24 Jan

Daily Watch – Lagos-Ibadan rail gets some money, FG loses ₦1.2 trillion to IOC pricing dispute

  • Transportation minister, Rotimi Amaechi,  says that the FG has released ₦72 billion as counterpart funding for the construction of the Lagos-Ibadan standard gauge railway line. Amaechi said the money was released in full so that there will be no delay in the project’s implementation. Amaechi also appealed to the National Assembly to approve a US$29.9 billion foreign loan request made by President Muhammadu Buhari. In his words, “On the construction of Lagos-Ibadan railway line, the Minister of Finance has been kind enough to release the counterpart funding in full. I think in the history of Nigeria, this is the first time that we are releasing counterpart funds in full so that there will be no delay since the Chinese loan appears to have been approved.”
  • Nigeria’s first effort this year to raise money for the budget deficit through local bond auction worth ₦214.95 billion has also resulted in increased cost of lending among banks. Bond auctions, which also serve as a mean to control the quantity of money in circulation, caused the rate rise at the weekend, as commercial banks scramble for cash among themselves for payments that were due Friday. The rates rose to 11.5 percent for Overnight, a 0.58 percent increase from Thursday and 4.5 percent from last week’s record, while the Open Buy Back reached 10.67 per cent, as payments for treasury bills’ purchases added more pressure. The bond auction was executed on January 18. Analysts say the soaring rates would be calmed next week as anticipations over budget disbursements and its actualisation get to the market. The FG debt plan, earlier released by the Debt Management Office, showed that it is targeting ₦445.8 billion deals for the first quarter (Q1). The total package would be a combination of bonds issuances- reopening of existing ones and a new issue worth ₦55 billion, as well as incremental Treasury Bills auctions of ₦15.8 billion. The move would sustain the already low money supply mode in the economy, aid fight against inflation and provide immediate cash for the government to implement its planned budget.
  • A lingering pricing dispute between International Oil Companies (IOCs) and the FG has resulted in a revenue loss of over $4.04 billion (₦1.232 trillion at N305-$1) in eight years, according to the Nigerian Extractive Industry Transparency Initiative. There are indications that the FG may not be able to recover the money as the IOCs have adopted strategies to evade payment. Over the years, the IOCs have used the Tax Appeal Tribunal, which has the final say on any tax issue, to avert the payment of huge revenue accruable to the Federal Government from oil production, NIETI says. The Nigerian government is almost solely dependent on oil revenue to execute its programmes. The US$4.05 billion would have ameliorated the financial challenges created by the economic recession, including helping to close the 2016 budget funding gap. As at September 2016, the funds trapped in various divisions of the tribunal that had not been adjudicated were estimated at over US$5 billion or ₦1.5 trillion, almost the value of the N1.8 trillion 2016 capital expenditure.
  • The Africa Finance Corporation has issued its maiden Sukuk, the highest-rated ever Sukuk issuance from an African institution. Following high levels of investor interest, the initial target of US$100 million was more than twice oversubscribed, resulting in the transaction being upsized to US$150 million and a final order book of approximately US$230 million. In addition to being the first Sukuk transaction of 2017, it was also the first Sukuk to be issued by an African supranational entity. According to a statement, the Sukuk was AFC’s second foray into Islamic finance. The corporation accepted a US$50 million 15 year line of financing from the Islamic Development Bank in 2015 to finance Islamic finance-compliant projects located across the numerous African IDB member countries.
  • Investors’ interest in the shares of National Aviation Handling Company heightened last week as its price rose by 6.27 percent or 18 kobo per share. The company recorded the fourth most gained equities on the NSE last week as its share price closed at ₦2.86 per share at the end of trading last Friday. Some market operators had attributed the surge in interest to the recent clearance of its controversial corporate governance practices by the SEC and the subsequent appointment of a new chairman to the board. Usman Arabi Bello was appointed by the NAHCO Board on January 12.