ExxonMobil has lifted a force majeure on Nigeria’s Qua Iboe crude oil export terminal, as crude exports resume for the first time in almost six weeks after a fire at the terminal halted operations.
This is according to a company spokesman yesterday, who confirmed the company had lifted force majeure on Qua Iboe crude loadings.
Qua Iboe production started to ramp up to normal levels of 200,000 b/d in the past week, according to sources, with the release of both the February and March loading programs.
The VLCC Dalia was also in the process of loading a 1-million-barrel stem at the Qua terminal since January 21, 2021, according to data intelligence firm Kpler. This will be the first export of Qua Iboe since December 15, 2020, after a fire hit the facility and injured two workers.
The company has been under pressure since the closure and prices have taken a hit as a result of the disruption. S&P Global Platts last assessed the grade at a discount to Dated Brent of 50 cents/b, down from a premium against the benchmark in December.
Bonny Light, a mainstay Nigerian crude which typically trades at roughly the same level as Qua Iboe, was last assessed 30 cents/b higher.
What they are saying
One trader said: “If you get a cargo of Qua now it could be 50 cents to a dollar below Bonny even – a January cargo is completely out of cycle and the reliability issues mean people won’t touch it.”
Another trader stated that: “[The return of Qua Iboe] is not what West African crude assessments (WAF) differentials needed.”
What you should know
- Qua Iboe is one of Nigeria’s largest export grades, and is very popular among global refiners, with India, the US, Canada, Italy, Spain, Indonesia, and the Netherlands being key buyers.
- Qua Iboe is light sweet crude, which has a gravity of 36 API and sulfur content of 0.13%. The crude, produced from fields 20-40 miles off the coast of southeast Nigeria, is brought to shore at the Qua Iboe terminal via a seabed pipeline system.
- Indian demand has steadied following a buying spree late last year, and European demand has been hit by renewed coronavirus lockdowns in the region.
- Prices for Nigerian crude have suffered in recent weeks, even with lower supply due to the outage.
- February and March loading programs have been issued for Qua Iboe averaging 169,643 b/d and 153,226 b/d respectively.
- Production of this key grade ranged between 180,000-220,000 b/d in 2020, according to S&P Global Platts estimates.
Why NNPC should be commercialised
A commercialized NNPC with more committed employees would mean better accountability and transparency in its operations.
The Nigerian government is seeking efficient ways of positioning the country on its path to recovery and the petroleum industry which contributes about 90% of its exchange earnings would undoubtedly be critical on this journey.
The long-awaited Petroleum Industry Bill (PIB) which seeks to regulate the entire Nigerian Petroleum Industry and repeal a host of existing legislation is paramount in transforming the industry and introducing more efficiency particularly in its government-owned parastatals. The PIB has gained more traction in the current administration and is now awaiting deliberations by legislators.
A key highlight of the PIB is commercializing the State-run behemoth, Nigerian National Petroleum Corporation (NNPC). This move would see the NNPC incorporated as a Limited Liability Company and be known as NNPC Limited. This company would conduct its affairs on a commercial basis without resorting to using government funds.
While this might seem like a bold move by the government, it still should not come off as a surprise…
Owing to the fall in crude oil prices from over $100/barrel to below $50/barrel levels in 2020, Nigeria’s exciting story with crude oil slowed down but has picked up in recent months. The country’s heavy dependence on the volatile crude oil market and its ineptitude in diversifying during its “oil-rich” days have now thrown its growth story in jeopardy. The once 3rd-fastest growing economy with foreign reserves in excess of $40bn now wallows in rising inflation complemented and a weakened currency.
Why do we need to commercialize NNPC?
A core theme with a number of government-owned parastatals is the plague of inefficiency and obscurity in the way they are run. To give an idea of the NNPC’s lack of transparency, the corporation only published the group’s audited financial statements for the first time in its 43 years of operation in 2020. It’ll be right to commend this administration is pushing for transparency but you can go on to imagine what went on during those opaque years of operation.
As expected, the results were not impressive. The corporation reported a recurring loss, albeit 70% lower in 2019. The significant reduction in losses may prove the government’s will in improving the operations of the NNPC, however, comments on the report noted that “material uncertainty exists that may cast significant doubt on the Group and Corporation’s ability to continue as a going concern.”
Moving down to the State-owned refineries with a combined capacity of 445,000 bpd, capacity utilization well below 20%, and recurring annual losses in excess of ₦150bn, we can agree that the condition of these refineries is utterly worrisome. Despite the government’s annual budget for Turn Around Maintenance of these refineries, they have now been shut down with plans to undergo a Build, Operate, and Transfer (BOT) model.
Chief among the NNPC’s problems is corruption. A number of investigative reports have explained how subsidy payments, domestic crude allocation, revenue retention practices, and oil-for-product swap agreements are smeared with corruption. The Senate has initiated countless probes and new management seeking transparency has been introduced by the President, however, it just seems like the rot has eaten too deep into the system.
What does commercializing NNPC mean for the country?
The government-managed NNPC has proved to be inefficient and riddled with corruption. A commercialized NNPC with more committed employees would mean better accountability and transparency in its operations. The possible introduction of more shareholders would strengthen the amount of funding available to the NNPC and further shift the burden of being the sole-financier away from the government.
Exploring an NNPC IPO
An Initial Public Offering (IPO) would see the NNPC’s shares traded on Stock Exchanges and position the corporation to raise much more funding, build trust and endear to the international community. While this might seem like a daunting task, Nigeria can perhaps take a cue from Saudi Arabia whose National Oil corporation; Saudi Aramco began raising capital for its IPO in December 2019.
The Saudi Crown Prince; Muhammad bin Salman (MBS) announced a valuation of $2trn enticing the world’s largest investment banks, appointed a new set of leaders on the board of the corporation, and executed a highly engaging local marketing strategy. Although the valuation figure was brought down to $1.5 – $1.7 trillion by financial advisors, Saudi Aramco successfully achieved its IPO raising nearly $26 billion for 1.5% of Aramco’s value.
NNPC’s fundamentals might not support an IPO currently as investors might be wary of the high level of risks involved but we can’t deny the immense opportunities an IPO would present not just for NNPC’s transparency and performance but Nigeria’s economic reform.
The recurring performance of the corporation with several corruption allegations, inefficiency, and unclarity is indeed worrisome. It is time to have the NNPC turn over a new leaf and operate on a commercial basis. This would afford the government the ability to deploy funds into other segments of the economy and have the NNPC focus on being a commercially viable entity.
Nigeria’s long road to metering: Who bears the brunt?
While consumers remain unmetered due to the inefficiencies of the Discos, the Discos continue to charge outrageous estimated bills.
One of the many challenges facing Nigeria’s electric power sector is the issue of metering. From being a pre-privatisation problem, lack of metering has evolved to be a more sophisticated post-privatisation feature skirting the corridors of the Nigerian power sector for the last few years.
Statistics show that the number of unmetered customers across Nigeria has continued to rise. In 2016, a metering status report from the Nigerian Electricity Regulatory Commission (NERC) showed that about 3 million of the registered accounts of customers were unmetered. In 2017, this number grew as NERC reported that over 4 million unmetered customers. In 2019, a NERC report showed that over 5 million Nigerians were unmetered and this number has continued to rise.
In a bid to address the metering gap, in 2013 at the onset of the privatised electricity sector, the Credit Advance Programme for Metering Implementation (CAPMI) scheme was launched. The purpose of the scheme was to relieve the Distribution Companies (Discos) of the burden of financing the cost of the meters. As such it enabled the customer to pay for the meter upfront while the Disco amortised the cost through electricity supplied to the customer over a period of time.
The CAPMI removed the initial capital outlay for financing meters from the Discos and Discos were to provide the customer with a meter within 45 days of payment. However, the scheme failed to deliver on its objective. As noted by the then Minister of Power, Works and Housing, Babatunde Fashola in 2016, “Discos that collected money from their customers to procure and install meters at their homes have mostly failed to do so”. The CAPMI was eventually discontinued in 2016, leaving the sector with at least a 50% metering gap.
In April 2018, the Meter Asset Provider (MAP) scheme was introduced by NERC in a bid to address the same problem. Under this scheme, there were to be third party meter suppliers engaged by the Discos, effectively removing the burden of providing meters from the Discos. The Discos were mandated to engage MAPs within 120 days.
The scheme, unlike the CAPMI, ensures that the customer received a meter from the MAP without making any upfront payment, while the payment was sculpted into the customer’s monthly electricity tariff as an energy charge until it was fully amortized. The scheme also gave customers the opportunity to choose to pay upfront and get their meters installed within 10 days in return for energy credits. It turned out that more customers were taking the alternative approach rather than the original approach as the rollout was not very favourable to those who chose to go the energy charge amortization route.
The MAP scheme has not been as successful as was hoped, with Discos missing deadlines to engage MAPs and MAPs facing the challenge of increased import tariffs and lack of local manufacturing capacity. In October last year, the Central Bank of Nigeria (CBN) launched its National Mass Metering Programme (NMMP) with a view to funding the local production, and in some, cases importation of meters by meter providers and Discos. Perhaps this was a case of putting the cart before the horse, since the facility came after the Federal Government had revised electricity tariffs upward of a 100%, not considering the fact that a teeming number of customers who had subscribed under either the CAPMI or the MAP scheme were yet to receive meters.
With the addition of the NMMP facility to CBN’s existing N213billion Nigerian Electricity Market Stabilisation Facility (NEMSF) advanced to the Discos in 2014, significant progress is yet to be seen from this facility gathering. While it is hoped that the NMMP will help close the metering gap, the brunt of the lack of metering since the privatisation of the sector has always been borne by the consumers, many of whom have had to pay exorbitant prices for meters under previous schemes, with nothing to show for it.
Interestingly, while consumers remain unmetered due to the inefficiencies of the Discos, the Discos continue to charge estimated bills even after the February 2020 NERC Order that capped estimated billing. While the Order may have merely reduced incidences of outrageous bills, Discos continue to bill customers outrageous amounts.
It is unfortunate that almost a decade after the privatisation of the Nigerian electricity sector, the Discos are unable to tackle one aspect of Aggregate Technical, Commercial and Collection (ATC&C) losses and continue to put the burden of metering or estimated billing on the customer, added to the increased electricity tariffs the customer has to pay in spite of epileptic power supply. NERC must really sit up in mandating compliance by the Discos in seeing that the NMMP combined with the MAP meet the December 2021 deadline of closing the metering gap.
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