20 Jan

The week ahead – Procrastination never solves anything

Another petrol scarcity may be looming as marketers have stopped the importation of petrol. According to the Depot and Petroleum Products Marketers Association, a ₦660 billion FG debt for already imported products, coupled with interests on bank loans have been major stumbling blocks to continued importation. The group’s Executive Secretary, Olufemi Adewole said most marketers now depend on the Nigerian National Petroleum Corporation for imported petrol. The media is reporting that some depots in Apapa area now sell petrol above the ex-depot price of ₦133.28.

An industry source has told SBM Intelligence that the Nigerian Bulk Electricity Trading Plc has paid electricity generating companies (GENCOS) only 22% of their stated invoices at the last payment date in September 2016. This has hampered the ability of the GENCOS to pay their gas suppliers for the gas used to power their generating facilities, despite the inauguration of a ₦213 billion CBN intervention fund to help offset the country’s gas debts in October 2014. Most of Nigeria’s 27 power plants are powered by natural gas including Afam, Egbin, Olorunsogo and Ughelli. A top management official of Egbin Power Station told The Guardian that the power plant which usually generates over 1,000 megawatts had dropped to 375 megawatts due to gas constraints. The entire country recorded a new 2017 generation low of 49.20 MW on Thursday January 18.

An unidentified militant group in the Niger Delta has blown up a crude oil trunk line in Ughelli, Delta State, a move that came barely 24 hours after Vice President Yemi Osinbajo led a Federal Government delegation to the region. Osinbajo had on Monday held a meeting with traditional rulers in Delta State with the aim of securing lasting peace to the restive, oil-producing region.

Speaking at the World Economic Forum in Davos, Switzerland on Wednesday, the Vice-President, Yemi Osinbajo has said that the government cannot simply allow the naira to float. He however admitted that the CBN has confidence in floating the local currency. Osinbajo said the government is in talks with the CBN to fully implement the “free-float” foreign exchange policy, but it cannot put a time on the “logical conclusion” of the talks. “We simply can’t allow the currency to float; we have to look at all of the market conditions and all of that. But really, the point we are making is that we must create the environment which will help the Central Bank as well,” Osinbajo said.

Thousands of Shiite Islamic Movement of Nigeria members on Wednesday held protest marches in major cities across northern Nigeria to demand the release of their leader, Ibrahim El-Zakzaky, who has been in detention without trial since December 2015. The cleric was detained after over 300 members of the IMN were killed by soldiers who accused them of blocking the road and plotting to kill the army chief, Tukur Buratai. The IMN denied the army’s claims. The protest by the Shiites occurred despite a ban on processions and rallies by governments and security officials of some of the states. The protests took place in Kaduna, Katsina, Sokoto, and Kano states as well as the Federal Capital Territory.

A Nigeria Air-Force fighter jet involved in the counter-insurgency operation in the North-East has dropped bombs on workers, soldiers and displaced persons in error, killing no fewer than 100 persons on the ground in Rann. Aid workers confirmed to have been killed in the bombing included the officials of Doctors Without Borders (Medecins Sans Frontieres), International Committee of the Red Cross and some refugees. The Air-Force has announced investigation to unravel how the event took place.

Suggestions

  • With importers refusing to import petrol, we reiterate that contrary to government claims last year, the petrol subsidy had not been removed. At the time, we suggested that the PPPRA template, the regimen that fixes the price of petrol must be set aside, and the market allowed to determine prices to truly end subsidies and scarcity in one stroke. This would have been a prudent move, especially at a time when the President had goodwill in abundance. Sadly, that goodwill has been depleted significantly. However the suggestion remains the same. The government must give up control and allow the market determine prices.
  • Power generation has dropped precipitously in recent times, and it is due to gas constraints. Gencos are owed billions by NBET who are in turn owed by Discos who have incurred billions on collection losses as Nigerians refuse to pay for unstable power supply. On another hand, the implication of paying for gas in dollars is that while Discos earn in Naira they can never generate enough to pay Gencos who reflect gas prices in dollars. While Discos charge in Naira with the latest Myto tariff based on ₦197/$1, Gencos charge in dollars using ₦305. This is unsustainable. The sector needs more realism, and massive long term funding to get out of this situation. Electricity pricing has to be market driven and cost reflective.
  • In our year end outlook, SBM underscored the importance of the FG embarking on extensive dialogue with every party in the Niger Delta. Asides favourable prices, the Nigerian government needs a steady supply of crude oil to stand a chance of actualising its 2017 budget. Sending the VP on this trip was a mark of seriousness, however, the handling of the trip itself, may have left a bit to be desired. That, and this new attack, should not deter the government however. They must continue to dialogue. While we are sceptical about it, it is important that the government has made provisions for the amnesty programme in the 2017 budget. We expect these to yield the desired result this year.
  • In June 2016 when the CBN released its revised Guidelines for the Flexible Exchange Rate Market, market participants and analysts, including SBM Intelligence, were hopeful that it signalled the dawn of a new era where archaic policies which had contributed in no small measure to the stagnation of Nigeria’s economy would be done away with. However, within a few weeks there were signs that the federal government was not as committed to the float. The Naira behaved differently from what many market analysts expected. Now the federal government is making a full turnaround. This is disappointing. What is clear is that rising foreign reserves buoyed by improved dollar earnings from rising oil prices and production have had a major part to play in this decision as it improves the CBN’s ability to defend the Naira around a chosen benchmark. In SBM’s outlook for 2017, we however took the view that while there would be this early rally in oil prices, it would not be sustained and hence Nigeria will be back to the 2016 position in no time. The hard choice that countries like Egypt have now taken will be waiting for Nigeria at that point again.
  • Despite a court order which lapsed on Monday, the FG has still not released El-Zakzaky. This is the current bone of contention. El-Zakzaky’s continued detention, without charge, is in violation of his fundamental rights as enshrined in the 1999 Constitution. With each disobedience of valid court orders, and the list is growing longer, the FG loses the moral high ground, and cedes such high ground to its opponents. To their credit, thus far, the Shiites have pursued legitimate means of airing their grievances. We fear that this patience is being tested to it’s limits.
  • Incidents of friendly fire happen in war, but bearing in mind the recent arrests of some officers and soldiers, it will be premature to rule out the work of fifth columnists until an investigation is complete. This particular incident is worrisome because of the possibility that the coordinates sent to the pilots were flawed, resulting in the killing of innocent non-combatants. We hope the Air-Force will conduct a thorough investigation and make its findings known to the public.