Emefiele Proposes Sale of Oil Joint Ventures

Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele

• NNPC’s $1.5bn debt to traders raises concern over product supply

By Ejiofor Alike with agency report

Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, has proposed that the incoming government to be led by Major-General Muhammadu Buhari (rtd) consider selling down its majority stakes in joint ventures with multinational oil companies to shore up state finances and raise funding for infrastructure development.

According to the UK-based Financial Times (FT) newspaper, Emefiele has asked CBN officials to evaluate how much could be raised if the state-owned Nigerian National Petroleum Corporation (NNPC) substantially reduced its 55 per cent equity in the joint ventures — with Royal Dutch Shell, Chevron, ExxonMobil, Total and ENI — which pump about half of Nigeria’s 2 two million barrels a day of oil production.

He believes that $75 billion is a realistic target, and that private equity groups could be encouraged to compete with the oil companies for acquisitions to ensure the price is competitive.

Some of the proceeds could be used to rebuild macroeconomic buffers damaged by the collapse in world oil prices and failure of the outgoing government of Goodluck Jonathan to save more when prices were high. But Emefiele said a greater portion should be invested in transport and energy developments that would “grow the economy and create jobs”.

“If you sell down a 30 per cent stake, you could raise something substantial. It is an option they need to consider as a way of raising further funding,” he told FT.

He added that he had commissioned the research and would present the idea to Buhari when he assumes office on May 29.

“It is an option now because our revenues have dropped and we don’t need to pile on more debt. The alternative is to look for ways of releasing value from some of the government’s assets,” he said, adding that petroleum profit taxes could be adjusted upwards to compensate for the state’s reduced stake in crude oil sales.

Emefiele’s suggested remedy could prompt opposition from those ideologically opposed to selling off state assets, and resistance from politicians dependent on oil resources for patronage.

But it will find sympathetic ears among the more liberal, market minded reformers in the administration in waiting. Some of them believe that the NNPC should be sold off altogether — both to eliminate associated corruption, and to help free up commercial oil firms to invest in new production.

For years, Nigeria’s oil production has been stagnating at around 2m b/d because of uncertainty around stalled reforms and because of the state’s difficulties in raising its own share of development and maintenance costs.

Oil company executives argue that production could be almost doubled if the NNPC were commercialised or sold, and the companies freed up to meet the full cost of investment.

“Our manifesto says we are going to break the NNPC up. But the ultimate answer may well be to divest the whole thing,” said an influential politician in Buhari’s camp.

“It is an idea that will be seriously looked at. But I don’t think it can be the immediate priority. First, we need to get back to a position where revenues that belong to the people are getting into the Federation Account. We need to stop the leakages,” he said.

Buhari, who cut his teeth in office at a time when the state was the main driver in the economy, may be harder to convince.

“We can’t just wake up overnight and sell the NNPC. First we need to see how much damage has been done and how we can stabilise the situation,” he said in a pre-election interview with the FT.

However, reformers in his camp believe he may be persuaded otherwise if oil prices remain depressed given the scant alternatives to finance the ambitious changes he has promised.

Meanwhile, the inability of NNPC to liquidate over $1.5 billion debt owed local and international oil traders involved in the importation of petroleum products on behalf of the corporation has raised concern over the long-term sustainability of supply of products in the country, THISDAY has learnt.

THISDAY gathered that the NNPC owes trading companies over $1.5 billion dating back to 2010, further confirming concerns that have been raised over the long-term effectiveness of the corporation and its ability to meet its obligations.
NNPC accounts for over 60 per cent of petroleum products imported into the country while private marketers account for less than 40 per cent.

The debt owed both local and foreign companies had initially risen to $3 billion. However, the corporation was compelled to seek a $1.5 billion loan in January 2013 from foreign and local lenders to offset its indebtedness to international oil suppliers following threats of lawsuits.

The loan was to be secured by 15,000 barrels per day (bpd) of crude oil from its exploration and production subsidiary, Nigerian Petroleum Development Company (NPDC).

The foreign traders – Trafigura, Vitol, Glencore and Acardia, among others – were under intense pressure from their bankers such as BNP Paribas, Standard Chartered, Citi Bank and Napaxis, which financed the imports to repay the loan facilities granted them.

It is not clear if the $1.5 billion loan was eventually secured, but industry sources maintain that over $1.5 billion is still owed by NNPC to local and foreign traders.

Sources among oil traders that do business with the national oil company also told THISDAY that the huge debt has raised questions over the ability of the corporation to continue to serve as supplier of last resort and provide stability in the fuel supply and distribution value chain.

According to some of the affected companies, the inability of the NNPC to liquidate its debt also raises questions over the solvency of the corporation and sends negative signals to global markets and foreign investors.

But in a swift response, a top official of the NNPC, who craved anonymity, told THISDAY that the corporation was doing everything possible to fulfill its obligation to suppliers in accordance with laid down procedures and terms of agreements.

“NNPC is a going concern with fiduciary responsibilities to the government and people of the Federal Republic of Nigeria. The fact that a change of administration is in the offing does not obliterate our financial and contractual agreements with all our suppliers and partners at different levels of engagements,” he said.

On the fear raised by the oil traders that NNPC may be insolvent, he said the insolvency tale was spurned in 2010 by a Minister of State for Finance.

“Interestingly five years after, the corporation is still standing on its feet. Like any other business concern, debit and credit transactions constitute the nucleus of NNPC’s financial operations with suppliers across board and the corporation is alive to its responsibilities to its huge base of clientele in the upstream, mid-stream and downstream sub-sectors of the industry,” he said.

However, a top official of one of the companies wishing to remain anonymous, was particularly bitter about the impact the five-year-old debt has had on his company.

“NNPC does not pay interest on delayed payments. When the import tenders were conducted in 2009, the pricing assumed a payment for the supplied products within 45 days after Notice of Readiness (NOR),” the source stated.

“We got bank facilities to finance these imports at rates of 12 per cent or 15 per cent per annum. Can you imagine the cost to us owing to the inability of NNPC to repay? All our profit has been wiped out and the banks have been chasing us to repay the loans,” said the source.

“Five years later, we still have not been paid and nobody is being held accountable. I hope with the new government coming in, they will honour their obligations and pay, with interest, the debts they owe all of us.

“The overall state of the corporation at the moment is a big hindrance to the sustainability of long-term supply,” the source added.

THISDAY gathered that these debts which, were accumulated on the back of NNPC’s erstwhile open account tender process, allowed reliable trading companies with a proven track record of good performance and strong capital base to supply products on behalf of the corporation with a payment undertaking as the guarantee.

“Initially, when a trader won the tender to import on behalf of NNPC, the agreement involved payment to the trader within 45 days. Even though NNPC was notoriously late in paying, trading companies involved in the process could easily get Letters of Credit (LC) from banks to fund the deliveries,” one of the traders told THISDAY.

“NNPC was notoriously late in paying, often running to 120 days, but the suppliers never defaulted. Nonetheless, the process suffered following the massive defaults by the NNPC, with debts spiralling to just over $3 billion and payment invoices not being settled even after 400 days,” he added.

THISDAY learnt that it was at this point that the banks became extremely doubtful of NNPC’s financial viability and pulled their credit lines to traders operating with NNPC’s payment undertaking.

This resulted in petrol scarcity and massive fuel queues nationwide. With no way of liquidating their debts, NNPC had to look for alternative ways of restoring importation to the country and eventually settled for swapping crude oil for refined product imports as a way out of the quagmire.

Debts accruing to oil traders and marketers have been widely fingered as being responsible for recurring fuel shortages in the country.

CBN to Publish New List of Bank Debtors

Godwin Emefiele

• To bar debtors from accessing forex, reduces spending limit on naira debit cards abroad

Obinna Chima   
In an effort to forestall another build up of non-performing loans (NPLs) in the banking industry, the Central Bank of Nigeria (CBN) and deposit money banks (DMBs) in the country yesterday disclosed plans to publish the names of new bank debtors.

In addition, the central bank said it might be compelled to stop such loan defaulters from accessing FOREIGN EXCHANGE through the interbank FOREIGN EXCHANGE market.

The Director, Banking Supervision, CBN, Mrs. Tokunbo Martins, who disclosed this while briefing journalists at the end of the 321st Bankers' Committee meeting in Lagos, said the names of those she described as “chronic debtors” would be published alongside the companies they represent, their directors, subsidiaries and other associates.

Martins who declined to give a specific date or period when the names would be published as well as the total amount owed by the debtors, said banks are currently compiling the names.

She said that the decision was aimed at preventing another banking crisis.
The central bank director explained: “The CBN has managed to keep the banking industry safe and sound in collaboration with all members of the Bankers’ Committee.

“But some data shows that it is increasingly becoming difficult for some debtors to pay up their loans. So it was decided that going forward, one thing that we may do is to stop them from getting access to foreign exchange.

“Another thing that we also considered going forward is to publish the names of the borrowers that refuse to pay up. This is to ensure the continuous safety and soundness of the banking industry.

“It is not all debtors, it is the bad and chronic debtors, those ones that have deliberately refused to pay, those are the ones we are talking about.”
Martins, who put the current banking industry’s NPLs at 3.3 per cent, maintained that the central bank wants to ensure that the figure does not exceed the five per cent limit.

“Total loans in the industry are in the region of N13 trillion. Right now, we have not reached the upper limit of five per cent on NPLs, but we don't want to get there. That was why we decided that we need to come out with this measure.
“It is not only the names of the bad debtors, the directors, the subsidiaries and every member of the board that would have their names published,” she added.

Responding to a question on what would happen if a debtor or his firm decides to source FOR FOREX from other market sources, the central bank director said: “There is no way we can stop the bank debtors from purchasing forex at the parallel market, but that will come to them at a cost because it is more expensive there. What we are more concerned with is the official market.

“You recall how much was spent by the Asset Management Corporation of Nigeria (AMCON) to clear up toxic loans and so we just want to make sure we are proactive and that we don't go back to a situation like that.

“There was a time we had NPLs at 2.5 per cent and 3 per cent, 3.3 per cent and so it is important that we take action now and not wait till it is too late.”

Also speaking at the media briefing, the Managing Director/Chief Executive Officer, Union Bank of Nigeria Plc, Mr. Emeka Emuwa revealed plans by banks to reduce the limit on the usage of naira debit cards abroad.

Emuwa said the committee took the decision because of some cases of card abuse abroad, which he stressed was also a threat to EXCHANGE RATE stability.

The limit currently is $150,000 per annum, but this would come down to a more practical level, he said, adding: “Whether you are using your card domestically or internationally, will not be affected.”

The Union Bank boss explained: “We did find that in a number of cases people were using the cards in a manner that they were not expected to use them and there have been cases of arbitrage. So in order to sustain stability, what was agreed by the committee was that the limit for the use of the naira debit cards would be reduced.

“As a customer, if you have a dollar account, you will still have unfettered access to it, but for naira debit accounts, the limit would be reduced to a more judicious level.

“This specifically refers to the use of these cards abroad because when they are used abroad, the merchants have to be settled.
"Even if it is at ATMs, the service provider, Visa or MasterCard, has to be settled in foreign currency and we find that it is a drain on the foreign resources available to FINANCE our industries.
“So there is going to be a reduction in the annual allowable draw down using naira debit cards abroad.”

Again, CBN Reads Riot Act on Nigeria’s Dollarisation

Mr. Godwin Emefiele, CBN Governor

Obinna Chima
The Central Bank of Nigeria (CBN) on Tuesday restated its resolve to prosecute anyone found transacting business in the country with any foreign currency as a medium of payment.

The banking sector regulator stated that its attention had been drawn to the increasing use of foreign currencies in the domestic economy as a medium of payment for goods and services by individuals and corporate citizens.

The central bank, in a statement titled: “The use of foreign currency as a medium of exchange in Nigeria,” signed by its Director, Corporate Communications, Ibrahim Mu’azu, said it had observed that some institutions price their goods and services in foreign currencies and demand payments in foreign currencies rather than the domestic currency (the naira), which is the legal tender in Nigeria.

To this end, it drew the attention of member of the public to the provisions of the CBN Act of 2007, which states inter-alia that “the currency notes issued by the Bank shall be legal tender in Nigeria…for the payment of any amount”.

Furthermore, the Act stipulates that any person(s) who contravenes this provision is guilty of an offence and shall be liable on conviction to a prescribed fine or six months imprisonment.

It added: “This prohibition, however, is without prejudice to foreigners, visitors and tourists who are encouraged to continue to use their cards for payments or exchange their foreign currency for local currency at any of the authorised dealers’ outpost.

“The general public is hereby advised to report any contravention of the provision of this Act to the Economic and Financial Crimes Commission (EFCC) and the CBN for appropriate action.”

The CBN Governor, Mr. Godwin Emefiele had last month declared that the currency for transacting business in the country remains the naira and had warned that it is illegal to carry out transactions using the US dollar. He had said the CBN would in due course go after those who violate the policy.

He had said: “We will be looking at areas where people are making demands for foreign currency; people who are landlords who are asking for rent in dollars; schools that are asking for school fees in dollars or transacting business in dollars.”

He stressed that it is illegal in Nigeria to transact business in foreign currency and advised those involved in the practice to desist from doing so, because the CBN would soon come after them.