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Business News

FG discloses impact of OPEC+ oil cut, how to manage post subsidy era

The historic oil deal between OPEC and other top oil-producing countries on Sunday, April 12, 2020, did not come without its own drama.

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OPEC Cut: Nigeria defies Quota, increases crude oil production, FG discloses impact of OPEC+ oil output cut, how to manage post subsidy era

The historic oil deal between OPEC and its allies (OPEC+), and other top oil-producing countries on Sunday, April 12, 2020, did not come without its own drama. These countries had to contend with the disagreement with Mexico on an output cut, antics of Saudi Arabia and Russia, and the subsequent intervention of the United States.

Following the agreement on the deal, OPEC is supposed to stick to an output cut of 9.7 million barrels per day.

Subsequently, Nigeria has provided an update on its own share of the output cut and the timelines for the deliverables.

In reaction to that, the Minister of State for Petroleum, Timipre Sylva, talked about the impact of the oil output cut by OPEC and its allies on the Nigerian economy and 2020 Budget.

(READ MORE: OPEC+ DEAL: How much Nigeria will contribute to the oil cuts)

The Minister, during a monitored interview on television on Monday, April 13, 2020, explained that the Federal Government (FG) expects that the development to shore up prices, as the country is already below the rebased budget benchmark.

Energy Crisis, OPEC, Organisation of the Petroleum Exporting Countries, OPEC Members, Nigerian National Petroleum Corporation, Crude oil production, OPEC alliance under coordinated attack and Nigeria must brace up for it, FG discloses impact of OPEC+ oil output cut, how to manage post subsidy era

Organisation of Petroleum Exporting Countries

Sylva, believes that the output cut will not make much difference to Nigeria because the country had already, in the review of the 2020 budget, rebased the production level down to about 1.7 million barrels per day.

The Minister said, “We expect that this is going to shore up prices, because right now we were already below the rebased price benchmark, we rebased the budget to $30 per barrel, but a week after that, oil prices went below $20.

“But this is going to ensure that oil prices are going to stay above our rebased benchmark of $30 and we also believe that the cut is not going to make any difference because we rebased our budget production benchmark to 1.7 million barrels and with this cut we will still be able to make that benchmark when you add our condensate production.

(READ MORE: OPEC+ Alliance, US, Russia, Canada, Mexico reach historic deal to cut 13.4 million bpd)

The minister pointed out that Nigeria is going to get the benefit of the upside of the low prices, while admitting that government has introduced price modulation, which means that the price of petroleum products in Nigeria will be determined by the international price of crude oil.

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This reinforces Federal Government’s earlier statement that Nigeria has done away with fuel subsidy.

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Chike Olisah is a graduate of accountancy with over 15 years working experience in the financial service sector. He has worked in research and marketing departments of three top commercial banks. Chike is a senior member of the Nairametrics Editorial Team. You may contact him via his email- [email protected]

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Economy & Politics

CBN extends Covid-19 forbearance for intervention loans by another 12 months

CBN will continue to charge an interest rate of 5% for its intervention loans for another 1 year.

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New CBN guidelines ban MMOs, PSPs, Operators from receiving diaspora remittances

The Central Bank of Nigeria has announced an extension of its regulatory forbearance for the restructuring of its intervention facilities by another 12 months.

In a circular signed by Dr. Kevin Amugo, the Director of Financial Policy and Regulatory. the apex bank said it will continue to charge its borrowers an interest rate of 5% per annum as against the 9% originally offered. The CBN had on March 20th reduced the interest rates on its intervention loans from 9% to 5% as part of its response to the economic crunch brought on by Covid-19 induced lockdowns.

The CBN also offered to rollover moratorium granted on all principal payments on a case by case basis. All credit facilities had been granted a one-year moratorium starting from march 1, 2020 when the pandemic first gripped Nigeria.

See excerpt from Circular

“The Central Bank of Nigeria reduced the interest rates on the CBN intervention facilities from 9% to 5% per annum for one-year effective March 1, 2020, as part of measures to mitigate the negative impact of COVID-19 Pandemic on the Nigerian economy.”

Credit facilities, availed through participating banks and OFIs, were also granted a one-year moratorium on all principal payments with effect from March 1, 2020.

Following the expiration of the above timelines, the CBN hereby approves as follows:
1) The extension by another twelve (12) months to February 28, 2022 of the discounted interest rate for the CBN intervention facilities;

2) The roll-over of the moratorium on the above facilities shall be considered on a case by case basis.

What this means

Companies who secured intervention funds from the CBN or through any of its on-lending banks will continue to service the loans at an interest rate of 5% per annum instead of 9%.

  • They can also get another year of not needing to pay back the principal sum collection. However, they will need to apply.
  • Whilst this move helps the small businesses continue to manage their cash flow, it means the CBN will record a reduction in its income extended under such facility.
  • Regulatory forbearance is a widely adopted concept during an economic crunch and it is meant to help stimulate businesses. These pronouncements if implemented will only affect those who borrow from the CBN or BOI but those who do not will miss out.
  • Download the circular here.

 

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Energy

LNG boss tasks FG to begin the monetization of Nigeria’s gas

Mr Attah has urged the FG to take the gas sector more seriously as the future of Nigeria’s energy lies with it.

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The MD and CEO of Nigeria LNG Limited Mr. Tony Attah has tasked the Federal Government to begin the revamping and monetization of the Gas sector in Nigeria.

He made this statement while making his presentation at the 2nd virtual Nigerian Gas Association (NGA) Industry Multilogues, with the theme: “Powering Forward, Enabling Nigeria’s Industrialization via Gas.”

Mr. Tony Attah drew the attention of the audience to the hidden treasure in the Nigerian Gas industry which he believes is not getting enough attention from the government.

On the future of gas as an alternative energy source, Mr. Attah stated that the developed world is already keying into gas as an alternative to crude oil. Gas has proven to be a cleaner and more sustainable alternative.

He exclaimed that Nigeria is very rich in gas and yet poor in energy. Nigeria is the 9th country with the largest gas reserves in the world but makes very little use of it.

Mr. Attah went further to paint a clear picture of the promise of investing in gas using the success achieved by Qatar. Qatar is currently the largest LNG exporter in the world.

We just touched on a quick case study of Qatar. Someone mentioned Qatar already from a poor fishing country to a gas giant and it took just 10 years, which is why we, as Nigeria LNG, firmly believe in the conversation and the narrative about the declaration of the decade of gas.

“We believe it is possible. If you look at Qatar from 1995, when they really went into gas development, we were just two years behind Qatar. So, Qatar’s first LNG was in 1997.

Nigeria’s first LNG was in 1999, just two years behind. But then, within 10 years, because of the deliberateness of the government and focus on gas, they have gone to 77 million tonnes and we are at best, 22 million tonnes,” Attah said.

Mr. Attah stressed further the importance of the gas sector in Nigeria’s future. He recalled that the Nigerian Government declared 2021-2030 as the decade of gas. He pleaded with the government to take the sector more seriously as the future of Nigeria’s energy lies with it.

Gas is the future. That future is now, and just as the Minister of State has made us to realize, gas is food in fertilizer. Gas is transport as you saw in the Auto gas project that was declared.

Gas is life, as a matter of fact, for cooking, for heating, for existence. Gas is development in manufacturing, gas is power. Gas is everything. “We think it’s time for gas. It’s time for Nigeria to diversify and that is why we fully support the decade of gas,” he said.

What you should know

  • Early last year, the director of the Department of Petroleum Resources (DPR) Mr Sarki Auwalu confirmed that Nigeria’s proven gas reserve stood at 203.16 trillion cubic feet.
  • Nigeria has the 9th largest gas reserves in the world. It is also the 6th largest exporter of gas.
  • The Federal Government declared the year 2021–2030 as the “Year of the Gas“. It pledged to finally kick start the development and commercialization of Nigeria’s huge gas reserves.

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