash transfer scheme to encourage school attendance, improve health and nutrition, reduce infant and maternal mortality, and so on.

The Government, she restated, was determined to continue to explore non-oil revenue sources to boost the revenue accruals, including a renewed drive to ensure improved filing of tax returns by small and medium enterprises, SMEs, and increasing audit checks from the present three to four times yearly to as many as times as possible to reduce tax revenue losses to government.

The Federal Inland Revenue Service, FIRS, she said, had surpassed its initial revenue collection projection in 2014 budget by N65 billion this year, adding that with its target to raise to N168 billion in the 2015 budget, it was projected that within the next three years the agency could raise additional $3 billion revenues to government.

As part of renewed focus on increasing tax revenues to mitigate the impact of the fall in oil prices, the minister said FIRS was working with Mckinsey to ensure that the set non-oil revenue collection target was realized.

On government’s efforts to support the capital market for growth and as source of long-term financing for infrastructure and other critical sectors funding, the minister disclosed that discussions were ongoing to persuade more entities, particularly the telecom companies, to list their shares in the market.

Other fiscal measures being adopted, she said, include a planned removal of value added tax, VAT, payment by stock-broking companies and introduction other incentives, were being looked into with a view to reducing the cost of doing business in the stock exchange and by implication, deepening the capital base of the market.

299
News & Happenings / Nigeria Forum - What Happens When Oil Prices Fall?
« on: December 01, 2014, 04:12:27 PM »
When politicians, fund managers and development professionals look to highlight the success of democratic Nigeria, they typically point to one, key statistic: when the military stood down in 1999 after an almost unbroken generation in power, per capita income in Africa's most populous state was USD1,940; by 2013, under civilian rule, it had leapt to USD5,360.

Growth in GDP has been robust, foreign reserves are up (on the precarious levels of 1999, although currently under pressure as revenues drop), debt is down, telecoms and banking have boomed. The international media regularly contrasts Nigeria's vibrant private sector in the South with the apocalyptic brutality of the Islamist insurgency that has been sweeping the North-East of the country.

A rather less heralded statistic associated with the apparent dividends of the new constitutional era in Nigeria is the price of oil in an economy where oil and gas typically generate at least, and in recent years very much more, than 90 percent of overall export earnings. Oil was hovering around USD10 a barrel when General Abdulsalami Abubakar left office, just as prices begin a sustained an exponential boom, peaking at USD140/barrel in 2008 and until June this year still well above USD100.

In short, oil production and prices remain the cornerstone of the Nigerian economy.

Now prices are falling. In an industry were forecasting is a notoriously inexact science, there is a rare consensus as to how gloomy the outlook for the industry presently appears. Nigeria's Finance Minister, Ngozi Okonjo-Iweala, has called for austerity measures - no mean feat in an election year - but a sustained fall in oil prices is set to present profound challenges for a political culture untested in such a scenario.

Some of the biggest names in oil and gas in Nigeria began reviewing their position well before the current slide. Shell and partners Total and Agip have been selling interests in assets licenced to Joint Ventures with the Nigerian National Petroleum Corporation. Chevron and Conoco Phillips have also been divesting. Local companies have been taking over, doubling their slice of Nigeria's average 2m barrels/day output, according to NNPC data, to 7 percent in 2013, up from a little over 3 percent in 2012.

Deziani Allison-Madueke, five years as Minister of Petroleum Resources, has heralded the flight as a process of empowerment that has seen foreign companies give way to indigenous players - although many are relatively unknown and have been able to raise without apparent difficulty relatively large sums without a public listing or, indeed, in some cases, any significant pedigree in upstream operations.

Shell and other players continue to see a long-term future in Nigeria in deepwater operations and liquefied natural gas, where contractual terms and security conditions are more favourable. The new entrants to the Joint Ventures will have to face unresolved issues with financing and security, licence renewals and uncertainty of the passage of the much delayed and diluted Petroleum Industry Bill, a blueprint for reform stalled in the National Assembly since 2008.

Some of the new players are widely regarded as enjoying good political links that might facilitate an improvement in the often tense and adversarial negotiations that characterised the relationship between the International Oil Companies and NNPC. In five blocks where Shell has exited, Mrs Allison-Madueke has entered into Strategic Alliance Agreements, where third-parties help raise finance in return for a lucrative share of revenue.

But structural changes in the industry will be harder to overcome. Sustained, buoyant prices and innovations in technology have encouraged huge investor interest in less developed parts of Africa. There have been major discoveries in Ghana, Uganda and Mozambique, and promising indicators in many more countries.

Critically, developments in fracking in the US have changed market dynamics: in June 2014, the US, for the first time in a generation, sourced no oil imports at all from Nigeria. For much of the 2000s, the US was Nigeria's principal customer, accounting for more than half of all sales. Changes in the market for gas are only more pronounced still.

Officials note the declining interest from the US has been more than offset by rising demand from Asia, and believe that falling prices may actually facilitate a more bold approach to policy making than any of Nigeria's three post-military administration's have contemplated.

Efforts to remove fuel subsidies, a delicate issue that triggered massive street protests in 2012 despite widespread corruption and abuse of the subsidy regime, might prove easier to implement if the cost of fuel were to be lower and falling.

A more limited export market for Nigerian gas might encourage greater efforts to monetise gas locally as an energy source for newly privatised power companies looking to tackle Nigeria's chronic and long-standing shortages - a critical constraint on efforts to develop genuine growth in the non-oil economy.

A more realistic assessment of an increasingly competitive international market even in Africa, and tighter margins on costs and profit, may also add momentum to efforts to promote the PIB and end the regulatory uncertainty that has blighted the industry in Nigeria since 2007: although there has been some movement within the ownership of existing licences, with the exception of the award of blocks to two well-connected new oil companies, no new acreage has been offered since 2006.

In his May Day speech this year, President Jonathan complained that Nigeria's problem was not the wealth it generated, but how it had been disproportionately distributed, highlighting the issues facing an oil producing nation at the end of a long oil boom that has bought or leased more private jets than almost anywhere, but where millions still live without electricity, sanitation or even basic security.

The tension between the huge benefits that have accrued to the few compared with the meagre crumbs enjoyed by the many that have characterised the boom years will be harder to sustain in more difficult times. The new oil elite that has emerged faces a critical challenge: to sustain the conspicuous consumption of recent years and face all the potential for instability that may herald; or look to the opportunities a more competitive oil industry might generate.

300

The Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, has been elected the first female president of the Organisation of Petroleum Exporting Countries (OPEC).

Alison-Madueke was  elected President of OPEC Thursday at the ongoing 166th General Meeting of the body in Vienna, Austria.

She replaces former President of OPEC, Libyan Vice Prime Minister for Corporations, Abdourhman Atahar Al-Ahirish.

She was before her election this morning the alternate president of OPEC and is expected to immediately begin to serve her one-year term at the helm of OPEC affairs.

OPEC is expected to at the 166th meeting, take key decisions that could halt the dwindling price of crude oil.

Al-Ahirishhad in his opening remarks before the closed door meeting stated that ample supply, moderate demand, a stronger US dollar and uncertainties about global economic growth have been key factors in the recent price trend.

This, he noted, was in addition to the impact of speculative activities in the oil market.

http://www.thisdaylive.com/articles/petroleum-minister-alison-madueke-elected-first-opec-female-president/195193/

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