Nigeria ’ll still make profit on oil at $20, says Kachikwu

• Brent crude rallies to $32 • Anxiety as MPC meets; devaluation, survival on the burner

ALTHOUGH the price of oil may at present be as low as $22 per barrel, the Minister of State for Petroleum Resources, Ibe Kachikwu, says Nigeria’s case is not hopeless.

Managing Director of the NNPC, Mr. Emmanuel Kachikwu

He says Nigeria would still make profit even if oil drops to $20 as cost of producing a barrel of crude oil has been put at an average of $13 per barrel onshore.

Lower outputs from Nigeria, Iraq and Saudi Arabia may have slashed the crude oil export of the Organisation of Petroleum Exporting Countries (OPEC) in December, even as the cartel’s daily basket of 13 grades fell to $22.9 a barrel yesterday.

Meanwhile, with major economic indicators for the country at its record low and the investment environment tense, stakeholders in the financial sector are awaiting far-reaching decisions on the economy by the Monetary Policy Committee (MPC) from today.

Besides, MPC, the policy making body of the Central Bank of Nigeria (CBN), having on hand the naira exchange rate challenge, reserves at low level, rising inflation and widening budget deficit, must come out with a policy that will complement the current fiscal plans of the Federal Government.

The cheap oil price is, therefore, raising concerns that the shale oil production in the United States (U.S.) may be relatively unsustainable at a production cost of about $70 per barrel.

The official benchmark, Brent rallied to $32 a barrel as the prospects of new central bank stimulus and an upcoming snowstorm in the U.S. boosted expectations for fuel demand.

The OPEC basket represents the average crude price of the member grades, and has been lower on a free fall against the Brent, reaching a 13-year low.

Kachikwu, according to Bloomberg, said Nigeria had not “suffered too badly in terms of investments, as most of the projects we have are still on track.

“The deep off-shore projects, obviously we are putting on hold, given the fact that the returns on those, would not match the prices today.”

Speaking in Davos, Switzerland, Kachikwu said: “Everybody is sort of coming back on land so this is time to put a lot of investments on ground, put a lot of incentives on ground, make everybody return on ground, where in fact our average cost of production is about $13 per barrel.

“So we need more on that, bringing those numbers down from $13 to somewhere $10. Obviously we won’t get the Saudi figures of about $6 or $7, but we can get it much lower,” he said.

OPEC said persistently low prices would finally begin to bite hard on shale oil rival producers in 2016, forcing the U.S. and Canada to cut back production.

The Executive Director, Corporate Finance, BGL Capital Limited, Femi Ademola , said the market would naturally switch into a cautious mood immediately the meeting begins.

 This is because with the condition of the economy, the credit system and rising pressure to devalue the currency, both the local and foreign investors would want to see the end of the meeting before staking more.

“Some are arguing that the interest rate should go down further and others are concerned about the naira exchange. So, there is uncertainty and the market would slow down, awaiting the decision.

“If the rate goes down, it will help the equities market, but if it goes up, the bond market will have it. But the market will not want to preempt the committee. Some people will still buy, but activities will remain low, marked by cautious decisions,” he said.

A top bank chief had told The Guardian that “the meeting is not for small and medium enterprises discussion. It is not about the real sector. It is not even about banks. It is for the economy as a whole, because there is one issue that has overarching influence on all now – the country’s sustainability.

“We don’t have savings to fall back on and our means of earnings is ebbing. We cannot transact freely due to foreign exchange scarcity, while general prices are gradually hitting the roof. Surely, the market’s expectations of drastic decisions are not misplaced,” he said.

But the renewed expectations, besides the economic realities on ground, were heightened as the Vice President, Prof. Yemi Osinbajo, at the World Economic Forum in Davos, Switzerland, said: “We know that the Central Bank of Nigeria (CBN) will just have to do the right thing at this time. The bank has told us, and it was announced even in the President’s budget speech, that they intend to take a flexible approach and deploy whatever tools are necessary to ensure that we stay competitive.”

The Finance Minister, Mrs. Kemi Adeosun, at the same event, also said: “We have a completely independent Central Bank. They have a Monetary Policy Committee. We’re waiting to see what they’ll do.”

The minister said that Nigeria planned to borrow up to $5 billion from multiple sources, including the Eurobond market, to plug the widening budget deficit, as crude oil prices had fallen in the last few days to 2003 levels at about $27 a barrel, while the 2016 budget was based on $38 per barrel.

Nigeria’s currency has been hit by the foreign exchange scarcity and speculations to a record low of N300 per dollar on the parallel market last week, compared with the official rate of N197, a development that spurred calls for devaluation and suspicion that this meeting might be the opportunity.

A fortnight ago, the CBN had suddenly announced the end of its dollar intervention in BDC segment, after it had earlier in December 2015, unveiled a new guideline for their operations, which served as false hope to the operators.

The Managing Director of Afrinvest Securities Limited, Ike Chioke, while expressing optimism on the rebound of the economy, said this could only be achieved with strategic decisions from both the fiscal and monetary authorities.

According to him, the banking sector will be facing more challenges through weaker margins with the end of commission on turnover and faltering non-interest revenue, low oil prices, devaluation threats and its implications for capital and asset quality.

“The banks are the toll gates of the economy. When the economy does well, the banks collect higher toll and vice versa. In the recent past, there have been shifting and repositioning, which have had various effects on the industry.”

The Managing Director of Cowry Asset Management Limited, Johnson Chukwu, also told The Guardian that the market today would be tentative, as operators would be awaiting the outcome of the monetary policy meeting.

“The market is optimistic that there would be a realistic review of the exchange rate and possible adjustment to the current foreign exchange earnings capacity of the economy.”

Nigeria ’ll still make profit on oil at $20, says Kachikwu

Senate approves MTEF as oil prices, Naira crash further

ABUJA — The Senate, yesterday, approved the Medium Term Expenditure Framework, MTEF, and Fiscal Strategy Paper, FSP, 2016-18 submitted by the Federal Government, basing the financial estimates on oil revenue at benchmark of $38 per barrel and exchange rate at N197/ $1. MTEF and FSP are the three-year fiscal plan from where the annual budget is extracted.

Bukola Saraki

But the international oil prices and the domestic currency market at the parallel segment have all moved against both benchmarks, yesterday.

While the global oil benchmark, West Texas Intermediate and Brent Crude closed, yesterday, at $35.83 per barrel, down by 4.07 per cent and Brent Crude down by 3.25 per cent to $37.20 per barrel, the OPEC reference where Nigeria’s Bonny Light trades also closed lower at $32.6 per barrel, far below the Federal Government’s 2016 budget benchmark.

Similarly, while the official exchange rate has been retained by the Central Bank of Nigeria, CBN, at N197/ $1, the Naira crashed to N270 per dollar at the parallel market, yesterday.

Market operators blamed the continued crash in Naira value at the parallel market on constrains in the supply of the foreign exchange resources coupled with speculations that official devaluation is becoming inevitable following steady decline in foreign reserves and dollar inflow from crude oil sales.

The speculations appeared further fuelled by CBN’s reduction of quantity of foreign exchange supply to Bureaux de Change, BDCs, yesterday to $10,000, down by over 66 per cent from $30,000 per week.

At the backdrop of these developments, President Muhammadu Buhari is expected to present the 2016 budget estimates to the National Assembly on Tuesday  for further deliberations and final approval of the 2016 Appropriation Bill.

Single salary account  for all employees

Meanwhile, the Senate also approved, yesterday, that the Federal Government should, in 2016, establish a data base and possibly a single salary account for all its employees to help streamline and reduce its personnel cost.

The Senate also urged the government to sustain the implementation of Treasury Single Account, TSA, in 2016  with e- collection platform.

President Buhari had, Wednesday, December 8, forwarded the MTEF and FSP  to the National Assembly with far reaching economic proposals including scraping of oil sector subsidy.

President Buhari wrote the National Assembly yesterday, informing it of his readiness to present the 2016 Appropriation Bill to the joint session of the Senate and House of Representatives on Tuesday.

Senate President, Bukola Saraki, who read Buhari’s  letter at plenary, said the President had requested to address the joint session of the federal parliament on the 2016 budget at exactly 10:00 am.

The approval of the MTEF and FSP documents were sequel to a report by the Joint Committee on Finance, Appropriations; and National Planning and Economic Affairs by the Chairman, Senator John Owan Enoh.

Recommendations

In the approved MTEF report, the Senate also asked the Federal Government to sustain the current tempo towards increasing Federal Government internally generated revenue and diversification of the economy, as well as the projected increase in oil production from current 1.9 million barrels per day, mbpd, to 2.2 mbpd

Other recommendations of the joint committee as approved by the Senate were: “that the relevant committees of the National Assembly should closely and constantly maintain oversight over the ministries, departments and agencies, MDAs,  responsible for implementing special intervention programmes to ensure that the targeted benefits are achieved while safeguarding against abuses.

“The diversification of the economy should be accompanied with economic modernisation such that the economy can be more competitive and productive; arrears of 2015 fuel subsidy for domestic consumption as proposed in the MTEF be sustained;the funding of the infrastructural development stated in the MTEF should be clearly captured in the details of the 2016 Appropriation Bill;

“The National Assembly in close collaboration with the executive should as a matter of urgency consider an accelerated passage of the Petroleum Industry Bill (PIB) particularly those sections with implication on joint venture funding by the federal government (JV Cash Calls).”

In his remarks, Senate President, Bukola Saraki who noted that the contents of the MTEF document had clearly indicated that Nigerians were  going to a very challenging times in 2016 because the nation was still practicing a mono economy with a product that we do not control the price, stated: “We must continue to increase our independent revenue, we must make effort to increase our tax revenue and the committees should intensity efforts in their oversight activities.

“We must also work to reduce the level of borrowing and the executive should also comply with the senate recommendations on the MTEF particularly as regards to oil subsidy. The situations in the past where we submit MTEF and we then go to do something completely different I think should not be entertained again.”

 

Naira depreciates to N270/$ in parallel market

 

Vanguard investigation revealed that from N260 per dollar at the close of business on Tuesday, the parallel market exchange rate rose sharply to N270 per dollar in Lagos, indicating N10 depreciation.

But in Abuja, the parallel market exchange rate rose from N262 per dollar to close at N273 per dollar, indicating N11 depreciation.

BDC operators, who confirmed this development to Vanguard, said the sharp depreciation was due to further reduction in the weekly dollar sales by the CBN.

President, Association of Bureaux de Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, told Vanguard that though the CBN increased the number of BDCs it sold dollars to from 1,170 last week to 2,270 this week, it however reduced the amount of dollars sold to each BDC by 60 per cent from $30,000 to $10,000.

According to Mr. Harrison Owoh, Chief Executive Officer, H.J Trust BDC, the decision of the CBN aggravated the demand situation in the market.

He said: “There is huge volume of unsatisfied demand in the market. We had to turn down lots of request for dollars because there is no dollars to sell to them,” he told Vanguard.

An Abuja-based BDC operator, who spoke on condition of anonymity toldVanguard: “The dollar is selling at N273 in Abuja this evening. It was N262 in the morning. We are surprised at the pace of depreciation, because we can’t explain why it just went up by such margin in one day.”

 

Speculative reaction

 

On this development, Director, Corporate Communications, Central Bank of Nigeria (CBN), Ibrahim Mu’azu, said the reduction in dollar sales to BDCs is part of the demand management of the CBN in the foreign exchange market.

He said the depreciation of the naira to N270 per dollar is a speculative reaction to the development.

According to him, “the rate is not sustainable. This is because there are still other windows for end users to buy dollars at lower rate. They can buy dollars at the official rate from the deposit money banks, and from Travelex inside the airport. So by the time people know about these alternatives, the reaction in the parallel market, and the exchange rate will calm down.”

Further investigations reveal that the naira also depreciated heavily against the British pounds. From N365 per pounds at the close of business last week, the parallel market exchange rate rose sharply to N385 per pounds at the close of business yesterday.

In addition to the reduction in dollar sales by CBN, foreign exchange supply from autonomous sources is thinning due to hording.  “People are hording their dollars in anticipation of further depreciation of the naira, while some are demanding higher exchange rate before they sell,” said the Abuja-based BDC operator.

 

Senate approves MTEF as oil prices, Naira crash further

Indebted states can’t blame crash in oil prices - Oshiomhole

BENIN—Governor Adams Oshiomhole of Edo State, yesterday, said the current financial crisis that prevented many states from paying workers’ salaries was beyond the crash in the price of crude oil, saying that states needed to revisit the issue of capital expenditure, recurrent expenditure and the context of the federal character principle.

Governor Oshiomhole

The governor, who noted that Edo State met its wage obligation to workers monthly, challenged senior public servants in the state to look inwards to ensure that the state continued to initiate and execute fresh capital projects in addition to completing ongoing ones and meeting basic recurrent expenditures in spite of the dwindling resources from the federation account.

Speaking at a 3-day retreat for members of the State Executive Council and Permanent Secretaries holding in Abuja to brainstorm and re-strategise on raising the bar on governance in the state, with the theme, Finishing Well, he observed that a lot still needed to be done to ensure his administration finished stronger than it started almost seven years ago.

He said: “There are still a lot of wastages in our system. From our experience in Edo, without attacking wages, we have cut a couple of things without having to physically carry out retrenchment in the way that some other state governments have done. At $45, I believe it is a high price for crude, but I think the problem is that we have assumed that when the price rose to $140 and stabilised at $108, that became the new ideal level. So, when it dropped to around half of that, we think we are in crisis. When I look at what the number was in 1999, at the beginning of this democracy, it was less than $40, and we still had a fairly balanced budget looking at the ratio of recurrent expenditure vis-à-vis capital expenditure.

“Now if you appreciate that we were doing relatively well at $28 dollars, and that Nigeria met its wage bill when oil crashed to $10 not too long ago, about 1997, the country was not known to be in arrears of salaries.”

Indebted states can’t blame crash in oil prices - Oshiomhole

Falling oil prices threaten my agenda - Buhari

ABUJA—THE President- elect, General Muhammadu Buhari yesterday painted a gloomy picture in the economic development of his administration as he said that the decline in the revenues due to fall in oil prices poses a great threat to his administration’s development agenda.

Gen. Buhari who visited the newly elected Senators and House of Representatives members who are undergoing induction course in preparation for the 8th National Assembly in Abuja also said that the decline in revenue would affect the reconstruction of devastated areas in the country as a result of insurgency.

He reminded the elected members of the 8th assembly of the challenges the nation had been facing which he also said would continue in the near future.

The challenges according to him include general insecurity and insurgency that has caused extreme human hardship and destruction of lives, livelihoods that would take over a decade to rebuild across most of North Eastern Nigeria and some parts of North western Nigeria.

Another threat to his administration according to him was the devastation and environmental degradation in the Niger Delta area which he said must be attended to.

Others include, “endemic corruption which has crippled human and infrastructure development for decades. Unacceptably poor provision of power supply which has had a crippling effect on development of small businesses and indeed the wider economy.

“Deindustrialization for the past three decades leading to closure of many industries and migration of many to other African countries. Unacceptably high levels of unemployment and especially Youth Unemployment reaching over 40 per cent.”

Besides, Gen. Buhari mentioned high cost of governance that has been crowding out the nation’s capital and human development, erosion of public social services such as infrastructure, health and education as well as lack of development in the agricultural and solid mineral sectors as areas that should be aggressively addressed.

While soliciting the support of the lawmakers, the President-elect said, “The legislature is a critical component and necessary ingredient of democracy and good governance. The legislature by nature is inherently democratic in the sense that all members are equal and are elected representatives of the Nigerian people.

“As President-elect, I recognize this fact and believe that legislators carry this heavy burden of representation with all the seriousness it deserves.

“For a president to be successful in addressing community development and general welfare of the various people of the country, he or she would benefit from working closely and in harmony with the legislative arm of government.

“I therefore commit myself to working with the legislature as development partners motivated by the desire to deliver good governance”.

He commended President Goodluck Jonathan for the role he played in the sustenance of democratic institution by accepting election result, saying that Nigeria was in the threshold of history.

Bemoaning high cost of governance, he said, “First and foremost, appropriate policies need to be put in place and such policies may have to be translated into laws.

“Secondly, the oversight functions of the legislature is critical in ensuring that policies are implemented effectively and transparently. Therefore, my mission to bring integrity into governance would better succeed if complemented with a strong culture of transparent oversight.

“We need to collaborate on the budget process and restructuring of the public sector so as to collectively tackle the menace of high recurrent cost at the expense of capital and human development.”

“There is an urgent need to contain this high state of insecurity. All of you are representing various communities. We need to work together to address the problem from both its roots and manifestations.

“The strongest mitigating forces at this point are to redress the power sector deficits, encourage investments that are job creating and focus on human development and reconstruction. We also need to deploy efforts in conflict resolution and peace building in all our communities.

“I am here today, to invite you to work with the executive as partners in progress, as champions of good governance and development and as warriors for change. Together, we can make this nation great and as a role model in Africa and other emerging economies and democracies.”

President of the Senate and Chairman of the National Assembly, David Mark, who ushered in the President-elect into the International Conference Centre, in company of other leaders of the National Assembly, described the visit as historic.

Noting that it was the first time a President-elect was considering it worthwhile to address a joint session of the National Assembly, Mark agreed it was a historic meeting in the journey of democracy.

For the Speaker, House of Representative and Governor-elect, Sokoto State, Honourable Aminu W. Tambuwal, Buhari has extended a hand of fellowship to the legislature by his personal visit.

Tambuwal however expressed hope that his colleagues would reciprocate Buhari’s gesture by also extending a sincere hand of fellowship to the President-elect when his government fully takes over.

 

Falling oil prices threaten my agenda - Buhari

Lamorde: Oil Price Crash Will Discipline Nigeria

• UNODC expresses fear on terrorism funding, money laundering

By Paul Obi in Abuja

The Economic and Financial Crimes Commission (EFCC) has said the current crash of global oil prices will discipline Nigeria in the area of naked display of corruption through tax evasion.

EFCC Chairman, Ibrahim Lamorde

The Chairman of EFCC, Ibrahim Lamorde, stated this at the ongoing seminar on Tax Crime Investigation and Prosecution Course organised by the United Nations Office on Drugs and Crime (UNODC) in conjunction with the European Union (EU).

Lamorde explained that going by a recent investigation conducted by the EFCC, “only few individuals and institutions pay tax; most businesses don’t pay their tax, people drive N50 million car and you ask them for taxes, they don’t pay. It is good that oil price is going down so that we look elsewhere.”

He said the commission’s effort in confronting tax evasion “led to an immediate recovery of over N3 billion. Our experience was very revealing, as only a very few individuals and institutions pay tax.

He observed that only “employees in structured salaried employment, whose taxes are deducted from source, pay. Most businesses do not pay tax and where they are recipients of value added tax (VAT), same is not remitted and is laundered back through the business as legitimate earnings. We have also realised from the position of the NFIU that there is a linkage between tax evasion and AML/CFT. Consequently, billions of Naira are lost to the Government of Nigeria and it is possible that these lost revenues could be laundered and used for criminal purposes.

“The power to tax is what defines the sovereignty of a country. It is the key attribute of sovereignty and statehood. Conversely, it is the payment of tax that empowers and legitimises the right of a citizen to ask for accountability of Government. I suspect that if the citizenry were paying taxes, the level of impunity in the political arena would be significantly minimised as the citizen would feel embezzlement personally and demand for accountability,” Lamorde said.

Speaking also, UNODC Project Coordinator on Anti-Corruption, Bala Sanga, said the growing cases of terrorism funding and money laundering have become alarming, stressing the need to train experts on tax evasion and fraud.

Sanga told journalists that “chances are that anywhere you see tax evasion, you are going to see money laundering and cases of underlying corruption.”

He said though the UNODC do not meddle in the internal affairs of countries, but it is concerned with the rise in crimes such as tax evasion, terrorism funding and money laundering.

Sanga stated that the training would afford the UNODC an opportunity “to tutor law enforcement and anti-corruption agencies on intelligence led procedures for investigating corruption.”

President of the Chartered Institute of Taxation of Nigeria (CITN), Chief Mark Anthony Dike said non-tax compliance is capable of derailing Nigeria’s developmental agenda.

“It is quite glaring that the level of tax compliance in Nigeria is abysmally low. This has greatly impeded development as government at all levels in Nigeria have had to contend with paucity of the execution of the plethora of projects begging for attention.

Our reliance on revenue from oil and other hydro carbon sources has been our bane. Taking a look at the revised Gross Domestic Product (GDP) of Nigeria recently, the percentage of taxes to GDP is a far cry from what it should be. Therefore, every effort to rein in more taxes and increase compliance is a welcome development,” Dike said.

Viewed 1 times
Lamorde: Oil Price Crash Will Discipline Nigeria