A Week in Nigeria: 5 September

Highlights from Reuters coverage of Nigeria over the last seven days

Nigerian governments have always capped and subsidized fuel prices at enormous expense

In this week’s round-up: Nigeria no longer fixing fuel prices says oil minister, UK court allows government time to appeal $10bn dispute, and central bank sets capital rules for mobile money licences.

• Nigeria is “no longer in the business of fixing” fuel prices, according to Timipre Sylva, the minister of state for petroleum. Africa’s largest oil producer had been spending 1 trillion naira ($2.63 billion) a year subsidizing petrol prices but the global oil price crash made removing the subsidies “inevitable”, Sylva told an online briefing. “It is about the survival of our country, the economic survival,” he said. “There are certain things that the country can ill-afford at this time.” In March, the government announced a new pricing mechanism that it said would maintain its control, but allow prices to move with the market and eliminate subsidies. Sylva said prices would now fluctuate freely with international markets, and the ministry would become an “umpire” rather than a price-setter. “Our duty now is to ensure the public is not cheated,” he said. Sylva, during his appearance in the webinar, added that the nation was producing 1.412 million barrels per day of crude oil. Its output has been closely watched for compliance with an OPEC-led supply cut agreement.
• The state-owned Pipelines and Product Marketing Company on Wednesday set its ex-depot gasoline price at 151.56 naira ($0.3981) a litre, which would put pump prices above the previous record of 145 naira a litre. Sylva said private importers could now compete with PPMC and sell fuel at other prices. However, if PPMC sets its price below market, state oil company NNPC could in effect remain the primary supplier. Price caps had previously made it unprofitable to import fuel, and NNPC had been importing more than 90% of Nigeria’s gasoline. Cheap fuel prices are seen by many in Nigeria as a benefit of living in an oil-rich country, and the government has always capped and subsidized fuel prices at enormous expense. An effort by erstwhile President Goodluck Jonathan to eliminate subsidies was scuppered after riots ensued. But with revenues battered by the coronavirus crisis, President Muhammadu Buhari’s government in March announced a new pricing mechanism that maintained government control, but reflected the market and would eliminate subsidies. At the time, pump prices fell amid tumbling oil futures, but international oil and gasoline prices have since rebounded. Unsurprisingly, there were lots of discussions on Twitter about the price change.

• A London court gave Nigeria more time to appeal in a $10 billion arbitration case, although Friday’s Commercial Court ruling did not specify the length of the extension in the long-running dispute. Process & Industrial Developments (P&ID) won a $6.6 billion arbitration award after a 2010 deal to carry out a gas project in Nigeria collapsed. This has been accruing interest since 2013 and now totals nearly $10 billion, which if Nigeria has to payout would dent the country’s foreign reserves. Nigeria has alleged corruption in the contract and the ruling will allow the government more time to investigate. “We will now proceed to a full hearing of our fraud challenge in the coming months,” a spokesman for Nigeria’s attorney general said following the ruling. “We are firmly committed to overturning the award — no matter how long it takes — to ensure that this money goes towards Nigeria’s future,” he added. P&ID, a vehicle created for the gas deal, said in a statement that it “welcomes the opportunity to refute Nigeria’s false allegations and wild conspiracy theories at trial, and has every confidence that the English Commercial Court will resolve the case justly and expeditiously.” Nigeria had sought permission to appeal the award, despite having missed the original 28-day appeal deadline. It said new information only came to light in late 2019.
• Nigeria’s central bank has sold around $50 million to foreign investors on the spot and forward markets, in what the bank called a test trade to gauge the level of dollar demand on the currency market, traders said on Wednesday. The central bank has gradually restarted dollar sales after it halted supplies following a coronavirus-induced lockdown to slow the spread of the virus, which also reduced its activities. Dollar demand has been swelling and piling pressure on the naira. Importers with past due obligations have scrambled for hard currency while providers of foreign exchange, such as offshore investors, have exited. The central bank offered a 150-day forward on the currency on Monday and also sold forex on the spot market, traders said, quoting the central bank as saying that the backlog demand was not huge. A central bank spokesman confirmed Monday’s intervention on the spot market, widely quoted by investors and importers, saying it had helped the naira rebound from a low of 480 naira on the black market. Foreign investors have sold Nigerian assets since February because pandemic lockdowns stalled economic activity and triggered a crash in the price of oil. Analysts estimate there is pent up demand of between $1.5 billion and $1.8 billon from investors looking to exit Nigeria, whose economy faces recession in the third quarter. The central bank has in the past urged investors to be patient, saying funds can exit in an orderly fashion. On Wednesday, the spot market traded $38.46 million. The naira firmed almost 10% on the black market to 435 against the dollar on Tuesday on anticipation of resumed dollar sales. The dollar was quoted at 380.50 naira on the official market. The non-deliverable forwards (NDF) market traded in London, which gives an indication of where the currency could trade, quoted the naira at 403 to the U.S. dollar in three months’ time. The naira is seen past 400 on the futures market in January.

• Nigerian authorities are disturbed by the low level of coronavirus test sample collections, a senior government official said. Africa’s most populous country of some 200 million inhabitants has had more than 50,000 confirmed coronavirus cases which have resulted in around 1,000 deaths. Boss Mustapha, who chairs the government’s task force on the disease, said he and other officials who make up the panel overseeing the response to the pandemic were “disturbed by the low level of sample collection” because of the implications for testing, tracing, and treatment. “Despite the increased diagnostic capacity and improved access to testing, the demand remains low with not enough samples being collected,” he said, adding that “the recent reduction in cases in some states could be attributed to low testing”. Africa has fared better than expected, health experts say. The continent’s number of new cases fell 11% in the past four weeks John Nkengasong, the head of the Africa Centres for Disease Control and Prevention, told an online news conference on Thursday. However, Nkengasong said inadequate testing still means the picture is incomplete.
• The central bank said it will grant more licences for payment service banks but set a minimum capital base of $13 million, which could deter telecoms firms and some other potential new entrants to the digital financial services sector. The central bank in a circular seen by Reuters said that telecom firms, banking agents, retail chains and postal services could apply for licences to become payment banks. To do so they must set up a separate company for it with a minimum capital of 5 billion naira ($13 million) and run it as an independent entity from their existing operations. The bank has granted three licences so far to 9PSB, a unit of local telecom firm, 9mobile, and two others. Nigeria wants to open up its digital financial services sector, which will help millions of Nigerians who do not have bank accounts. But regulation has been caught up with intense lobbying from lenders seeking to protect their turf in the wake of intense competition and weakening asset quality. MTN, Nigeria’s biggest telecoms firm which is yet to receive approval, last year launched a mobile money transfer service targeting those without bank accounts in a bid to secure the central bank’s approval for a payments licence. More than half of Nigeria’s population do not have a bank account. The success of mobile money in east Africa has convinced investors and the industry that financial services are the next growth area for the telecoms sector, where prices for basic services are falling. But the licensing requirement in Nigeria risks putting off telecom companies. When the central bank issued preliminary guidelines for payment banks in 2018 for discussion, telecom companies argued that they are not banks and do not need a capital base. The central bank said in its circular that it could ask payment banks to recapitalise for specific risks.

• Nigeria aims to have 50 mines in operation by 2023 and can make up for time lost because of the impact of COVID-19 on development of the nascent sector, the country’s mining minister told Reuters in an interview. Nigeria is banking on mining to diversify its income and revive its finances following a collapse in crude oil prices, which earlier this year hit two-decade lows. “The pandemic has slowed things down, but we can still catch up,” Minister of Mines Olamilekan Adegbite said. Nigeria hopes mining will grow ten-fold in five years to account for 3% of the economy and that Nigeria can process as well as mine, which generates increased profits compared with shipping raw minerals. In particular, he said Nigeria aimed to process barite, used in drilling for oil and gas, and sell it to countries such as Ghana and South Africa, which need the mineral to exploit new oil discoveries. In common with other African countries, Nigeria is also seeking to formalise artisanal mining, which could generate tax and royalties from gold. Adegbite said Nigeria was encouraging small-scale miners to form cooperatives and sell at government-buying centres, where prices are closer to global values than those illegal buyers offer. While oil prices have been weak because of the impact of the pandemic on movement and industry, which has curbed fuel demand, gold in August hit record highs. A problem for Nigeria is that its gold lies mostly in the northwest, where, humanitarian organisations say it has helped to fuel violence attributed to armed groups. Adegbite said security had improved and buying centres would stop artisanal miners dealing with criminals: “By weaning them off the illegal people and (making) sure they sell to government-approved centres, you take off that linkage.” He also expects more commercial gold miners to be attracted once Thor Explorations’s gold mine in Nigeria’s southwest starts producing. Its first gold is expected in the second quarter of 2021. Malte Liewerscheidt, vice president of London-based risk consultancy Teneo Intelligence, said the plans were likely to be undermined by “structural challenges pertaining to insecurity and infrastructure deficiencies”.
• And, finally, Nigerian conglomerate BUA Group has selected France’s Axens for a multibillion-dollar 200,000 barrel per day (bpd) refinery and petrochemicals plant in Nigeria, the French company said in a statement. Axens, which makes systems to convert oil and biomass to cleaner fuels, said it will provide technology for the greenfield project designed to produce Euro-V fuels and polypropylene targeted at domestic and regional markets. Africa’s top oil exporter aims to become a net exporter of gasoline and other petroleum products over the next two years as refinery projects in the country come on stream, the industry regulator said. “This large complex will help in reducing Nigeria’s dependence on imported fuels and petrochemicals,” said BUA, which also has interests in cement, food and mining. The BUA project will be located in the southern oil-producing state of Akwa-Ibom, the statement said. A separate 650,000 bpd oil refinery, owned by Africa’s richest man, Aliko Dangote, is already under construction in Lagos.