Execution of Power Projects, Inflation Targeting, Capital Market Stability Underway

30 Dec 2012

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Power project

Given the number of unfinished economic matters in 2012, the build up to 2013 is not without some expectations from policy makers and members of the local and international economic communities. Festus Akanbi examines some business and economic issues that may shape 2013...

Cashless Policy to Spread Out
One of the finance sector policies expected to roll over into 2013 is the cashless policy introduced by the Central Bank of Nigeria (CBN) in 2012. The pilot stage of the policy kicked off in Lagos area this year with the plan to capture other parts of the country in 2013.
The policy which was informed by the need to reduce customers’ traffic in banks as well as to significantly cut down bank’s budget for currency handling services took off amid initial controversy over the workability of the cashless policy among a cross section of market women, bank customers and other stakeholders.

Till date, over 40,000 Point of Sale terminals have been deployed to supermarkets and banks in Lagos area and there has been a tremendous improvement in the acceptability of the policy in the last quarter of the year. However, other parts of the country are expected to have a piece of the action as from the first quarter of 2013.

Interest Rate to Be Market Driven
Economic analysts say interest rates in 2013 will be market driven and this is bound to be influenced by the apex bank’s anticipated adjustment of the Monetary Policy Rate in 2013. The thinking in financial circles is that the MPR is to be reduced from the current level in view of lower inflationary threats in 2013.

According to the Lagos-based investment advisory firm, Financial Derivatives Company Limited, a possible removal of fuel subsidy will stall interest rate reduction due to possibly high inflationary threat.
A leading economist, Ifeanyi Uddin, however, said the emerging scenario in the economy might compel the CBN to cut its rates at the January meeting of the Monetary Policy Committee.

He said: “I do believe that there is now a 75% probability of the January 2013 meeting of the MPC agreeing a 25 basis points cut in the monetary policy rate (MPR) that is bringing it down to 11.75%.

“The MPC may argue ceaselessly (in the words of the communiqué from its most recent meeting) that the ‘conflicting price signals coming from the latest inflation numbers from the NBS create uncertainty as to the appropriate policy stance at this time’. But the clincher for determining the policy rate over the next six months will be the economy’s slowing growth rate: 6.48% in the 9 months ended September 2012; up on the 6.39% for the 6 months to end-June; but significantly down on the 7.37% recorded over the same 9 months period last year,” he said

Sale of Bridged Banks
According to the timetable, the process leading to the divestment of the Asset Management Corporation of Nigeria (AMCON) from the three bridged banks namely Keystone Bank Limited, Mainstreet Bank Limited and Enterprise Bank Limited is due to begin by June 2013 when the regulatory bodies will begin to evaluate the bids of the various investors who have shown interest in the banks so far. The technical advisers appointed by AMCON were due to turn in their recommendations in the first quarter of the year. Already, AMCON has fixed mid-February 2014 for the handover of the banks to their new owners.

The corporation’s chief executive, Mustafa Chike-Obi, who made the clarifications at a press conference in Lagos recently said the banks would be sold during the second quarter of 2014, adding that it was the appropriate time chosen by the company to sell the banks.
“The advisers will go and look at those banks and tell us what the banks look like, especially their financial health, what they worth and what they think we should do. The first report will be due on February 15, 2013. So when they give us the report by February 15, we will take the report.”

He added: “The submitted report has to be taken to the board to consider and rectify. After the board’s consideration, the board will come out with their position, which of course will be shared with the Ministry of Finance and the CBN.

“Also, we will establish the way we wish the sale should be carried out. So selling a bank takes difficult process. And I don’t see this will be concluded in haste or I don’t see a successful sale until mid-2014. That probably will be a good timetable, because we want everybody to understand that it is a completely transparent and honest process and for that we are willing to take a little bit more time,” Chike-Obi added.

More Banks Underway
The year 2013 is also expected to see to the commencement of operations by the two already licensed merchant banks, FSDH Merchant Bank Limited and FirstRand Merchant Bank. Industry watchers said the invalidation of the universal banking regime in the country would also throw up more merchant banks in 2013.

Given the bailout being considered by CBN to aid the comeback bids of Societe Generale and Savannah Bank Limited, the probability of the two institutions to resume operations in 2013 is very high. If that is the case, it means the number of banks in the country will shoot up in the New Year.

Fuel Subsidy To Go or Not To Go
For political expediency, the federal government has been silent on what it plans to do on the issue of the deregulation of the oil market. But keen industry watchers said despite the allocation of N917 billion for fuel subsidy in the 2013 budget, government may in the New Year bow to the pressure from organised private sector for a total deregulation of the oil sector. Just last week, the Lagos Chamber of Commerce and Industry, (LCCI), a body of organised businessmen based in Lagos, urged the federal Government to fully deregulate the oil and gas sector in 2013 beyond the removal of oil subsidy. According to industry analysts, the N917 billion cannot guarantee a crisis-free subsidy regime for the whole year, fuelling the suspicion that the government may spring a surprise in the course of the New Year by voting for a total removal of fuel subsidy.

External Loans to Skyrocket
The rising appetite of states for external loans was part of the economic issues that dominated 2012. However, as the flow of allocations from the federating account thins out, financial analysts said it won’t be a surprise if more states go for external borrowings to meet the rising costs of governance in the country in 2013.

External Reserves May Continue Its Rise
With the nation’s external reserves put at $44.3 billion as at Wednesday, analysts are of the opinion that the nation’s foreign account will continue to rise in 2013.

Further analysis showed that the reserves had been rising persistently since August 6, 2012 when it recorded the last decline from $36.579 billion to $36.408 billion.

CBN Governor Sanusi Lamido Sanusi said the increase in external reserves was necessary to protect the economy from external shocks arising from decline in crude oil prices. He, however, emphasised the need for fiscal restraint and fiscal consolidation.
He said: “It is important not to be complacent and it is important to recognise that there are dark clouds in the horizon and it is extremely important to start building and continue building the fiscal buffers, go into a period of strong restraints and serious fiscal restraints and consolidation. We must continue to build up the external reserves and protect the economy from external shocks to oil prices and focus on the strength and resilience of the banking system”.

Analysts therefore believe that 2013 would be characterised by activities, which will spur a continuous inflow of foreign investment.

More Action By SURE-P
Amid the controversy trailing the activities of the Subsidy Re- investment and Empowerment Programme (SURE-P) set up in the wake of protests against the partial removal of fuel subsidy in January this year, analysts expect the Dr. Christopher Kolade-led body to make more impact in the lives of Nigerians in 2013.

The Senate committee on Petroleum had frowned on the use of N75 million by the management of SURE-P for local inspection tours in 2012. The committee also criticised SURE-P for its failure to touch the lives of Nigeria. However a member of the subsidy re-investment programme, Sam Ohabunwa, explained that the federal government chooses the projects, which the SURE-P funds would be channeled into.

CBN Policies May Still Rein in Inflation
Inflation has been largely kept in check in 2012 and it is expected to fall further in 2013. Analysts say a downward trending inflation should influence interest rate direction. With a GDP growth forecast of 7.03 percent, it is hard not to see businesses growing next year. Large corporates cash holdings could see mergers and acquisitions activity ramp higher.

Capital Market Rebound Likely
It is believed that the anticipated monetary policy easing in the early half of 2013 should result in a flight to equity while the corresponding impressive results of quoted firms will spur investors confidence and expectations. Market watchers say inflows from dividends payments may be reinvested into the market.

Another indication that the Nigerian stock market is heading towards a rebound is the fact that more firms are due to be listed as market makers in 2013 and this is expected to bring stability into the market.

More fiscal intervention is expected in the market in 2013. Already, experts are of the opinion that forbearance for stockbrokers might bring back dead stockbrokers with the attendant return of robustness to the capital market in the New Year.

New Helmsman for SEC?
There is frosty relationship between the presidency and National Assembly over the matter of the Director-general of the Securities and Exchange Commission (SEC), Ms. Arunma Oteh. The House of Representatives is insisting on her removal over allegations bordering on high handedness and disregard for due process, but the presidency maintains it would have nothing of such. The recent stalemate over SEC’s 2013 budget would appear to be the National Assembly’s warning signals to the federal government on the issue. Will the House buckle down on its demand or will the Presidency blink by agreeing to Oteh’s removal? The answer should be clear in 2013.

Power Sector Privatisation
In view of the importance attached to the power sector by the present government, much progress is expected to be made in 2013 over the ongoing power sector privatisation. So far, the National Council on Privatisation has identified successful bidders for the various generating and distribution companies. THISDAY checks showed that some successful investors are already discussing with banks on the issue of financing. Some of the issues that will have to be dealt with in 2013 include the conclusion of the sale of the Gencos and Discos by the Bureau of Public Enterprise (BPE), the negotiation of which will begin on January 14, 2013; raising financing for the Transmission Company of Nigeria (TCN); Independent Power Plants (IPPs); Gencos and Discos, and successful resolution of labour disputes with Power Holding Company of Nigeria (PHCN) staff. Other issues that need to be dealt with in the power sector in 2013 include implementing the backstopping/ guarantee of the bulk trader to Gencos/ Discos, issues with gas tariff/supply, which is responsible for up to 80 percent of Nigeria’s power generation, and the ability of the National Electricity Liability Management Company (NELMCO) to take over legacy PHCN liabilities from successor companies.

Key risk factors in 2013, according to stakeholders, include the need to reduce political and regulatory uncertainty, strengthen institutional leadership through the appointment of a substantive power minister, and the enormous challenge in getting financing for the nation’s power sector. Analysts say 2013 and 2014 should mark a major milestone for the energy industry in Nigeria because of the impact of a successful power privatisation process and the completion of the 10 power plants under the National Integrated Power Project (NIPP).
Another important landmark in the power sector expected in 2013 is the implementation of Multi-Year Tariff Order 2 (MYTO 2), which has to do with a new tariff regime in the power sector.

Analysts, however, said unless the level of power generation, which peaked at 4,502 mega watts last week, improves, asking Nigerians to pay higher tariff could spark heated debates and protests.
Meanwhile, the Nigerian Electricity Regulatory Commission (NERC) billing under the new tariff regime would be based on locations because tariff clarifications have shown that energy consumption differs from one location to the other.

PHCN Workers Severance Pay Palaver
One contentious issue that almost derailed the privatisation timetable for the Power Holding Company of Nigeria has been the combative posture of the electricity workers union who had feared that government’s decision to hands off PHCN would leave them in the cold. However, with the readiness of the federal government to disburse the N170 billion earmarked to cover gratuities and pension of former PHCN workers, analysts said the road seemed cleared for the transfer of ownership of the PHCN successor companies to their eventual owners. But some PHCN staff union officials claim the budget for clearing the entitlement of the workers is in the region of N500 billion and that the N170 billion set aside is too small.

New BP Boss Coming
To ensure it meets its deadline on power sector privatisation, the federal government is bound to pick a successor for former Director-general of the Bureau of Public Enterprises, Bolanle Onagoruwa, in the first quarter of 2013 to power the affairs of the bureau. Onagoruwa who was relieved of her position as BPE DG had driven the government privatisation programme until last month. It is believed that as the search for a new helmsman for BPE continues, the searchlight will be beamed on distinguished Nigerians scattered all over the world for the plum job.

Return of Railways
There are indications that the federal government is going to build on the euphoria that greeted its ongoing efforts to revamp the railway system. Earlier in December, the federal government had inaugurated the Lagos-Kano intercity passenger train services and haulage of petroleum products. Minister of Transport Senator Idris Umar said at the event in Lagos that the government was committed to revamping the transport sector, particularly the railway services, because of its importance to Nigeria’s economic development.

The revitalised Lagos-Kano intercity train services will complement the existing Lagos-Ilorin and Minna-Kano intercity train services.
Umar said the Federal Government had also awarded contracts for feasibility studies to open up other railway routes. He explained that the government was also rehabilitating the Eastern Railway Line from Port Harcourt to Maiduguri with spur lines from Kuru-Kafanchan–Kaduna and Kuru-Jos, while government is also repairing the Zaria-Gusau-Kauran-Namoda Rail Line. Government is also modernising the Project Phase I, Addendum 1, and Abuja-Kaduna (Idu) Standard Gauge Rail Line (187km) among others. Analysts believe all these projects may come on stream in 2013 with the attendant ease in road transportation.

Light Rail Project Nearing Completion
The light rail project of the Lagos State government is expected to near completion in 2013 considering the timetable for the projects, which expects full completion by 2014. According to the Lagos State Commissioner for Works and Infrastructure, Dr. Kadri Obafemi Hamzat, the complexity of the project necessitated a careful implementation. However, the state government is expected to push for a speedy execution of the project in 2013.

Lekki Expe Expressway of Toll Collection
In spite of its invaluable contributions to smooth traffic in the Lekki-Epe axis, the concessioning arrangement over the Eti-Osa, Lekki-Epe Expressway came under serious controversy in 2012. The project is a user-based toll road with the private party taking on full market risk. Financing is expected to be recovered through charging tolls, advertising fees, duct leases and other defined revenue sources. However, both the Lagos State government and Lekki Concession Company Limited have been severely criticised by those who saw the toll collection on the road as mere exploitation. It is expected that the state government will have to hold more town hall meetings and consider certain palliative measures to bring down the tension over the project as it attempts to open the next toll collection point on the same road.

Tags: Business, Nigeria, Featured, Power Projects

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