The Nation Newspaper

Category: Issues

  • A generator-driven economy

    A generator-driven economy

    Despite the coming of the electricity generation and distribution companies, power supply remains erratic. Offices, shops and homes are being powered by generators. In the manufacturing sector, rising energy cost remains the biggest threat to sustainability of business, reports Assistant Editor OKWY IROEGBU-CHIKEZIE.

    Two years ago, President Goodluck Jonathan boasted that by June 2013, Nigerians will not require the use of stand-by generators anymore, assuring that electricity supply would be stable.

    “I promise Nigerians we will stabilise power, “ the President said in an interview in February 2012.

    He said: “By the middle of next year (2013), you will ‘dash’ me your generator. I’ll send it out of this country because we won’t need it here anymore.” It was a promise that raised the hopes of many particularly manufacturers that electricity supply would improve soon.

    In making the promise, the President must have been encouraged by the privatisation and handover of power assets to private investors in November last year.

    However, the President’s promise is yet to be fulfilled, almost one year after. Nigerians are yet to see an improvement in electricity supply. Rather than improve, it has dropped abysmally, hovering between 3, 000 and 3, 200 Megawatts (MW), which is a far cry from the anticipated 14, 000 megawatts by 2013, under the administration’s power reform roadmap. The power roadmap targeted 40,000 MW by 2020.

    Because of the drop in electricity supply, the generator market has continued to boom. Several brands and sizes of generators are competing for patronage. Inn offices, market stalls and homes, generators have come to the rescue.

    In Lagos, which houses over  17 million people, for instance, generators are common sights. Today, a business plan incomplete the cost of generators and maintenance.

    The Central Bank of Nigeria (CBN) estimates that Nigerians  spend a $13 billion yearly to fuel generators. Worst hit are manufacturers, industrialists, and small business operators that find succour in generators.

    For the President, Lagos Chamber of Commerce and Industry (LCCI), Mr. Remi Bello, poor electricity supply remains the manufacturing sector’s major challenges. While noting that the power sector privatisation is yet to make the desired impact on the sector, he lamented that profit margin of manufacturing firms are still adversely affected due to rising energy cost. He said huge energy cost remains a major threat to business sustainability.

    Bello said although some multinationals and other conglomerates in the sector may have the resilience to cope, the situation remains a nightmare for most SMEs manufacturing outfits.

    He noted that the stagnation of the SME sector remains the tragedy of the country’s economy, as production is critical to economic and social stability.

    He said the business environment is generally not conducive for manufacturing enterprises, which is why the risk of industrial investment is high and continues to get higher. The various policy interventions have not had the desired impact on the sector. Unless there is an effective and sustained protection and support for the sector, it is difficult for any significant progress to be made in this regard,” Bello said.

    Chairman, DN Meyer Plc, Sir Remi Omotoso is also not finding the state of the nation’s power sector funny. “We all know that power is life. If you don’t have it you can’t move forward. Power is basic in manufacturing. As a company we generate close to 70 per cent of our energy needs and that makes a huge negative influence to our accumulation of cost. The power crisis is a  major issue. Unfortunately, as a former minister predicted that it may take 65 years to tackle the problem.”

    He stressed that his company, which has been around for decades, has the capacity to satisfy the needs of consumers in the entire Economic Community of West African States (ECOWAS) region, but has been seriously hampered by the high cost of production , which makes the price of the end product more expensive than the imported ones. “We have not been able to satisfy our natural market because they (consumers) have alternatives and cheaper sources of paints and coatings from countries such as Dubai, Germany and Belgium,” he said.

    Executive Director, Agusto & Co., Yinka Adelekan regretted that Nigeria’s electricity consumption per capital has been adjudged to be the lowest in Africa. According to a report by the consulting  firm,  the country’s electricity consumption per capital, measured by the World Bank at 149 Kilowatts/hour (KWH) is low due to self generation by most of the citizenry which is often not captured “Typically, Nigerians resort to self-generation of electricity;  about 81 per cent of the national population (or 150 million Nigerians) generate electricity through alternative sources to compensate for irregular power supply,” she said.

    Adelekan also said that with an estimated annual economic growth of between 7 per cent and 13 per cent, as well as urbanisation rate of 3.8 per cent, the nation’s electricity demand is projected to grow from 15, 730 MW in 2014 to 41, 133 MW and 88, 282MW by year end 2015 and 2020, respectively. She disclosed that as at March 2014, electricity supply from the national grid stood at 4, 306 MW, far below the estimated demand of 12, 800 MW. This, Adelekan added, implies that currently Nigeria is only generating about 34 per cent of the country’s requirements, and this provides an enormous potential for new and existing players in the industry. She said access to electricity is low in the country, as only 40 per cent of the population has access to electricity, compared to the world average of 80 per cent.

    To make matters worse, the few who have access to electricity pay at a premium. For instance, Bello lamented that “most SMEs spend considerable sums on payment for power supply and often times these firms never get supply commensurate to payments made.” While calling on the National Electricity Commission (NERC), the electricity industry regulator, to urgently address the growing concerns of consumers over the outrageous bills, Bello said there is need for a review of fixed charges. He insisted that it is an unfair demand on power consumers.

    The National Vice-President of the Nigerian Association of Small Scale Industrialists, Chief Duro Kuteyi, is no less worried by the outrageous tariff charged consumers without a commensurate service delivery. He said the SME sector can only grow if the practice of fixed electricity charges to small scale industrialists is discontinued. He decried the impact of the high electricity charge of N186, 000 compared to actual usage of about N50, 000 and called for a proper billing system where industrialists are made to pay for what they use. He asked for a quick intervention on the power sector, noting that the burden of electricity on his members can best be imagined as may have closed shop.

    Why has there been no significant improvement in electricity supply despite the power sector privatisation? Adelekan said that Nigeria’s electricity generation capacity has fluctuated between 3, 500 MW and 4, 400 MW over the last two years due in part to shortage of gas supply. As she observed, a significant number of gas pipelines were vandalised across the country, which disrupted gas supply to power plants. Other factors contributing to the country’s low electricity generation output, she said, is the deplorable condition of some of the Power Holding Company of Nigeria (PHCN) successor generation and distribution companies (GENCOs and DISCOs), as well as high transmission/distribution losses.

    Indeed, apart from shortage of gas, the new core investors are faced with daunting challenges. For instance, The Nation learnt that shortly after the transaction and subsequent takeover of the power assets, the investors discovered that the privatisation was based on wrong assumptions because there was cash crunch in the sector and financial institutions were not willing to fund the projects, having committed about N1 trillion, which they (the lenders) are doubtful of recovering at the expected time. The exposure of the financial sector to the power sector, the investors said, is already heavy and the uncertainties arising from the situation increase their (financial sector) risk perception, which makes additional financing to cover the gaps identified in the sector difficult.

    The investors also felt bad that their projected revenue fell below expectation. They said that cash collected from customers (end users) of electricity is much lower than expected and was not enough to cover all costs in the sector. They said that the GENCOs and DISCOs face deviations between their projected business plans and the actual situation. The deviations, they said, are bigger than what can be handled within the limits of the official assumptions given for the privatisation.

    The investors also identified power equipment and facilities vandalism as a major challenge. Other challenges include energy theft, energy wastage by customers, and lack of urban planning whereby people build along the right of way of the utility companies and under high tension lines, among others.

    The challenges notwithstanding, Adelekan insists that the opportunities in the power sector are too numerous to be ignored by investors, given the wide supply-demand gap and the country’s huge population. Already, such advise as well as previous calls for increased private sector investment in the power sector, appear to be hitting the right chord. The management of Dangote Cement Plc, for instance, recently announced plans to invest $250million in coal-fired power plants in its Obajana, Ibeshe and Gboko plants.

    The Group Managing Director, Dangote Cement, Mr. Edwin Devakumar who announced this, said already the first consignment of coal has been imported from South Africa. He said the step was to address the poor power supply situation in the country. “As you know, the gas and fuel oil supply situation is going from bad to worse every day and all the manufacturing industries and all the power plants are affected,” he noted.

    The Group Managing Director regretted that the situation had reached such a critical stage that the company had been importing low Pour Fuel Oil (LPFO) due to its scarcity in the country, remarking that Nigeria normally used to export the product to other nations. According to Devakumar who disclosed that his company has taken delivery of three vessels of LPFO imported through the Apapa Ports, said each carried 30, 000 tones of the product while each of the coal plants would have capacity to generate 30 megawatts of electricity.

    He further stated that the company had to rent tank farms in Apapa, Lagos and Calabar, Cross River State to discharge the imported LPFO before transferring it to the cement plants. He particularly stressed the urgent need for the government to do something about the problems of gas and LPFO supply, noting that businesses cannot survive in the country without power and fuel and expressed fear that if the ugly situation is not resolved, it could compound the problem of unemployment and insecurity.

    “We have already lost about 10 per cent of our capacity and that means less cement in the market”, he said, adding however, that the company had also increased its production lines to take care of any shortfall. He explained that Dangote Group’s investment in coal-fired plants will give the company a lot of relief, stressing that the investment in coal has also created opportunities for the sector.

    Will other private investors take a cue from Dangote and save Nigerians and manufacturers the embarrassment of persistent poor electricity supply? Time will tell. But until and unless that happens, electricity consumers would continue to groan, while the rank of generator merchants continue to grow at the detriment of the economy generally.

  • The curse of casualisation

    The curse of casualisation

    They suffer in silence, working as slaves in big firms. They do all the work, but receive peanuts as salary. Some of them are graduates, who, for want of jobs, ended up on factory floors as casual workers. To labour experts, the exploitation of these workers is inhuman and against social justice. What is the government doing to address this problem and create more jobs? TOBA AGBOOLA reports

    Babarinde Olujimi, a university graduate, could not secure a job years after he left school.

    After a long and fruitless search, he enrolled with a private contract firm, which helped him secure a job as a factory worker. For all his hard labour, Olujimi was paid peanuts. In addition, he parted with substantial part of his salary to the job resource outfit. But six years after joining the company, Olujimi remains a casual staff. With his employment status, he has no right to any benefit from the company.

    Olujimi is not alone in this dilemma. The experience of Bassey Nkanang, who works as an operator in a chemical company owned by an Indian businessman in Ota, Ogun State, is even more pathetic. Early last year, Nkanang’s two fingers were chopped off by a machine. Following the accident, he was summarily dismissed, without compensation.

    Despite Nkanang’s experience, he could still be considered lucky to have left the company alive. The late Sunday Olatunji, who worked as an electrician in a Chinese company in Ikeja Industrial Estate, was not that lucky. He died in the line of duty. The late Olatunji, the breadwinner of his family was electrocuted in May last year in an accident that could have been averted, if not for his employer’s alleged negligence.

    The Olatunji’s colleague, Biodun Bello who witnessed the incident, narrated how he was killed because of lack of first aid in a company with a staff strength of over 500. “The man in question was never a trained electrician, but he was employed as a casual and the employer turned him into an electrician with what it considered a little training on the factory floor. On that fateful day, we were all working and one of the big fluorescent bulbs was reported bad, so Sunday was called upon to change it,” Bello said.

    Bello alleged that the company uses substandard materials and never provides workers with safety kits. “So Sunday instead of using ladder to climb, was lifted up with a forklift and without a hand glove to do the repair, but what happened stunned all of us, because no sooner was he lifted than he was electrocuted and he fell down from the forklift. We all rallied round him, but before we could move him to the gate, he died. It was unfortunate, there was no first aid, no clinic, no ambulance that could have saved him from such premature death,” he said.

    Bello, a school certificate holder, joined the company in 2011 as a casual worker on N12, 000 monthly salary, half of which is paid fortnightly. He works for 12 hours instead of the globally approved eight hours, Bello said the firm’s working conditions could be considered as slavery. He said: “We work from 7am in the morning to 7pm in the evening and while we are in the factory, nobody is allowed to go out for any reason, except for a few minutes break time. After working as casuals for three months, they will come with a form for us to sign, telling us that we are now employed as trainees and now on N15, 000 monthly salary. They would go with the form and come back after another three months with the same form for us to sign, saying that now we are their staff. This time around, the basic salary would be N6,000, transport would be N5,000, housing- N4,000 and others. Everything would add up to N22,000.

    He said the working hours still remain 12 hours and irrespective of the years or your position in the company. All the workers considered as staff earn same amount. But they never allowed the workers have a copy of the makeshift employment form usually brought to them. But are the workers truly earning this amount monthly? Bello who further painted the scenario of the condition under which they work daily said “No! “Hardly can a worker earn the amount. For example, I was promoted a supervisor, but earned the same amount as a newly confirmed staff. Beside, salary arrangement was done so that they would say they are paying the national minimum wage. But what you see in a month can be N17,000, N19,000 and at times N20,000,” he explained.

    That was not all. Bello said if a worker does not come to work in a day, even if he was sick and they see him, N3, 000 would be deducted from his salary. If it’s two days, N6,000 would be deducted. If the worker comes late, the hours will be deducted from his salary and nobody dared report. “While working in a factory, a worker is not permitted to talk to a co-worker. If you mistakenly drop anything on the floor and the Chinese managers see you, you may be slapped or kicked and called ‘Marakepi’, which means a slave in their (Chinese) local language,” he further said.

    Bello however, noted that the girls at times are not allowed to work in the factory, but engaged in the kitchen to assist the ones brought from China to cater for the teeming population of Chinese nationals brought in to do several chores that Nigerians could have done easily. The company, he stated, has over 50 Chinese workers, while the highest position occupied by a Nigerian in the company is that of a receptionist or a supervisor. Investigations also revealed that Nigerian girls working in the company have had cases of sexual exploitation and harassment by the employers.

    A visit to the industrial area in any part of the country reveals many factory workers queuing as early as 6am at the entrances of these companies, mostly owned by Indians, Lebanese, and Chinese to be absorbed, either for daily or weekly appointment, but never for permanent employment. The employers are only looking for cheap labour. Workers in these companies work between 10-12 hours daily as most resume as early as 7a.m and close about 6-7pm.

    The National President of the Chemical and Non-Metallic Products Senior Staff Association (CANMPSSA), Comrade Abdul Gafar Mohammed whose union has lost substantial number to this recent menace in the work place stated emphatically that casualisation is more terrible than unemployment, as it only provides short term relief. His words: “Casualisation is evil, worst than unemployment. An unemployed is free, but a casual is limited in freedom. Anywhere we find it, we confront it headlong. In most cases the workers themselves are intimidated by their managements and in such instance we go in to give management ultimatum and we have achieved quite a lot in confronting the menace.”

    He further said, “In most of these companies, workers’ pay is not commensurate with what they do, no adequate compensation. We have several of them. There is NUChemical Agbara as well as Industrial Milleium Chemical in Sango, just to mention few, where we have taken up a case of a worker who lost part of his hand and was dismissed without compensation. Though, he is not our member, he is a Nigerian worker and it is our duty to protect him. All these companies need proper monitoring by the government and that is why we clamour for minimum wage. But what the workers earn in these companies are peanuts, not a living wage, it cannot even take them anywhere.”

    Mohammed said workers in the companies, though are well disposed to joining the union, but are afraid of losing their jobs, as the employers always take advantage of the unemployment situation in the country to coerce the workers to sign documents denouncing the union. He lamented that jobs meant for Nigerians are now being taken over by foreigners as the expatriate quotas have been largely abused by Indians, Pakistanis, Lebanese, Chinese and others.

    “Because of the complexity in the manufacturing process, there is need to bring expertise into the country who then transfer the technology to Nigerians, but what we have now is expatriates abuse, which our agencies have failed to checkmate. As these people have taken over the jobs, more Nigerians are now in the unemployment market and are being forced to take any job that comes their way. They take casual jobs while less qualified expatriates boss them around. The scenario you see in most of these companies is that there is no defined structure,” Mohammed said.

    The labour leader also accused the government of being responsible for the workers’ plight having failed to provide the enabling environment for the companies to operate. He said: “Government itself encourages casualisation, having recognised contract agencies without any defined penalty for those who contravene the laws. Most Nigerians who have industries also indulge in this dehumanising act of casualisation, while most of these companies are backed by politicians, traditional rulers, which made it difficult for the unions to win the battle against them.

    “The Ministry of Labour is supposed to keep tab on the operations of these companies, but the factory inspectorate has failed woefully in this dispensation, or how can we say we have government when workers are being locked into work for unreasonable hours with low pay, have their hands, limbs amputated without compensation. The ministry officials should go to the companies to see what Nigerians are passing through in the hands of these employers, our government should be seen to be taking responsibility,” he pointed out.

    A spokesman of the Trade Union Congress (TUC), Mr. Jerry Amah, is of the view that although many workers are simply slaving and wasting away due to the casual status imposed by their jobs, most of them are scared of walking away from the slave labour conditions in which they find themselves, owing to the high unemployment rate and economic uncertainty in the country. He said while owners of most multinational organisations import their foreign brothers into the country to take up full time employment with all the stipulated benefits attached, they, however, find it more rewarding to place the Nigerian workers on casualisation in order to deny them the benefits attached to the job.

    “Apart from the fact that this has increased the rate of capital flight into the country, it also renders the citizens, who are supposed to be the major beneficiaries of such investment impoverished and completely hopeless,” he said.

    Much as the NLC has tried to stem the anti-labour practice through picketing and other measures as allowed by the law, the Federal Government has actually been passively concerned about the development. Even with a promise to ensure workers in the country are given their due, the Federal Government can only promise to reduce the monster called casualisation rather than putting a stop to it completely. Though there are efforts by government to boost employment generation in the country, this has not been followed by assurances of decent work and worker protection given the increasing number of casual and contract-based employments in the country.

    During one of the meetings with the leadership of the NLC and the TUC, the Minister of Labour and Productivity, Chief Emeka Wogu, charged them to make inputs to the Federal Government’s campaign to eradicate casualisation and other forms of exploitation of workers by some foreign and local employers of labour. Wogu reminded the NLC President, Mr. Abdulwaheed Omar that President Goodluck Jonathan’s administration had demonstrated its interest in workers welfare through the constitution of a number of committees on workers’ issues.

    Though the Ministry of Labour had actually instituted a committee on casualisation, which had hitherto submitted its report, labour and Nigerians are still awaiting the implementation of the committee report and only hope that it will not go the way of several reports initiated by the government in the past.

    Director-General, Nigeria Employers Consultative Association (NECA) Mr. Segun Oshinowo, charged Federal Government to enact a law that will make it impossible for employers of labour to casualise workers, noting that many employers use casualisation to dehumanise their employees. Oshinowo noted that most employers deliberately casualise workers to deprive them of benefits, insisting that the government should do well to terminate casualisation of workers as the trend has impoverished rather than enrich a lot of Nigerian workers.

    The massive shift from regular employment into temporary work or jobs through agencies and labour brokers is having a deep impact on all workers, their families, and on the society at large. According to stakeholders, the erosion of the employee-employer relationship, often the basis of labour law, is leading directly to a growing number of violations of workers’ rights.

    The International Labour Organisation (ILO) has emphasised that the expansion of precarious forms of work and deregulation of the labour market are not the answer to the employment crisis.

    The international labour centre maintained that the insecurity of working people in recent decades was a significant contributor to the recession. Moreso, it has been established that agency hires and temporary contracts destroy job security and undermine all other rights and promote gross exploitation of both the temporary worker and the permanent employee working alongside them.

    This is what is happening in nearly all sectors of the economy – manufacturing, construction, banking, telecommunications, oil and gas where contract staffing and casualisation has become the order of the day as workers in these sectors no longer have regularised employment terms.

    However, there is still hope for Nigerian workers as the bill to outlaw casualisation of workers passed Second Reading before the House of Representatives last month. If the bill is eventually passed into law, it will peg the time frame allowed for an employee to work as a casual staff in any organisation to two years.

     

  • When will rural electrification dream come true?

    When will rural electrification dream come true?

    Nine years after it was initiated, the rural electrification project is yet to take off. Reason: it is being bogged down by shoddy implementation and corruption, reports AKINOLA AJIBADE

    When the Federal Government initiated the rural electrification scheme in 2005, its aim was to get over 2,000 communities connected to the national grid. Expectations were high that the project would stimulate growth by providing electricity to residents of rural and semi-urban areas nationwide. It was also envisaged that by riding on the back of the project to bring electricity to the doorsteps of rural dwellers, their living standards would significantly improve, thus allowing them contribute their quota to economic growth. But, nine years down the line, the project is yet to deliver on its promises, leaving the intended beneficiaries in the lurch, unable to access power from the national grid.

    At present, most of the rural dwellers do not have hopes of accessing power from the grid, nor exploring opportunities provided by renewable energy like solar, coal, and biomass, among others. This, The Nation learnt, is because the grid and off-grid projects launched to improve electricity supply not working despite gulping huge sums of tax payers’ money. The Rural Electrification Agency (REA), the body set up to promote and coordinate the rural electrification projects, appears hamstrung, unable to achieved much, if any. It was learnt that the agency, whose other responsibilities include inviting, screening, approving, and monitoring of contractors hired to handle the projects is fraught with issues around funding and corruption, which is why most of the sites are littered by abandoned projects.

    For instance, Kenneth Achugbu, an Engineer and head of the agency, disclosed that of the total of 1, 946 projects inherited from the Ministry of Power, 1,994 projects were abandoned across the country. About 48 of the projects were initiated by the agency, which explains the difference in the number of abandoned projects.

    The Ogun State Governor, Senator Ibikunle Amosun blames this on the failure of successive administrations to give the rural electrification project the desired attention. He lamented that this is inhibiting socio-economic growth. According to him, many of the projects were left uncompleted by governments, and this exerts undue pressure on their successors.

    Amosun, who spoke through his Special Adviser on Energy, Taiwo Fagbemi, at the ground breaking ceremony of a power plant in Magboro, Mowe area of the state, said negligence on the part of leaders hinders the implementation of rural electricity projects. He said the wide gap in electricity infrastructure was caused by lack of cooperation among the stakeholders in the energy value chain.

    He said: “There has not been co-operation among stakeholders in the rural and urban areas, especially in the areas of conceiving, developing, and financing electricity projects. This has affected rural electrification, as well as socio-economic activities in Nigeria. This informed the government’s decision to open up rural areas in the state by providing electricity for them.. Twelve companies  in the state have demonstrated the need to improve  electricity supply to the grid. The government would provide an enabling environment for them to operate.’’

    He said the government, in line with its growth agenda, would galvanise economic activities by providing electricity for rural dwellers.

    Amosun said the rural electrification project became necessary because rural dwellers are poor and could not access electricity on their own unless the government assist them. “The lull in business activities in rural areas was caused by poverty. This permeates every aspect of the lives of rural dwellers.  How can they provide electricity, in the face of poverty?” he asked.

    The World Bank, in its poverty index on emerging countries, underscored Amosun’s assertion when it said that 75 per cent of the rural population in Nigeria live below the poverty line. The Bank said the cost of supplying electricity to rural communities is relatively high and unaffordable. It said Nigeria is  one of the countries with the lowest per capital income, adding that its citizens live under $2 per day. “High poverty ratio has made rural electrification impossible in Nigeria. Poverty and the high cost of supplying electricity is by far the most important problem facing rural electrification in Nigeria,,” World Bank said.

    However, poverty is not the only hurdle before rural electrification. A combination of political, economic, technical, social and geographical problems are also said to have conspired to slow down the pace of the project. At the center of the problem is the failure of the political elites to see rural electrification as key to  development. Also, successive governments failed to provide effective framework for power projects and  design an electrical distribution system for the population.

    Apart from bad economic climate and high cost of providing of electricity, inability of power companies to access the communities for installation of facilities, as well as resistance from the villagers, especially farmers that perpetually demand for right of way before they can allow construction and maintenance of electricity facilities take place in their domains, also contributed in stalling the projects.

    Perhaps, most importantly, the rural electrification scheme has been mired in allegations of corruption and fraud. Recall, for instance, the alleged N6 billion fraud involving senior officials of REA, Chairman, House of Representatives’ Committee on Power, Ndudi Elumelu, Senator Nicholas Yahaya Ugbana, and one other member, which caused ripples in the sector. The money, which was part of the N16 billion allocated for the National Independent Power Projects (NIPPs), seriously affected the implementation of the projects. The suspects were however, slammed a 156-count charge by the Economic and Financial Crimes Commission (EFCC).

    According to Dagogo-Wilcox, a Port Harcourt-based Public Affairs analyst, “the trial of some high profile members of the last House of Representatives and senior officials of the REA for corruption in 2009 remained one of the greatest paradoxes of our time. Elumelu and his colleagues in the committee exposed the underbelly of the graft-infested power sector, providing some insights as to why the nation remains in perpetual darkness.”

    A report on tenders for power projects  issued by the REA and  obtained by The Nation, said the projects are sited in 774 Local Government Areas (LGAs) in the country.  The report said each local council boasts at least two to three projects in line with the policy on rural electrification. Unfortunately, most of the projects have long been abandoned despite the huge amount of money being sunk into them.

    For instance, this year alone, government would spend N16 billion on rural electrification projects, according to Minister of State for Power, Mrs Zainab Kuchi.

    Speaking during the inauguration of an 11-man board for REA in Abuja, Kuchi said a large percentage of the sum would be used to revive the numerous abandoned electricity projects scattered across various rural communities. She said: “The funding for the REA is N16 billion this year and that will go squarely for the development of the abandoned projects in our rural areas. The abandoned projects have been identified and we advise proper funding for these projects.”

    Kuchi said the government’s target is to achieve 75 per cent rural electrification access by 2020. This is your (REA) charge. Your key indicators will include the number of rural communities that have access to electricity and the number of investors who we are able to attract to the rural electrification sub-sector. Others are the extent to which we are able to garner information on local technology and work towards their application in the rural electrification agency; and how many jobs we are able to create in the rural economy and the impact to which we are able to have on socio-economic development in the rural areas.” She said, electricity, under the law, falls within the concurrent, adding that the Federal, state and local governments could participate in its provision.

    The Minister’s charge was part of an attempt by government to revive the agency and position to deliver on government’s promises to give the rural communities access to electricity. For this to happen, the Minister of Power, Prof Chinedu Nebo said more investments need to be channelled to the rural electrification projects if meaningful results must be achieved. Nebo, who spoke in Lagos, recommended Private-Public Partnership (PPP), which he said, would lead to the growth of the sector. He said the issue of financing rural electrification projects, among others, is too much to be left in the hands of the government, urging private sector operators to collaborate with the government.

    “A synergy between the government and the private sector operators is necessary to solve the problems facing rural electrification project. This would help in attracting funds for project.Thereafter, industrial activities in rural communities would take place,” he said.

    He said the cost of providing and maintaining power infrastructure is high, urging companies to invest  in it.

    If and when government succeeds in getting the buy in of private sector operators in the rural electrification project, the President, Liquidfeild Petroleum Gas Association of Nigeria (LPGAN), Femi Adesina said the country has gas that can power the whole of Africa if well utilised. Adesina said greater investments in gas production would help generation, distribution and transmission of electricity in the country. He said the problem arising from implementation of rural electrification projects would reduce once the power firms are able to generate enough electricity for the country.

    As he put it, “Rural electricity projects can only connect people to the national grid when there is no interruption in the services of the power firms. The bulk of the electricity that goes to the grid comes from the gas-powered firms. The need to encourage even distribution of natural gas to domestic users is imperative for the growth of the sector. Nigeria boasts of a proven gas reserve of  187 trillion cubit feet, and 600 trillion gas projection. This has put the country in a position to meet its domestic and export needs without stress. To ensure that power firms which use about 80 per cent of the gas produced, private investment in gas needs to be improved.’’

    He said private and public partnerhip would help in solving infrastructural problems facing the sector, advsing the government to provide a framework to make it happen.

    The consensus of stakeholders is that more investments are required from the government and private sector operators for rural electrification to work.

  • Rural telephony: A project in limbo

    Rural telephony: A project in limbo

    In 2005, the Federal Government embarked on the National Rural Telephony Project (NRTP) in line with the initiatives of the International Telecommunications Union (ITU). After contract papers were signed between the country and China EXIMBank, the contractor moved to site and supplied equipment. But the project was abruptly halted. LUCAS AJANAKU reports that in view of growing rural poverty and need to make growth all-inclusive, a revisit of the project will be in the interest of the nation.

    Early this year, a lady who gave her name simply as Ngozi had travelled to Obuno Village, near Igbo Ukwu in Aguata Local Government Area of Anambra State to be part of a wedding.  These days that many of the major roads have become highways to the grave, the mobile phone becomes a handy tool to keep family and friends abreast of the journey. Contact was possible on the way because global service for mobile communication (GSM) service providers had provided access on major trunk routes.

    But when she got to her village, she was shocked that she could neither make nor receive calls. Even the text message she sent was not delivered. So, she became frustrated and asked her friends what the problem could be. She was directed to a particular spot within the community where service signal strayed into the community. It worked.

    Another subscriber from Ikpa Eluama Village, Osina Town in Ideato Local Government Area of Imo State, was shocked when he discovered that he, too, could not make calls when he travelled to his village.

    The only Base Transmission Station (BTS) in the village then belonged to MTN, but curiously for customers to enjoy the facility, they must move closer to it.

    The experience of Ngozi and her fellow compatriot fairly represent those of rural folks across the 774 local government areas of the country. Even in metropolitan Lagos, some communities are still not served or under-served.

    One of the strengths of Nigeria is her huge population and vast lands. Recent figures from the National Bureau of Statistics  (NBS) estimated the country’s population at 178 million. It is against this backdrop and the need to bridge the digital divide that the NRTP becomes important.

    According to the Nigerian Communications Commission (NCC), while mobile connected lines stand at 172,913,989, code division multiple access (CDMA) are 4,076, 933. Fixed wired/wireless are 328,388. For active lines, NCC said 126, 958,904 mobile lines are active while 2,256,61 and 172, 87 represent the figures of CDMA and fixed/wireless respectively. Thus, total active lines stand at 129, 391, 392 while teledensity stands at 92.42 per cent.

    A majority of these subscribers live in the urban areas, while a huge number of the rural populace remains underserved, or not served at all. Therefore, the next frontier for expansion for service providers is obviously the rural areas.    

    Experts see the neglect of rural access as a serious omission. If phones were more accessible and cheaper, rural development would become evident: economic opportunities, service provision and political engagement as well as social bonds would be stimulated.

    According to experts, community telephony will spur the growth of the agricultural, extractive and manufacturing industries in the rural areas.

     

    Impacts on agric sector

    Minister of Agriculture and Rural Development, Dr Akinwumi Adesina said the importance of cell phones to farmers cannot be overemphasised.

    He said: “It is actually the cell phone that has provided us with the tool to directly access each farmer thereby denying corrupt middlemen from making fortune from their sweat. Some people think that our farmers are uneducated and cannot use cell phones. The evidence does not support that. Under the Growth Enhancement Support (GES) scheme, we made it possible for farmers to transact business in their own local languages using their cell phones.

    “We intend to use the GES scheme to distribute these phones. To be entitled to a phone, farmers must be registered on the e-wallet platform. Paper vouchers will be issued to farmers who do not have phones. The government will provide a subsidy to the farmer through the voucher to buy the phone. The farmer takes the voucher to the local mobile phone operator and pays the balance which is the difference between the value of the voucher and the cost of the phone.

    “Once a farmer buys a phone and a SIM (subscriber identity module) card, his new phone number will be updated on the e-wallet database and he will be able to receive his e-wallet voucher which will entitle him to purchase fertiliser and seeds at subsidised rates. Phones will be sold directly to farmers by local mobile phone service providers.”

    According to him, the total number of transactions done by phone with respect to the GES scheme was 4.9 million, according to the data collected, based on farmers’ use of cellphones to access fertilisers and seeds last year.

    Adesina explained that out of the 4.9 million transactions, 1.2 million were in English, 620,000 were in Pidgin (English), 2.2 million were in Hausa, 854,000 were in Yoruba while 344 were in Igbo language.

    According to him, in the first year of the GES scheme, 1.2 million farmers received their subsidised fertilisers and seeds through their cell phones, saying that the number is expected to increase to 1.5 million farmers by the end of the dry season.

    He gave the percentage of farmers that had benefited from the distribution of fertilisers and seeds through mobile phones, including 25 per cent from the Northwest, 12 per cent (Southeast) 13 per cent in the Southsouth, 10 per cent in the Southwest, 18 per cent in the Northcentral and 22 per cent in the Northeast.

    Adesina, however, said  71 per cent of farmers sampled had not yet started to enjoy cell phone facility because many of the farmers in rural areas are poor and are excluded from the benefits of the mobile phone revolution going on in the country.

    According to him, the use of mobile phones to distribute fertilisers and seeds to farmers has recorded tremendous success in Kenya and Malawi through this initiative.

    Launched in 2001, the first phase of the project was to cover 218 local government areas and provide over 636,256 CDMA lines in all the council areas to bridge the digital divide.

    The project was divided into three phases, and was estimated to cost $200 million. Key Communications Limited, Suburban Broadband Limited, Voicewares Network Limited, Gicell Wireless Limited and Hezonic Limited, were involved in the project, while the Memorandum of Understanding (MoU) concerning the project was signed with a Chinese firm.

    The implementation of the project would have complemented the initiative of the International Telecommunications Union (ITU) to connect the world with technology by 2015. According to ITU, the Connect the World (Connecting the Unconnected) project by next year aims to mobilise human, financial, and technical resources for the implementation of the connectivity targets of the World Summit on the Information Society (WSIS) and the Regional Initiatives, adopted by member states at the ITU World Telecommunication Development Conference.

    Three Chinese companies – ZTE Corporation, Huawei and Shagai Bell – were initially awarded the contract but government finally suspended the project in 2011, after the firms allegedly failed to deliver the first phase of the project at agreed period.

     

    Recent attempts to resuscitate NRTP

    The Federal Government had in July last year started efforts towards concluding the transaction with the inauguration of a new board which had Senator Ken Nnamani as chairman.

    Other members of the board are Secretary to the Government of the Federation (SGF), Senator Anyin Pius Anyim; Minister of Justice, Mohammed Bello Adoke (SAN); Minister of Finance, Dr Ngozi Okonjo- Iweala and former Governor of the Central Bank of Nigeria, Mallam Sanusi Lamido Sanusi among others.

    The Ministry of Communications Technology earlier in the year promised to hand over the $200milion project to the Federal Government in April.

    Director, Posts & Telecommunications, Ministry of Communications Technology, John Ayodele gave the assurance after winners emerged in a fresh bid to hand the project over to private investors, adding that the action is subject to the approval of the Federal Executive Council (FEC).

    “The Ministry of Communications Technology is committed to conclusion of this transaction. We have included it in our 2014 budget of the ministry and we are waiting for budgetary approval. When our budget for the year is approved, all that we need to do is to get FEC to ratify President Goodluck Jonathan’s approval of the transaction.

    Once all these are done, we are looking at handing over the networks to the preferred bidders by April this year,” Ayodele had assured.

    The preferred bidders in the various zones are, Suburban Limited (now Telefund Ltd) emerging for Abuja and Kaduna zones respectively; Gicel Wireless emerging for Bauchi Zone; Voicewares Networks Limited for Enugu Zone; Key Communications for Ibadan Zone and Hezonic for Port Harcourt Zone.

     

    Fresh hurdles

    A combination of challenges ranging from paucity of funds, spectrum administration, vandalism, difficulty in effecting technology handshake a term used to describe the marriage of two technologies and inconsistent policy in government circles have posed fresh obstacles to the implementation of the project.

    A source in ComTech Ministry said the project was conceived before the advent of GSM as a way to kick-start telephoning services in Nigeria at a time when there was just about 4000,000 lines for about 120 million.

    He said the first phase was completed with the exemption of one or two areas where they could not secure land to build the master stations and the idea was that, at the time it was conceived, it was Nigeria Telecommunication Limited (NITEL) that will take it up and use it as a spreading chip for services. “So NITEL was supposed to be the transmission hub and were to hook up its exchanges but subsequently, the liberalisation policy came. GSM came and government’s focus changed.

    “NITEL was meant to be privatised or at least sold to the public, so the question of Nitel becoming a carrier for rural telephony jeopardized the system at that time. So efforts shifted. Govt was no longer budgeting for telecoms because it has been liberalised and government did not want to partake in any form of telephone service”

    Because of the mindset of government, there was no budget for the project for years because it was not a priority of government to partake in telephony service and the rate at which GSM was spreading everybody felt that rural telephony will not be a priority.

    “However, investment has been made and we need to conclude it. So govt said the best way to do it is to give it out to private operators. So the country was zoned into six and six private operators were appointed. The process was almost concluded when it was said that the Ministry should seek for the buy-in of the Infrastructure Concession Regulatory Commission (ICRC) because it was meant to be a concession arrangement. Remember at the time it was conceived, there was no ICRC so ICRC came with all sorts of conditions that were not precedent to the establishment of the rural telephony and for the past three years, the ministry has not been able to get the buy-in of the ICRC.

    “The ICRC was always coming up with conditions that were not part of the conditions when the project was created. There was no way to backdate what was done at that time to meet what ICRC is doing today. So, as I am talking to you now, ICRC has not given any concession and the project is now almost moribund.  So, as at today, six operators have been selected, they have gone through the whole bidding process. We were just about to give it out when the justice minister advised that the FEC should be brought into the project for final approval and determination. You cannot go to FEC without either ICRC or the Bureau for Public Procurement (BPP) giving a buy-in because it was a concession arrangement, it is ICRC that should have provided the buy-in but it kept shifting the goalpost.  We have explained to them in letters; we have communicated.

    Initially they say they will go round the system and see the thing themselves. There was no budget for a while, eventually we say we will put a little budget to enable them go round. In 2012, we organised them to go round but all the letters we have been writing, it is only about four weeks ago that we got a long letter from them listing conditions that must be precedent which were not conditions at the time this thing was made. So, I think for today, that is the status of the project.”

    The source added that the technology of 2001, when it was conceived, which is based on CDMA, is another problem. So, even if anybody should buy it, it is still a long way to getting it to function because they now have a way to migrate it to long term evolution (LTE) or 4G. If they don’t go that direction, it is not (going to function) and a lot of the project has been vandalised over the years. It is fairly complicated issue because if you say you still want to go by what happened in 2005, it is very difficult because the technology has to change. Anybody who is buying it now has to start a total revolution but we are still making efforts to make sure we get the operators to still go the same way they accepted to go.

    At the time it was conceived, spectrum allocation was at the discretion of government. the project was to ride on the spectrum of NITEL. “So, even if we sell today, we still have an issue with spectrum. It is the NCC that is now in charge of spectrum administration. Even if they buy, they still have to go for a round of l;icencing with NCC which was not the concept at the time it was made. Even if they agree to take over today, they are coming back to ask for the free licence and government can no longer give free licence to anybody. It’s a bit complicated but not insurmountable, it just means that we have to reengineer the whole scheme from the beginning and that is what we want to discuss with ICRC even start from scratch, then it will be like selling scrap and we want to avoid selling scrap.

    “Its a national issue and anyway we can get it done to add value to what we already have. It is the best for the nation and we need to move forward to see how it adds value to the system and we are getting there gradually,” the source said.

    Aside the suspended rural telephony initiative, an intervention, such as the Universal Service Provision Fund (USPF), established by the Communications Act of 2003, is geared towards promoting and facilitating ICT infrastructure in rural and under-served areas across the nation. It is expected to promote private sector investments, encourage competition, and give priority to self-sustaining programmes and projects. The USPF gets funding from the contribution of mobile operators who contribute 2.5 per cent of their profit to enable access to rural communities. With this kind of initiative, it shocking why a large number of villages in the nation are yet to benefit from any form of telephony access.

    The trend has been for operators and investors to invest massively in the urban areas and lower in the rural areas. But analysts argue that telcos and internet services need to deploy more infrastructure to the rural areas, since they are the next growth fontier.

    Director, Regulatory Affairs, Etisalat Nigeria, Ibrahim Dikko, struck the right chord when he challenged the Federal Government to explore alternative ways of funding the provision of telecoms infrastructure to rural areas as operators  would not do that because of low returns on such investment.

    “The government would have to find ways to subsidise rural infrastructure build, because operators most times, invest in areas that they consider commercially viable,” Dikko said.

    The Association of telcos of Nigeria (ATCON) has urged the government to synergise with telecoms operators to resuscitate the moribund National Rural Telephony Project.

    Its President, Lanre Ajayi, said this was necessary since the government had been unable to implement the project while the rural communities had yet to feel the impact of the phenomenal growth in the telecoms sector.

    “The Federal Government should support telecommunications providers to reach the under-reached and unserved areas through the USPF. In the implementation of rural telephony, government should provide operators stable power supply, accessible roads and improved security of telecoms infrastructures.

    “Opening up the rural communities through integration into the national telephone networks will enhance exploitation of the economic potential of the communities and improve the standard of living of the rural dwellers,” Ajayi said.

    Chief Executive Officer, Voicewares Networks Limited, Gerry Ekesiani said stakeholders in the project, which are operators and ComTech Ministry have engaged in meetings to resolve outstanding issues that are delaying the take off of the project.

    He lamented that the continued delay in the rollout of services is causing the Association of Rural Telephony Operators of Nigeria (ARTON) financial losses while the equipment are being vandalised.

  • Sale of refineries: The gathering storm

    Sale of refineries: The gathering storm

    Opposition by labour unions in the oil & gas industry, powerful vested interests, as well as political exigency may have forced down the hand of the Federal Government to put the proposed sale of the nation’s ailing refineries on hold. But there are indications that when the exercise goes full stream, it would be a hard nut to crack, reports Assist. Editor Chikodi Okereocha.

    A groundswell of opposition has continued to trail Federal Government’s plan to privatize or sale the nation’s ailing refineries to private investors. The opposition, led by two most powerful labour unions in the oil & gas industry, the Nigeria Union of Petroleum and Natural Gas Workers (NUPENG) and Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), contributed largely in forcing down the hand of government to put the planned sale of the refineries on hold ostensibly to get the buy in of all the stakeholders.

    Apart from the hard-line posture of the labour unions, The Nation learnt that there are other forces at play, one of which is the political exigency of the moment, which does not favour dabbling into a transaction as delicate as auctioning critical assets in an industry considered as the nation’s cash cow. The belief is that government soft-pedalled on the plan to auction the refineries apparently to avoid playing into the hands of the opposition ahead of the coming 2015 elections.

    “Its a knotty issue so, the Federal Government thought it wise to soft-pedal until after the 2015 elections,” says Obiora Akabogu, Lagos-based lawyer and public affairs analyst. He said because of the strategic nature of the oil & gas industry, government was mindful of the fact that the opposition may cash-in on the sale of the refineries to win unprecedented sympathy in the coming elections. Government is also said to be mindful of the activities of several over-night billionaires created through the importation of fuel, as well as the powerful oil ‘bunkerers’ whose illegal activities have continued to hold the country to ransom.

    Perhaps, more importantly, the non-passage of the hotly-debated Petroleum Industry Bill (PIB) by the National Assembly is said to have also contributed to government’s decision to put the privatisation exercise on hold. The PIB was designed to reform the entire hydrocarbon sector to increase the government’s share of revenue; increase natural gas production; streamline the decision making process by dividing up the different roles of the Nigerian National Petroleum Corporation (NNPC) into a profit-driven company; privatize its downstream activities; and promote local content.

    The Bill would also provide for a greater share of oil revenues to the producing communities and expand the use of natural gas for domestic electricity generation. But non of these has happened, as the Bill has since become a subject of intense politicking in the National Assembly. Differing versions of the PIB are currently being debated, especially around more contentious points such as the renegotiation of contracts with international oil companies (IOCs), the changes in tax and royalty structures and clauses to ensure that companies use or lose their assets.

    Experts argue that if the PIB, which is like the roadmap for opening up the industry for increased investments had been passed, it would have comprehensively addressed the persistent fear of investors in building refineries, settled the issue of deregulation, as well as uncertainty concerning regular supply of crude oil at reasonable prices. Because of the non-passage of the PIB, investors who got licenses to build private refineries adopted ‘a wait-and see-attitude’ and are holding back their investment. The thinking therefore, is that selling the refineries without the PIB amounts to setting the cart before the horse.

    Interestingly, the importance of the PIB in the plan to sale the refineries is not lost on the Bureau of Public Enterprises (BPE), the agency charged with preparing public enterprises approved by the National Council on Privatisation (NCP) for privatisation and commercialisation. Its Director-General (DG), Mr. Benjamin Dikki, said there is need to expeditiously and aggressively handle the issue of the PIB. As he noted, “The PIB is critical because presently, the regulatory powers are dispersed; Ministry of Petroleum Resources has regulatory powers, the Department of Petroleum Resources (DPR) has regulatory powers, Petroleum Products Pricing and Regulatory Agency (PPPRA) has regulatory powers, NNPC has regulatory powers and that is why all these years, many investors have collected licenses for refineries but none of them has set up except two.”

    The BPE boss, who said this in an earlier interview with The Nation, pointed out that investors, all this while, have not made investments in the refineries because the regulatory environment is not clear. Hear him: “I believe if we have the PIB passed and create a regulator that has all the power of regulating the industry concentrated in one place, that regulatory agency will now conduct an industry study and set cost reflective prices for gas and for other oil related products, which will now provide clarity for investors to invest,” he said, appealing to the National Assembly and all the stakeholders to come together and quickly pass the PIB. “Let us remove those controversial clauses that have stalled the passage of the bill. Nigerians stand to gain more from the passage of that bill than we stand to lose.”

    However, if and when the PIB is passed and the 2015 elections are over to allow government commence the sale of the refineries, it is unlikely that the privatisation of the refineries would be a smooth sail. For one, NUPENG and PENGASSAN, according to Dikki, appear not to be on the same page on the sale of the refineries yet. The DG of BPE explained that both unions were originally not averse to government looking at options and business model for handling the privatisation. He said shortly after that, the agency started receiving conflicting statements by branches of the same NUPENG and PENGASSAN to the effect that they are opposed to privatization.

    “Government is now conscious that if we don’t have a unified voice between NUPENG and PENGASSAN about the privatization then there is a risk. This is because they can shut down the economy and no responsible President will want to create pains for his people by a policy that can be avoided, delayed, or you look at other options,” Diki said, noting however, that the labour unions have realized also that privatisation is eminent. “What they are craving for is that we should have the LNG model, which is to say that government should still have a stake; labour should still have a stake in the refineries.  And we are not opposed to it.  We have told them that it has been a longstanding policy of the NCP that labour unions should have shares in the companies they privatised. So refineries will only be privatised when government and labour are 100 per cent on the same page,” he clarified.

    Indeed, both unions have been literarily up in arms; warning that any attempt to sale the refineries without the involvement of organized labour would be resisted. The immediate past President of PENGASSAN, Comrade Babatunde Ogun, articulated the Union’s position thus: “We condemn vehemently attempts by government to sell the four state-owned refineries in Kaduna, Port Harcourt 1 and 11 and Warri after several failures to do Turn Around Maintenance (TAM) on them. The union has noted government’s insincerity in implementing the agreement reached with NUPENG and PENGASSAN during the January 7, 2014 meeting on the sale of refineries. We are watching closely all the subterranean attempts by the BPE to go ahead with the sale of the refineries in spite of our engagement and agreement with the government.”

    The agreement, which Comrade Ogun made reference to was to the effect that the nation’s refineries must not be privatised. The President of NUPENG, Comrade Achese Igwe, noted that a Memorandum of Understanding (MoU) signed at the end of the January 7 meeting in Abuja, agreed with the Federal Government to engage in social dialogue to develop viable and workable business models for the nation’s refineries. “We state that the refineries must be rehabilitated to work optimally, which will account for at least 70 per cent of domestic production instead of selling the nation’s strategic assets,” Achese said.

    The unions believe that adopting the NLNG model, rather than outright sale, is a better business model for the refineries. Under the NLNG model being canvassed by organised labour, the National Oil Company (NOC) as owners of the four refineries, will hold a substantial minority share, while core investors/local participation hold the working majority, leaving the staff, trade unions, and the host communities also holding minority shares. Ogun argued that rather than outright sale to private owners who may come in to exploit Nigerians, government should divest a percentage of its holdings to willing state governments to improve and increase local refining and supply of petroleum products to Nigerians at affordable cost.

    “What we are saying is, if government must sell the refineries let them sell 40 per cent to states and 30 per cent to Nigerians. Government must have a stake, and the refineries must be working. Government should not give refineries subvention again. Let them go to the Stock Exchange and raise money to run the establishments,” Ogun stated, insisting that, “Government’s money in the entities should be converted to shares and let private investors buy stakes and run them. They will refine and sell to government and the public at government subsidized rates. At the end of the year they will declare profits and government will get its share of the profit.”

    The position of organised labour enjoys the sympathy of Oliver Mordi, an oil & gas expert, who insisted that as critical national assets, Nigerians must have a stake in the refineries. “Nigerians should be shareholders. Outright sale of the refineries is not the solution. What is needed is the political will and honesty of purpose on the part of government to make the refineries work optimally and profitably,” he told The Nation, pointing out that Petrobras of Brazil, for instance, is a state-run business that is working. “It is only in Nigeria that we see government business as nobody’s business,” he said, adding, “this is one area where the nation’s technocrats should feel challenged.”

    Mordi however, said that selling the refineries, government is faced with the dilemma of making sure that prices of petroleum products are competitive to attract the much-needed investments and at the same time meeting its social contract to ensure that ordinary Nigerians afford the price of petroleum products. He faulted attempts by those in favour of the sale of the refineries to draw their conclusions from the success of the deregulation of the telecoms sector. He pointed out that unlike the telecoms sector, there is an existing template in the oil & gas industry on how business should be done. Besides, petroleum products, he said, are specialised products.

    For labour, the opposition to the sale of the refineries is largely fuelled by self-preservation. For them, the fear of job losses is the beginning of wisdom. The BPE recognises this much. “Every policy you introduce brings changes. The labour leaders have a duty to their unions to get the best deal for their unions and staff. So, it is not unexpected that labour agitates and show resistance until you show them what they are going to take from it. Labour resisted the power sector reforms because they thought it will short-change their members who are staff of Power Holding Company of Nigeria (PHCN),” Dikki said.

    The DG said government realized the fears of labour, which was why it took necessary steps to work on the fears by setting up a negotiation committee. “Government went into an agreement with labour in the power sector and government has fulfilled all those terms. I want to assure all those in the oil and gas sector also that if they come to table with government, table all their issues, government will discuss with them and come up with an agreement with the Unions and government has shown a track record of keeping to the terms of its agreement and will do so not just for the oil and gas sector, but other sectors that reforms are going to be mid-wifed,” he explained.

    But as far as Akabogu is concerned, “The organised labour is a bit unpatriotic. They are afraid of shading off excess baggage, as most of them are redundant and feeding fat on the nation’s lean resources. The over bloated laour in the oil & gas industry get so much from the nation’s resources but give little in return.” He insisted that the best option for the refineries is to auction them off to private individuals, who would, at the end of the day, retain only hands that are adding value. He argued that handing over the refineries to private investors would make them perform optimally. Besides, the exercise, he said, is in line with global trend since the 80s, which favour a free market economy where government has no business being in business.

    He has ally in the umbrella body for employers in the country, the Nigeria Employers Consultative Association (NECA). Its Director-General, Mr. Segun Oshinowo, has thrown his weight behind the privatization exercise, insisting that it is the only way the refineries would perform optimally in the long run. “If we had gone that way, the whole issue of our dependency on foreign source for fuel supply would have, to a large extent, been addressed effectively. So the same courage and determination, which government has demonstrated in privatizing the electricity sector can be extended to the refineries so that we can save national resources that are going to TAM every now and then for which we have not actually got appropriate benefits,” he argued:

    The NECA DG hit the bull’s eye particularly on the nation’s age-long dependence on importation of petroleum products. Despite being ranked as world’s sixth largest crude oil producer and number one in Africa with proven reserve in excess of 38.5 billion barrels, Nigeria still imports almost 85 per cent of domestic fuel needs largely due to corruption and mismanagement of its four state-owned refineries.

    The four refineries have a combined capacity of 445,000 barrels per day (bpd), but none of them has ever been fully operational owing to low capacity utilization resulting from poor funding, obsolete equipment, inadequate maintenance, attacks on oil facilities by militants in the Niger Delta region, which interrupts the flow of crude into the refineries, as well as weak management. The sub-optimal performance of the refineries is blamed for the continuous importation of petroleum products at huge cost to Nigerians and the economy. For instance, the International Energy Agency (IEA) estimate that product imports combined with subsidized consumption cost the Nigerian government between $3–$4 billion annually.

    How does the huge cost come about? Experts say that when other oil-producing countries that have refineries come to buy crude from Nigeria they pay sundry charges such as freight, port charges and insurance, among others, before they ship the product. The same charges are replicated in their home countries before the crude goes into a refinery. After refining, the product goes through the same process when they are bringing the refined products into the country. All of these costs are ultimately transferred to Nigerian consumers at the end of the day, which is why the pump price of petroleum products is very high in Nigeria compared to other countries that have refineries.

    The Group Managing Director (GMD) of NNPC, Mr. Andrew Yakubu, sought to raise the hopes of Nigerians on the refining capacity of the refineries when he disclosed that the refineries now have 60 per cent refining capacity utilization. Yakubu who spoke at a recent capacity building workshop for media practitioners in Uyo, Akwa Ibom State, said that the refineries have capacity to refine more crude but there is currently limited supply due to pipeline vandalism. “The capacity utilization of the refineries as we speak today is 60 per cent of their nameplate. The 60 per cent nameplate capacity is not because the plants cannot take more but because we have this challenge with crude oil supply,” he said.

    However, to those conversant with the workings of the oil industry, the NNPC boss may have been economical with the truth on the capacity of the refineries. Some of them who spoke with The Nation on condition of anonymity, noted that if it is true that the refineries has achieved 60 per cent capacity utilisation as claimed by Mr. Yakubu, Nigeria would not be depending almost entirely on imported petroleum products. In fact, the existing four refineries, they argued, could not have been performing at above 30 per cent capacity at present.

    This must be why the BPE boss noted that privatisation would not only make the refineries work, but also ensure that more than 10 spinoff industries spring up using the by-products of the refineries. “Once we get the refineries working, there will be other spinoff industries that will come up from there. It will create jobs, create products that Nigeria will sell locally and internationally and grow the Nigerian economy,” he pointed out.

    Dikki must have drawn his conclusion from the success of the privatisation programme of the Federal Government so far. At a recent forum organised by the Just Friends Club of Nigeria in Abuja, where he delivered a lecture on ‘Federal Government’s Privatisation and Economic Reform Programme’, he disclosed that between 1999 and 2012, 122 enterprises had been privatised, raking in a total of N669 billion in revenue to the Federal Government.

    The N669 billion, he said, included revenue generated from the privatisation of the power sector. The DG said $2.5 billion (about N417.5 billion) was from payments made by preferred bidders of 15 out of the 18 successor companies of Power Holding Company of Nigeria (PHCN). He said that N251.5 billion was realised as gross proceeds from the privatisation of the 122 enterprises, adding that N147 billion was remitted to the Privatisation Proceeds Account at the Central Bank of Nigeria (CBN) as net profit.

    Would the groundswell of opposition allow the BPE rake in more  revenue for government from the sale of the refineries? It would take the next two years to determine that, as the BPE has said that it would take two years to conclude the exercise given its intricacies.

     

  • Stable power: Still a long way to go

    Stable power: Still a long way to go

    The citizenry expected improved power supply following the coming of the distribution and generation companies. They have been disappointed. Reason: epileptic power supply is still the order of the day. Assistant Editor EMEKA UGWUANYI reports.

    GOING by the rebasing of its Gross Domestic Product (GDP), Nigeria emerged Africa’s largest economy, but indices to support the supposed growth are not visible. Electricity, which is the key driver of industrialisation, remains a problem as demand outstrips supply.

    About 10 years ago, the Federal Government embarked on privatisation of the power sector as part of search of lasting solution solution. This culminated in the enactment of the Electric Power Sector Reform Act (EPSRA) 2005, which set the rules for transition to private sector control, such as the unbundling of the Power Holding Company of Nigeria (PHCN) into 18 successor companies, establishment of appropriate tariff regime and gas pricing, to encourage private investors. tin line with the law, President Goodluck Jonathan launched the Power Sector Reform Roadmap in 2010.

    These activities led to PHCN’s privatisation and handover of the power assets of the successor companies to private investors in November, last year. But, contrary to the expectations,there is no improvements in supply. Rather, it has dropped by as much as 50 per cent, leading to massive load-shedding and blackout in all parts of the country. Even the investors are disappointed. They are complaining that besides inadequate gas, which accounts for the drastic drop in power supply, what was handed over to them is below what they expected.

    Consumers’ view

    Industrial and residential consumers told The Nation that they have not seen any difference between the defunct PHCN and now private sector driven power sector. They said power supply has dropped below what it was when under government management. They noted that despite the poor power supply, they still are still paying the same tariff. They lamented the recent upward review of the tariff, which they are bound to pay even without commensurate supply.

    Investors’ challenges

    After the takeover of the assets of the defunct PHCN, the investors said they discovered that the privatisation was based on wrong assumptions because there was cash crunch in the sector and that the financial institutions were not willing to fund the projects, having committed about N1 trillion, which they (the lenders) were doubtful of recovering.

    The investors also felt bad that their projected revenue fell below expectation. They said cash collected from power customers was lower than expected and as such could  cover their. They explained that solutions to the issues proposed by the regulatory agency in the sector had not achieved results. They said the GENCOs and DISCOs face deviations between their projected business plans and the actual situation. The deviations, they said, are bigger than what can be handled within the limits of the official assumptions in the privatisation.

    The exposure of the financial sector to the power sector, they said, is heavy and the  uncertainties arising from it is increasing their (financial sector) risk perception, which makes additional financing to cover the gaps identified in the sector difficult. They noted that the expected change would hardly come if there is no change in the way the situation is evolving.

    The investors explained that, according to the reform agenda, the DISCOs purchased electricity from the GENCOs through a special business unit (SBU) – the Nigerian Bulk Electricity Trading Plc (NBET) – a public liability company owned by the Federal Government.

    The DSICOs sell the electricity to consumers and collect payments for their service and pay the GENCOs, unfortunately not all electricity purchased from GENCOs is sold and not all the money is collected because of losses – that is, the Aggregate Technical, Commercial and Collection (ATC&C) losses. This development, they said, constitutes serious disruption because their business plans are based on certain  assumptions.

    They lamented they discovered that the available electricity was less than what was announced by the Bureau of Public Enterprises (BPE) during bidding, adding that the power sector regulator, Nigerian Electricity Regulatory Commission (NERC) said it would be carrying out tariff adjustment regularly to meet their business plans and compensate for the collection gap from the consumers but that hasn’t happened.

    Since the DISCOs’ revenues are significantly lower than expected, they are unable to pay in full their bills to the Market Operator (MO), which consequently makes the GENCOs receive remarkably less revenues. The MO holds brief for the NBET, whose job is expected to begin in the third quarter of the year when the Transition Electricity Market (TEM) will start.

    The implication of lower revenue generation by the DISCOs is that GENCOs’ owners have to make capital injections higher than expected to cover capacity recovery plans (CRP) and capital expenditure (CAPEX) as well as operational costs, because the DISCOs couldn’t meet their financial obligations to the generators. There is higher financial stress for new owners of the power assets, the investors said.

    The Interim Market Rules (IMR) introduced by NERC to assuage the problems faced by the investors also have not made any positive impact, it was learnt; this is because there is no bankable guarantee that the investors could use to get the additional financing from financial institutions to cover the gap that exist in the sector.

    The consequences of the challenges are that the DISCOs will slow down on their electrification expansion, which will result in lower growth rate for access to electricity than expected; they may introduce more expensive tariffs to end-users, especially those that feed from embedded generation (generation outside the national grid); and slow down on the ATC&C loss reduction plans.

    The GENCOs on the other hand, will slow down their CRPs, which will result in significant drop in electricity supply to customers and lack of appetite for increased investment by the private sector as well as foreign direct investment (FDI).

    The investors also identified power equipment and facilities vandalism as a major challenge, energy theft, energy wastage by customers, lack of urban planning where people build along the right of way of the utility companies and under high tension lines and unilateral decision of government and organisations while carrying out projects within the DISCOs.

    What the investors are doing

    In order not to lose their investment and also retain confidence of the customers they serve, the investors are taking investment decisions and strategies on how best to improve delivery, their revenue generations and expand their network.

    For instance, electricity demand in Ikeja Electricity Distribution Company (IKEDC), according the Managing Director, Abiodun Ajifowobaje, is 1250 megawatts (MW) while it gets only 329MW from the national grid. The Eko Electricity Distribution Company (EKEDC) requires 700MW while it gets about 200MW. Other DISCOs have different consumption demands but certainly none gets 40 per cent of its demand from the national grids.

    They also have different infrastructural gaps that needed to be addressed, such as distribution transformers, feeders and meters to position for efficiency. The owners of Geregu and Ughelli Power Generation Companies, Forte Oil  Plc and Transcorp are investing to expand the assets.

    To improve on supply, the new owners of Eko Electricity Distribution Company (EKEDC) said they would invest N42 billion in five years to reinforce the operation of the company, adding that they have secured $150 million for network expansion and improvement. The company also plans N6.79billion investment in pre-paid metering.

    The Managing Director, EKEDC, Dr. Oladele Amoda, said: “The new investors in the company have secured about N25billion ($150million) loan from a bank to be invested in network expansion, metering of power consumers developmental projects and reinforcement of the network.

    “In the short run, we are investing about N1.3billion on metering while a total of N6.79billion will be invested within the next five years to promote effective billing and adequate metering. Our greatest challenges after the take-over include severe capacity limitations in most of the transmission stations to facilitate delivery of improved power supply to power consumers,” he said, urging the government to enact legislation that would prevent vandalism, energy and cable theft.

    Amoda said the company was discussing with some firms to generate 400MW for the customers of the company, but with special consideration for the industrial customers that need uninterrupted power supply which are also prepared to pay more.

    The management of IKEDC is also working  with its technical partners, Korea Electric Power Company (KEPCO), to ensure meter accuracy and energy loss reduction. Ajifowobaje said: “IKEDC is working with KEPCO to provide a strategic solution to metering that takes cognizance of the needs of all customers within the network. I am happy to report that with the adoption of new technology we have made substantial progress in this regard and remain committed to ensuring that all our customers are adequately metered.”

    He said the firm was discussing with private sector generators to get supplies through embedded generation to complement what  it get from the grid. “KEPCO is working to double generation from Egbin Power Generation Company in the next few years. Egbin’s installed generation capacity is 1320MW while a fresh plant that will generate 1350MW is being planned. Substantial renovations have taken place in the company while reinforcement of equipment and facilities are ongoing,” he said.

    On gas supply inadequacy, the Group Managing Director of Nigerian National Petroleum Corporation (NNPC) Andrew Yakubu said the corporation is building new pipelines to supply gas to thermal power stations, while most of the vandalised trunk pipelines have been repaired and are working. He noted that a chunk of domestic gas production is dedicated to power and assured that with the completion of the pipelines under construction, gas needs will be substantially met.

    Stakeholders’ view

    Members of the organised private sector, including the Manufacturers Association of Nigeria (MAN), Lagos Chamber of Commerce and Industry (LCCI), and operators of small and medium scale enterprises, confirmed they haven’t seen improvement in power supply from the utility companies.

    The Chairman, Infrastructure Committee, MAN, Reginald Odia, said their members are optimistic that the new investors would fix the power problem but that would not come quick because the sector has been neglected for decades resulting in lack of infrastructure and dilapidation of existing ones.

    Odia said: “For over 34 years, the power sector has been in deterioration. Past administrations neglected the sector until the regime of President Olusegun Obasanjo, who saw reason for substantial investment in power generation segment of the value chain.

    “The existing infrastructure was dilapidated, there were no new investments in the sector within the mentioned decades, therefore, we cannot expect the new investors to perform magic in terms of improved supply. They have just spent over six months on the sector’s management, and this period is too short to assess them because they have to put the infrastructure in place and this cannot be accomplished in months.

    “For energy to improve to the expectation of Nigerians, it will take at least five years, and within these five years, the investors have to massively invest in generation and distribution. Investors in distribution companies need at least N60 billion investments yearly for five years to make reasonable mark in supply while investors in generation need a minimum investment of $1.5 billion to generate reasonable and sustainable power.”

    He said that although transmission segment is managed by a private sector company, Manitoba Hydro International of Canada, government has to make huge investment in the area.

    What the government should do

    Stakeholders said the government should have an understanding with the local and international financial institutions that supported the privatisation and investors because they are suffering. The understanding, they added, would open an additional window of financing from such institutions.

    The government, they added, should establish a ‘tariff increase roadmap’ within feasible limits and far beyond the multi-year-tariff-order 2 (MYTO II) tariff review terms and firm it up through proper legal instruments. MYTO is the current tariff system used in billing electricity consumers in Nigeria, which is holistically reviewed every five years, and the system is in its second phase. Having started in 2008, the first phase ended in 2012.

    The stakeholders suggested that debts arising from interim market rules (IMR), which guide the power sector operations, from gas, tariffs, among others, need to be converted into enforceable legal instruments. Because the privatised companies need access to financing to cover the revenue gap apart from what investors have already committed during the privatisation, it wouldn’t be bad for the government to organise a stabilisation fund from which DISCOs and GENCOs could have this additional financing. The size of the fund shall arise from a thorough independent study with government’s guarantee, they added.

    However, there are some factors that militate against some of the proposals. With the poor power supply level, tariff increase may not go down well with consumers and also the government doesn’t want anything that would have it deeply involved in the management of the power sector.

    The government said in view of the critical role of transmission in the supply chain, it has made provision for rehabilitation; upgrade and expansion of the transmission infrastructure across the country for wheeling of electricity to Nigerians.

    The government said it sought external funding for the Transmission Company of Nigeria (TCN) from the African Development Bank and the Eurobond, among others, and has released N300 million from the Eurobond to the company.

    It said in January, it approved N1.9 billion for the supply of 746 kilometres of aluminum conductor composite core reinforced (ACCR) for the re-conduction of the Onitsha-New Haven 330kv transmission line that runs up to Makurdi in Benue State, secured a loan of $170 million from the French Development Agency to boost power transmission in the Federal Capital Territory. These are just few of the interventions in transmission sector, the Minister of Power, Prof Chinedu Nebo said.

    He added that in compliance with global shift to renewable energy, the government is building 700MW hydro plant at Zungeru, and is planning construction of 3,050MW Mambilla hydro project, among other smaller plants, including the Gurara 2.

     

  • Protecting investors against market failures

    Protecting investors against market failures

    Investors are risk takers.They lose or profit from their risks. While investors need no protection for the gains and losses from their investment decisions, they could also suffer from risks due to failures in market architecture and operators. Capital Market Editor Taofik Salako reports that ongoing efforts to kick-start investors’ protection funds at the capital market would protect  investors against operational and professional failures

    The capital market primarily seeks to protect investors by enforcing full, adequate and factual disclosures; bringing all the shades and hues of a prospective investment to the table for investors to make their judgments. Most part of the legal framework, rules and regulations and operating system at the market centre on this quest for full and adequate disclosures.

    These laws, rules and regulations mostly place the burden of disclosures on the issuers-the originators and sponsors of securities. As such, when issues of investors’ protection arise, many look at the direction of the issuers – the quoted companies that issue shares or bonds, governments that issue bonds and institutions that float common investment vehicles.

    But sometimes, the unsung risk is the failure of the market itself – operational and professional failures. The risk and loss here are neither due to investors’ judgments nor to their negligence, rather due to frauds, negligence and other threats on the part of registered operators and their employees or the terminal threat to the continued survival of an operator.

    The dregs of illiquidity and fraud

    The risks of market failures and operators’ infidelity are legitimate concerns at the stock market. There are large number of inactive and illiquid stockbroking firms and several complaints that border on frauds perpetrated by struggling stockbroking firms and their employees. Many reports by the NSE and SEC have identified low liquidity as major reason for most frauds perpetrated on investors’ accounts. In the throes of the recent recession and its hangovers, many capital market operators that had lost their funds had resorted to fiddling with investors’ funds including sale and non-remittance of sales’ proceeds. The NSE had recently commenced a process to determine the propriety of dealing licence of 53 stockbroking firms, a development that may lead to withdrawal of operating licence of erring stockbroking firms. Most of the firms had earlier been suspended and were inactive.

    Besides, both NSE and SEC had indicted and expelled several capital market operators. At the last count, there were not less than 38 persons under life ban from all capital market activities while some 50 operators were under various suspension terms. Several of the cases highlighted the challenges of professional and institutional failures and underscored the importance of the IPF. According to the commission, the banned persons were guilty of frauds ranging from failure to purchase shares duly paid for, illegal sale of client’s shares without mandate, misappropriation of investors’ funds, financial misstatements and non-remittance of sale proceeds.

    In one of the cases, a member was banned for life for several gross abuse of market and frauds including failure to pay capital and interest on investments as fund managers, failure to purchase shares paid for by clients, failure to verify and lodge shares as mandated by the clients, failure to carry out various instructions by clients and regulators, non-remittance of sale proceeds and mismanagement of dividends and bonuses in respect of the un-purchased stocks.

    Some of the earliest sanctions included former staff of the Central Securities and Clearing System (CSCS) who connived with some stockbrokers to fraudulently clone and sell shares of a multinational conglomerate. CSCS is a subsidiary of the NSE and the only clearing, settlement and depository agent for the Nigerian capital market.  In another instance, two individuals were placed under indefinite ban due to their failure to disclose material facts of indebtedness and negligent auditing of a petroleum-marketing company. In another case, a member was sentenced to life ban for selling the shares of a deceased worth N200 million without authorisation or recourse to the administrators of the estate of the deceased.

    Besides, the Chartered Institute of Stockbrokers (CIS), the statutory self-regulatory organisation that controls the practice of stockbroking in Nigeria, has delisted and withdrawn membership of not less than three stockbrokers over the last 12 months. The CIS Disciplinary Tribunal, the disciplinary and adjudicating arm of the institute, has been quiet active. The tribunal has continued to show the possibility of intended fraud among some unscrupulous operators.

    In a case resolved this year, a stockbroker had collected N320, 000 from two persons under the pretence that he had shares of Friesland Campina Wamco Nigeria to sell when he knew in actual fact he had no such shares to sell. While the stockbroker was sanctioned and made to buy the shares, with all entitlements, to the investors, the case underlined the risks faced by investors.

    Mechanisms for investors’ protection

    The Investment and Securities Act (ISA) 2007 generally requires the Securities and Exchange Commission and all securities exchanges and capital trade points to individually establish and maintain an investors’ protection fund (IPF) to compensate investors with genuine claims of pecuniary loss. Specifically, Part XIV of ISA demands for the establishment and maintenance of an investors protection fund to compensate investors with genuine claims of pecuniary loss against dealing member firms resulting from insolvency, bankruptcy or negligence of a dealing member firm of a securities exchange or capital trade points; and defalcation committed by a dealing member firm or any of its directors, officers, employees or representatives in relation to securities, money or any property entrusted to, or received by the dealing member firm in its course of business as a capital market operator.

    The ISA also requires SEC to also establish “a nationwide trust scheme to compensate investors whose losses are not covered under the investors protection funds administered by securities exchanges and capital trade points”. This additional protection ensures omnibus coverage for non-investment-decision related losses. Besides SEC and NSE, the two most prominent capital market regulators, the provisions of the ISA explicitly implies that other exchanges such as the Abuja Securities and Commodity Exchange (ASCE), NASD Plc and FMDQ OTC Plc would also have to establish separate investors’ protection fund. The NSE has already established its IPF, after receiving SEC’s approval for its operating rules. The board of SEC has also approved the establishment of a national investors’ protection fund (NIPF) and relevant operating rules.

    One side of the coverage

    The NSE had in 2012 inaugurated a nine-man board of trustees under the chairmanship of Mr Gamaliel Onosode. Other members of the board included chief executive officer of Nigerian Stock Exchange (NSE), Oscar Onyema; Misan Kofi-Senaya, managing director of Central Securities Clearing System (CSCS), Mr. Kyari Bukar, chairman, Ibadan Zonal Shareholders Association (IBZA), Chief Sola Abodurin; Fubara Anga, Edosa Kennedy Aigbekaen, Sam Onukwe and Umaru Modibo. The rules and regulations for the NSE’s IPF were however approved earlier this year by SEC.

    Under the NSE’s IPF rules, compensation would be paid subject to conclusive decision of the board on the basis of evidence that the investor has a claim against a dealing member, duly applied for settlement of its claim from the dealing member; the dealing member was unable or likely to be unable to satisfy the claim within a reasonable period and the investor then, duly applied for compensation from the Fund. However, the IPF rules empower the board of IPF to have at anytime a written policy on the maximum compensation payable to an investor who has suffered a loss. The board can review this maximum compensation limit from time to time according to prevailing circumstances at the market.

    In order to avoid multiple compensations for the same infraction, the rules set out conditions and treatments of various payments. For instance, an investor whose claim is within the maximum limit may be paid the full amount of the loss, after deduction of any amount or value of all monies or other benefits received or receivable by the investor from a source other than the Fund in reduction of the loss.

    But where the board is satisfied that in principle compensation is payable but considers that immediate payment in full would not be prudent having regard to other applications for compensation, or to any uncertainty as to the amount of the investor’s overall net claim, the rules empower the board to pay an appropriate lesser sum in final settlement or to make a payment on account. Besides, IPF may also determine to make a payment on account or to pay a lesser sum where the investor has any prospect of recovery in respect of the claim from any third party or through an application for compensation to any other person or authority.

    In the event of multiple claims, person who claims in a double capacity for himself and as the personal representative of a deceased investor will be treated in respect of the representative claim as if he were the deceased investor without prejudice to his own personal claim. Also, where a person claims for himself and as a trustee, he will be treated in respect of the latter claim as a different person.

    But where two or more persons in partnership have a joint beneficial claim, the claim will be treated as the claim of the partnership; otherwise each of them would be taken to have equal shares in the claim unless the contrary is proved to the satisfaction of the board of IPF. Where an agent has a claim for one or more principals, the principal or principals are to be treated as having the claim, to the exclusion of the agent.

    The NSE’s IPF also takes into consideration the possibility that investors may be partly responsible for their losses. According to the operating rules, the IPF may determine to reduce the compensation which would otherwise be payable to an investor in circumstances where it is satisfied that the investor is partly to blame for the loss which he has suffered. Also, an application for compensation may be rejected if it is not promptly made and in any event within the periods stipulated in the ISA or where the investor is responsible for, or has directly or indirectly profited from, events relating to the dealing member firm’s business which gave rise to the firm’s financial difficulties.

    National cover for investors

    Unlike the NSE’s IPF, which is restricted to institutional and individual failures of its dealing members and their employees, SEC’s national investors’ protection fund (NIPF) provides a broader coverage against losses recorded due to activities of other capital market operators, who are not members of the Exchange. The legal framework that established the SEC’s NIPF, which was released recently, has many similar provisions with the NSE’s IPF and several unique guidelines that set it aside as a scheme under the apex capital market regulator. Broadly, the aim and beneficiaries of the NIPF and IPF are the same.

    However, the NIPF will apply only to defalcations by insolvent or bankrupt capital market operators not dealing members of Securities Exchange or Capital Trade Points. In other words, the NIPF will be for the purpose of compensating investors whose losses are not covered under the Investors’ Protection Funds being administered by Securities Exchanges and Capital Trade Points.

    SEC is expected to provide the initial take-off grant for the NIPF. It will subsequently generate funds through grants, subventions, donations and annual contributions to be made by all capital market operators not subject to contribute to the IPF of Securities Exchanges and Capital Trade Points. SEC will determine the applicable annual contribution. The board of the NIPF is also empowered to obtain loans, subject to approval of SEC. Also, the NIPF can generate funding through assets, properties or cash that shall be realised from liquidated operators after compensation to investors and proceeds from investment of its resources.

    While the NSE’s IPF is silent on the initial ceiling for compensation, the NIPF capped the maximum amount payable to an investor who has suffered loss at N200, 000 or its equivalent in form of shares or units, provided that where the amount of loss is lesser, the investor shall be paid the calculated amount of loss. The NIPF however provides that the amount of compensation may be reviewed from time to time as approved by the board of the fund.

    In what may amount to subtle attempt to remove possible threats of litigations from aggrieved investors, the NIPF rules stated that “the Fund is not under any obligation to pay compensation to an investor” while “any claim prior to the commencement of these rules shall not be covered by the Fund”. The NIPF mostly shared the same views with the IPF in the areas of multiple claims and compensations, inadequate fund as well as dismissal of claims from investors who participated in the wrongful act of the operator.

    More importantly, the NIPF will also not apply to losses arising from transactions not regulated by the commission. These unregulated transactions include private placement and private equity investment.

    Communication Adviser, Securities and Exchange Commission (SEC) Mazi Obi Adindu said the NIPF has been designed as a strong hedge against loss of value to investors. He said with the approval of the rules and guidelines for the NIPF, the commission would make earnest efforts to put in place other structures to facilitate effective take-off of the scheme.

    Applying for compensations

    But for investors, getting compensations will not be that straightforward and stress-free. Hopes of compensation start from basic understanding of the market rules and possession of relevant documentations. Both the SEC and NSE’s investors’ protection funds outline clear application guidelines while the general bodies of the rules and regulations for the funds show that only diligent investors might get compensations.

    According to the SEC’s NIPF, investor must submit application for compensation within 12 months after the investor became aware or ought reasonably to have become aware of the status of the investments. The investor is also expected to back up his claims with relevant evidence. The board of NIPF is expected to set up a ‘Review Committee’ which shall be charged with the responsibilities of reviewing the claims of investors and making recommendations to the board. The decision of the board is final on compensation.

    While the NSE’s IPF was silent on the timeline, the operating framework only empowers the board to make payment of compensation based on the claim submitted to the NSE and verified by the NSE or claim submitted to the board of IPF and verified by it, according to relevant sections of the ISA.

    These imply that only investors with transactional evidence such as receipt, deposit slip, mandate forms, shareholding statements, client-membership forms and other transactional documents that validly establish the transaction between the investor and the market operator on one hand and simultaneously prove that the investor had suffered a loss due to no fault of his.

    Onosode said the IPF would only be guided by facts and figures at every time. A doyen and one of the oldest stockbrokers, Onosode knows the rules and can shift the facts from facades of emotions and negligence, which have no place in the marketplace. According to him, the fund would not be subject to abuse and it would not encourage any kind of substandard behavior.

    Onyema said provision of clear guidelines for compensation of legitimate claimants and modernisation of the operations of the IPF would help to reduce the hassles and enhance confidence.

    Beyond compensation to self protection

    The spirit, letters and realities of the IPFs underline the fact that the compensation may not be enough to recompense investors. These underscore the need for investors’ education as the bulwark of defence against market failures. Already, the NSE’s IPF is reported to have a bagful of claims and requests for compensations. At the last count, not less than 600 claims and requests have been submitted to the board of trustees of the IPF. With IPF’s fund recently estimated below N1 billion, the mounting claims for compensations will not only subject the board to rigorous tests of the substantiality of the claims but also the degree of compensation based on the existing capital base of the fund.

    Immediate past president, Chartered Institute of Stockbrokers (CIS), Mr. Ariyo Olushekun, said the IPF may not be able to cover all cases of market abuses and fraudulent practices against investors given the size and frequency of market infractions and the fund.

    According to him, the IPF might not be enough to protect investors on a sustainable basis because the incidence of market abuses and fraudulent malpractices in the past has overwhelmed the existing fund available. The challenge before the board of trustees of the IPF is to manage and grow the fund in a way to meet its objectives.

    Olushekun said the best and most effective way to protect investors is to institute and enforce proactive measures that enhance market integrity and forestall abuses. “The importance of effective regulation in the capital market cannot be overemphasized. Regulations must be designed to address current market realities and by this, they must be up-to-date and relevant.  The importance of regulation and enforcement of rules is paramount in investors protection and in gaining investors confidence,” Olushekun said.

    He outlined that certification, continuous training and effective disciplinary measures of the CIS have proved to be major contributors to protection of investors as stockbrokers are usually wary of infringing on codes of ethics and professional guidelines set by CIS.

    According to him, stockbrokers help to protect investors from vagaries of the market and possible abuses by giving quality investment advice that takes into consideration investor’s investment objective, the risk-return profile of investment opportunities and the capacity of the investor to undertake the risk.

    Executive Director, Investment One Financial Services Mrs Abimbola Afolabi-Ajayi said both the regulators and operators must make concerted efforts on investment education to forestall instances of abuses and ensure that investors play in the market according to their objectives.

     

  • Much ado about planned merger of aviation agencies

    Much ado about planned merger of aviation agencies

    The proposed merger of three aviation agencies to form the  Federal Civil Aviation Authority ( FCAA), is generating ripples. The government insists the merger would reduce overhead costs, enhance efficiency  and streamline operations. But aviation unions , airline operators and other stakeholders argue that the proposal breaches  international  regulations.They say safety can be threatened if aeronautical services and civil aviation oversight are vested in one body, KELVIN OSA OKUNBOR reports.

    Plans by the Federal Government to merge Nigerian Civil Aviation Authority ( NCAA), Nigerian Airspace Management Agency (NAMA) and the Nigerian Meteorological Agency ( NIMET)  to form  Federal Civil Aviation Authority ( FCAA), are being resisted by some stakeholders

    Leading the opposition are key stakeholders in the aviation sector, which  include aviation unions and airline operator  who continue to erect a road block against  the realisation of the merger plan. this is despite the many benefits adduced by government for the proposed merger .

    According to government,  merging the agencies would save costs and enhance personnel efficiency.Government explained that the resolve to merge the  agencies was the outcome of the white paper issued on the report of the Steve Oronsaye-led Presidential Committee on the Restructuring and Rationalisation of public parastatals, commissions and agencies.

    The overall objective of government to restructure commissions and agencies is to  achieve efficiency and  cut down on overhead costs.

    Speaking in a recent interview, the supervising minister of aviation, Dr Samuel Ortom said: “The Oronsaye  Committee, I believe, considered all options and consulted widely with the relevant stakeholders even in the aviation industry before making the recommendations.

    Government has also looked critically at the proposal and considered it in the interest of the sector to approve the proposal.

    The merger, I believe, will improve efficiency and reduce waste and overhead cost in the aviation sector. However, the President has set up an implementation committee to see to the merger process.

    I don’t believe the government would go all out to implement policies that would hurt the aviation industry. The government considers the aviation industry very critical to transforming the economy, thus it wouldn’t jeopardise that with aviation hurting polices.

    Let’s trust the government to do what is right. This government is a listening administration,  if at any point the government considers the merger detrimental, it wouldn’t hesitate to rescind its decision.”

    The Minister therefore, said government is going ahead to implement the recommendations of the Oronsaye committee report, a move which is now being resisted by aviation unions, airline operators and other stakeholders.

    The airline  operators and aviation unions argue that the proposed merger of the agencies contravenes the standards and recommended practices of the International Civil Aviation Organisation (ICAO), the global civil aviation regulator .

    Some of them also argue that attempts by government to fuse the  three agencies would stunt the growth and development of the sector.

    Already, aviation  unions such as Air Transport Services Senior Staff Association of Nigeria ( ATSSSAN) National Union of Air Transport Employees (NUATE ) and National Association of Aircraft Pilot and Engineers ( NAAPE ) have put their members on  the alert in preparation for  strike should government go ahead to merger the agencies.

    The unions reason that their members could lose their jobs should government go ahead with the merger. This was why  the aviation workers vowed to resist the merger, arguing that it is not healthy for the industry.

    The unions affirm that allowing the merger to stand amounts to taking the aviation sector back. They argue that ICAO regulations prescribe that the provision of civil aviation regulations should be separated from air navigation services.

    A source in one of the affected agencies told The Nation that the security and safety implications of the merger may force government to jettison the proposed merger.

    The source hinted that three reports from the department of state services , two from Lagos and one from Abuja, indicated that the policy, no matter how lofty, may not augur well for the  aviation  sector because of its radical departure from standards and recommended practices of ICAO.

    Arising from the seriousness of the security reports, the Federal Givernment may have opened lines of communication with union members in the aviation sector.

    This, The nation learnt,  was sequel to  warning by aviation unions last month that the Federal Government might be sanctioned  by ICAO over the proposed merger of the agencies.

    Addressing reporters,  Spokesman of the unions, Comrade Benjamin Okewu, who is  also President of  ATSSSAN, said the planned merger of the agencies is in gross violation of international standards and regulations of ICAO.

    He said : ” We strongly support the current model that makes for the autonomy and independence of the NCAA and feel it should not in any way be diluted, as doing so would attract dire consequences from ICAO and the FAA.

    Why are we  in Nigeria reinventing the wheel ?

    The current model of allowing the agencies stand alone is acceptable worldwide and it is working perfectly well”

    While the unions recognise the prerogative of the Federal Government to restructure and consolidate its parastatals for whatever reasons, we are of the opinion that  government should have consulted widely on the issue and its consequences on the industry before taking the decision.

    We say boldly that whatever savings the federal government intends to achieve through this merger will definitely compromise safety which we all know is priceless. You cannot quantify the cost of safety and efficiency, neither can we mortgage safety on the platter of reducing cost.”

    He further said: “This subject was extensively discussed at the 38th session of the ICAO Assembly in Montreal, Canada and a resolution was passed with a directive to member states to endeavour through national legislation to separate civil aviation regulatory responsibilities from those of service providers.

    The resolution became necessary because ICAO recognizes that a potential conflict of interest exist where a single entity performs both functions.

    It is obvious here that the regulator  cannot regulate itself because there will definitely be conflict of interests.

    Why then would the Nigerian government make such a pronouncement having been part of the 38th ICAO assembly that took the referenced resolution? Out of the 197 contracting states, over 100 have CAA’s that are independent of other Service Providers.

    Other non compliant states are transiting into the ICAO recommended model. Even Ghana was in Nigeria to do a study to implement same in their country.”

    Okewu said  with the proposed merger, government is going back to an arrangement that existed over 20 years ago in the days of the defunct FCAA

    He said :” That system was found to be unprogressive, dysfunctional and unable to project adequately the safety oversight responsibility of the then FCAA and Consequently, the Federal government scraped the FCAA in 1996 .

    He wondered why such a draw-back decision would be taken by the Federal Government when the government is fully aware that Nigeria overwhelmingly enjoyed the support of the world during the last ICAO council  elections that produced Dr. O. B. Aliu, a Nigerian  as president of the council of ICAO. “Should we continue to move backward when every other country is moving forward?” he asked.

    The Airline Operators of Nigeria ( AON), also described the merger as unacceptable Its Executive Chairman, Captain Nogie Meggison, said the excercise  is at variance with ICAO regulation as contained in section 8335.

    He said fusing the agencies would violate the regulations of the global aviation body , which specifically prescribes the separation of provision of aviation services from civil aviation regulations by same organisation .

    He said over  110  countries   have complied with the separation of regulatory  functions  from  service provision by the same agency. He therefore, wondered why Nigeria should be taking steps backwards with the proposed merger of aviation agencies .

    He listed the countries that have implemented this principle to include: Germany, UK, France, Russia, Ireland, Canada, and  Ukraine .

    ” Autonomy for the air navigation services provider and its separation from the regulatory oversight function is well established in ICAO guidance material. It is not right to have the NCAA as a referee and a player at the same time.

    It is baffling that countries like South Africa and Ghana that came to Nigeria to understudy our independent agencies and how they operate in terms of  ICAO regulations  have gone back to their countries to  implement what they came to learn from us. Unfortunately, Nigeria is attempting to go back to the obsolete form.

    We know that government is trying to cut cost because of the recurrent expenditure  but these agencies  could be  self-sustaining without government funding for their operations.

    We therefore, implore the government  to take a second look at the recommendation because of the danger it portends to the industry at large.”

    The former Airport Commandant of the Murtala Muhammed Airport, Group Captain John Ojikutu ( rtd), said whoever  advised government to merge NAMA and NIMET with NCAA did not do so with good intentions.

    The advisers, he said, probably forgot to include FAAN in the appropriation to further take us back to the era of self-regulator.

    ” Oronsaye  must have been wrongly briefed by some egg heads. How do you merge operators of the industry with the regulator?” he asked.

    Instead, Ojikutu said :” We should get the private operators to invest more on the industry or commercialise government  operators like FAAN and NAMA as recommended in the privatisation and commercialisation Act of 2000, government instead is appropriating the industry to itself alone.”

    General Secretary, Nigerian Aviation Professional Association (NAPA), Comrade Abdul Rasaq Saidu described the decision as unpopular .

    He said government is only attempting to re- invent the wheel, because attempts in the past to merge aviation agenciesdid not achieve the desired result .

    “it didn’t work under the former Minister, Retired Air Marshal Nsika Eduok; it was practised and it failed. Secondly, the recommendation of Steve Oronsaye cannot work in aviation industry because Nigerian aviation is regulated globally by ICAO,” he  pointed out.

    President of Aviation Round Table , Captain Dele Ore, described it as one of the steps proposed by government to derail the development of the aviation sector. His words: “What the government is planning is wrong, it will take us back to the 1995 era and whether we like it or not, I give them two years, they will return back again.”

    “You don’t merge a regulatory body with a service provider, NAMA and NIMET are service providers, you cannot merge them with NCAA which is a regulatory body,.This is at variance with international laws laid  down by ICAO and other relevant international bodies.

    “Who are the experts that did the report? did they even give consideration to international convention and international best practices? Those are the questions to ask and whatever they do may be a big slap to our face,” he added.

    He said the decision should be jettisoned.

    Ore said :” Government has however, accepted this ridiculous state of affairs. To avoid any further embarrassment, the  proposed merger should not be allowed to materialize. This is another wrong decision by the government and it should be rescinded immediately. We cannot be seen to be working at cross-purposes to ICAO’s international standards.”

    He further said that It would not matter what kind of amendment is anticipated in the establishment Acts of the affected parastatals, Nigeria will be in violation of international best practices.

    According to him, “Section 30 of the Civil Aviation Act (2006) is very explicit and no matter how we manipulate that Act, the new FCAA will no longer be able to regulate the making of signals and other communication by or to aircraft and persons carried in aircraft. The new FCAA will no longer be able to regulate air traffic control and meteorological services. The new FCAA cannot be a regulator  as well as  a service provider.

    “This whole exercise was done without wide consultation with the industry and the government was misinformed and misadvised by the so-called professionals to serve their own selfish end,” Capt. Ore said.

    Will the position of of experts like Ore and those of the aviation unions, airline opereators, and stakeholders hit the right chord in the ears of government? That is the big question, which only time will answer.

  • Fed Govt’s ports policies bleeding economy

    Fed Govt’s ports policies bleeding economy

    Stakeholders say Federal Government’s policies at the nation’s seaports in recent times are becoming unpopular.  While terminal operators, importers and clearing agents were still battling to come to terms with the 110 per cent duty imposed on rice importation, car dealers and would-be car owners were shocked when officials of the Nigeria Customs Service (NCS) suddenly commenced the implementation of the 70 per cent tariff imposed on fairly-used vehicles.  OLUWAKEMI DAUDA reports that these policies have taken its toll on the economy.

    A new duty regime on imported fairly used vehicles  (known in local parlance as Tokunbo) will formally come into force at the end of this month. Under the new  scheme, automobile importers who hitherto paid 20 per cent duty on used vehicles will now pay 70 per cent as duty.

    The new tariff is a product of the new government’s automotive policy which states that fully built cars (ready to drive) will henceforth attract 35 per cent duty plus another 35 per cent levy. This brings the total payable tariff  by importers to 70 per cent.

    It also pegs the age ceiling of 10 and 15 for private and commercial vehicles respectively.

    The policy has caused disquiet among clearing agents. It is also bad news for intending car owners whose hope of ever owning a car have been dashed by the new policy. Importers are worried that the imposition of such duties will affect their businesses and hike vehicle prices by at least 300 per cent.

     

    Cost of Made-in-Nigeria cars

    The Federal Government says Made-in-Nigeria vehicles would sell for between N1.2million and N1.5million.

    Minister of Industry, Trade and Investment, Mr. Olusegun Aganga, said it was part of measures to develop local capcity in the automotive industry.

    He said: “The importation of Tokunbo vehicles will not be a major threat to the automotive development plan. The tariff for the importation of cars has been reviewed upward and will be announced soon.”

    Aganga also said the ministry had commenced the implementation of the Automotive Industrial Policy Development Plan, whih is expected to place the country  in the club of auto-producing countries.

    He said with the new measures, the automotive industry will create significant, good quality employment and a wide range of technologically advanced manufacturing opportunities. Aganga added that this will enable the country to acquire the requisite technologies of mass production and quality control. He said arrangements have been made to manufacture new cars that will be sold for between N1.2million and N1.5million.

     

    Clearing costs rise 

    Determined to test the waters, the Federal Government suddenly began the implementation of the policy on March 1.  As expected, importers and clearing agents revolted as the cost of clearing cars and commercial vehicles shot up to between 300 and 450 per cent respectively.

    A similar government policy on rice had resulted into massive smuggling of the staple food and attendant loss of revenue to the government.

    The agents did not only stopped work, they also blocked all ports’ entrance and exit gates, especially at the Tin Can Island Port (TICP), Apapa, the country’s only Roll-On Roll-Off (RoRo) facility. No movement was allowed in and out of the ports throughout the day. This forced the government to revert to the status quo a day after the showdown.

    The government has concluded plans to relaunch the policy at the end of this month. Stakeholders say if the government worked its talks,  importers will have no choice but resort to smuggling the vehicles into the country through her numerous porous borders.

     

    Cargo diversion imminent

    The effects of the hike in duty on used vehicles and rice and the total ban on other goods is telling negatively on the revenue earnings of the NCS.

    Stakeholders say the government did not realise that the country’s neighbours are always praying that it made unpopular policies the advantage of which they take to boost their trans-border business. For instance, any time Nigeria government hikes payable duty on any commodity or bans its importation outrightly, the reaction of neighbouring countries is usually a reduction of the tariff of such goods in their country.

    Findings show that ahead the implementation of the auto policy,  Nigerian importers have started diverting their consignments to those countries from where they will be moved, through approved and unapproved routes, into the local markets.  More than 70 per cent of such goods find their way into the country through smuggling.

     

    Stakeholders to resist policy implementation

     

    The Maritime Workers Union of Nigeria (MWUN)  said it will resist the  implementation of the new tariff by the NCS.

    Its President, Comrade Anthony Nted, said as long as the local automotive industry is yet to stand on its feet, the union will not allow its implementation.

    He expressed anger that despite the outcry of Nigerians and efforts by maritime stakeholders to get the government to rescind its unpopular rice and vehicle tariff policies, men of the NCS have commenced its implementation ahead the July 1 implementation date.

    He said: “We heard that the implementation is going to take place by July but we heard that Customs has started the implementation. I don’t know how it works. We will find out if that is true, the MWUN will do everything it can to resist the policy. The best thing we can do to draw the attention of the government to these policies that are inimical to the existence of the Nigerian people is for us to call our workers out of service after every other options have failed.”

    National Coordinator, Save Nigeria Freight Forwarders Importers and Exporters Coalition (SNIFFIEC), Osita Chukwu said the policy is completely anti-masses and should be resisted.

    He said the new policy, aside hurting the masses, will push a lot people out of the cargo broking job.

    He said: “We cannot accept the 70 per cent tariff hike. It’s going to kill the masses. How many people will be able to buy used vehicles now? How many people can afford new ones as well? We totally reject this.

    “We are going to shut down the ports if the government doesn’t rescind its decision on this matter. By the time over three million importers, exporters and other stakeholders withdraw their services from the ports, you can only imagine the implication of that action on the economy.”

     

    Customs’ revenues dip

    In the first quarter report declared by the NCS, revenue earnings between January and March this year, was a meagre N77.9 billion out of the projected figure of N400 billion representing a 19.5 per cent or a N322.1 billion loss. The amount collected was also less than half of the N191.3 billion collected by the NCS during the corresponding period under review.

    According to figures from NCS Headquarters in Abuja, N27.4 billion was collected in January, N23.8 billion in February and N26.7 billion in March. The NCS said  out of the revenue collected in the period under review, N41.7 billion was remitted to the Federation Account and N36.2 billion paid to the non-federation account.

    According to the record, revenue collected came from duties, fees and levies,  N7.2 billion was collected on port levy; N1.4 billion from levy on sugar; N7.2 billion from wheat grain levy and N1.0 million from flour levy. Again, N41.7 billion of the revenue figure was realised from five per cent Value Added Tax (VAT) while N131.8 million was from the National Export Supervision Scheme (NESS). Other special levies which provided revenue during the period, according to the NCS, were Comprehensive Import Supervision Scheme (CISS) and Economic Community of West African States (ECOWAS )Trade Liberalisation Scheme (ETLS), which accounted for N10.5 billion and N6.3 billion respectively.

    A further breakdown of the revenue figure showed that N2.6 billion was generated from 100 per cent levy on rice, N79.2 million from brown rice levy and N112.5 million from steel levy. It added that textile levy accounted for N24.1 million, N4.8 million from wine, cement levy, N274.9 million and N135 million from cigarette levy.

    A Lagos based car dealer, Mr Daniel Joseph said the new tariff will fuel smuggling if it becomes the last option.

    “With the new tariffs, it means cars of 2003 are no longer to be allowed into the country. That’s bad. Nigeria currently makes about N30 billion yearly from used vehicle importation. It will lose that revenue with the new policy because only very few importers can afford to pay all the legitimate duties and levies. When you pay that, how much will you now sell the vehicles? Over 300 per cent increase. A car of N400,000 will jump to over a million naira. Do you know the implication of that? People will resort to smuggling because they want to evade taxes and duties. When this starts, it will be another headache for the government and its agencies at the borders,” he said.

     

    Losses from rice

    Stakeholders blamed the 110 per cent hike in the payable duty on rice for the dip in Customs’ revenue collection.

    In 2012, import duty on rice was 50 per cent and 10 per cent levy totaling 60 per cent. But during 2013 fiscal year, it was shot up to 110 per cent shooting up the cost of importation and the market price.

    Based on the astronomical increase on the  duty, many importers had diverted their cargoes to Cotonou, Benin Republic, where the duty was slashed to as low as 10 per cent.

    This inevitably made smuggling of the staple food attractive an inevitable.

    The ENL Consortium Terminal, Lagos Port Complex (LPC), Apapa, where over 60 per cent of rice imported into the country is discharged, recorded near-zero import of the commodity last year.

    The Chairman, Seaport Terminal Operators Association of Nigeria (STOAN), Princess Vicky Haastrup, said the total revenue loss  to duty hike on rice last year was N300 billion.

    In the first quarter of this year, she said N80 billion was lost as over 150 shiploads or 600,000 metric tons of rice were diverted to the neighbouring ports of Benin Republic, Cameroon, Ghana and Togo.

    Haastrup said: “This is becoming rather unfortunate. Our economy is bleeding seriously because of this policy. The loss to other countries, as a result of the high tariff on rice was over N300 billion last year while in the first quarter of this year alone, both government and private operators have lost a least N80 billion.

    “Even the Federal Government through the Minister of Finance and Coordinating Minister of the Economy, Mrs. Ngozi Okonjo-Iweala, admitted the shortcoming of this policy. The truth is that the policy has done more harm than good to our economy and government should waste no further time before reversing it.”

    Haastrup, who is also the Executive Vice Chairman, ENL Consortium Limited, said the 110 per cent duty imposed on rice affected the revenue of the NCS, terminal operators, dockworkers and the Nigerian Ports Authority (NPA).

    The STOAN chair said: “The fact of the matter is that the policy cannot work. Even if you place heavily armed Customs officers in every corner of our borders, it won’t stop smuggling. It is a fact that local production cannot match local demand which creates a recipe for smuggling. “There is a lot of pressure on Customs because the quantity of rice produced locally can only satisfy 30 per cent of local demand. It is easy to point fingers but I believe Customs officers are giving their best.

    “And don’t forget that our neighbouring countries are profiting from the policy by dropping their own tariffs on rice and because they are benefitting, they give tacit support to these smugglers.”

    Haastrup said the 110 per cent policy would not encourage local production but rather stifle it due to the high rate of smuggling.

     

    High import prohibition list

    Stakeholders said the country has the longest import prohibition list (IPL) in the world. While other nations use tariff to discourage the importion of some goods into their countries, the country uses outright ban to achieve same goal. Stakeholders said the practice is at variance with modern day international trade. Response from the government is that the policies were introduced to protect the country from being turned into a dumping ground by other nations and invariably to protect local industries that are too weak to compete with their counterparts in other parts of the world.

     

    Policy somersault

    At the Centenary Award held in Abuja, Dr.  Okonjo-Iweala, said the Federal Government was contemplating a downward review of tariff on imported rice. According to her, a  reduction in tariff will reduce smuggling of the commodity into the country, lamenting  that the existing 110 per cent duty was an incentive to smugglers.

    “We increased the tariff to110 per cent, and it encouraged some people to go and grow rice and we grew 1.1 million metric tons of the product. But it also encouraged smuggling by neighbouring countries because they immediately dropped their own tariffs to 10 per cent. For rice, we see that it is not working,” she said.

     

    Furniture import ban reversal

    For over a decade, furniture has remained in the country’s IPL with its consequent huge revenue loss. Even with the ban in place,  foreign furniture continued to flood the country, finding their ways into the homes of the elites. Apparently realising the losses, the Federal Government recently unbanned the item through a circular Ref. No. BD.12237/S.403/T1/221 dated 23rd January, 2014. The document conveyed to all relevant agencies, the extension of the ECOWAS Common External Tariff (CET) 2008 – 2012 until 31st December 2014 and 2014 Fiscal Policy Measures.

    Rather than an outright ban, a duty rate of 35 per cent has been slammed on the item, which as at the time of this report may not have been officially gazetted for capture in Customs’ procedures for import duty collection purposes.

    In the circular, furniture was listed as numbers 195 and 196 under HS Code 9401.3000.00-9401.8000.00 and 9403.1000.00-9403.6000.00 respectively.  It was titled, “Extension of ECOWAS Common External Tariff 2008 – 2012 and the Fiscal Policy Measures 2014” and signed by Okonjo-Iweala.

    The Customs in Circular No.005/2014 dated March 4, 2014, directed all concerned including Deputy Comptrollers General, Zonal Coordintors, Customs Area Controllers (CACs) and heads of units, to comply with the minister’s directive. The Customs’ circular was signed by Adesina Odunmbaku, the Assistant Comptroller General in charge of Trade and Tariff (T&T), for the Comptroller General of Customs.

     

    Policy obnoxious, anti-people

    The Conference of Nigerian Political Parties (CNPP), joined other Nigerians in condemning the 70 per cent hike in import tariff on Tokunbo vehicles.

    Its spokesman, Osita Okechukwu, said the hike was obnoxious, anti-people and capable of inducing smuggling, which would further impoverish Nigerians.

    “The Automotive Industry Policy Development Plan is defective and utopian, as you cannot build nothing out of nothing.  How can you reduce import dependency on automobiles when there is electricity supply deficit, iron manufacturing deficit, rail transport deficit, high cost of finance and absence of motor vehicle manufacturing plants?

    “It is a trite economic law that you can only protect existing factories, not futuristic factories; we must develop and address the supply side,” the CNPP said.

    It called on President Goodluck Jonathan to cancel the Tokunbo vehicle import tariff.

    The National President of the Association of Nigerian Licenced Customs Agents (ANLCA), Prince Olayiwola Shittu, however, said based on the interaction between the group and  Federal Government representatives, the automotive policy will be reviewed. He said: He said: “The contentious automotive policy is to be revisited with a view to reversing the policy in favour of a phased increase in the tariff regime over a period of 10 years.”

     

    Auto policy promises more jobs

    The Director-General, National Automotive Council (NAC), Mr. Aminu Jalal, said many international automotive manufacturers in particular, Toyota, Nissan, Renault and General Motors, have indicated interest in investing in the country following the evolution of the automotive development plan.

    He said: “Nissan, Toyota and others are now conducting a feasibility study on vehicle assembly in Nigeria.

    “At full capacity, the Nigerian automotive industry has the potential to create 70,000 skilled and semi-skilled jobs along with 210,000 indirect jobs in the Small and Medium-scale Enterprises (SMEs) sector that will supply the assembly plants.”

    Jalal said 490,000 other jobs would also be created in the raw materials supply industries.

     

  • Prons and cons of tobacco control debate

    Prons and cons of tobacco control debate

    The “No Tobacco Day” was marked on  May 31. In some parts of the world, there are laws regulating the sale and promotion of  tobacco. But Nigeria has yet to get such a law. Can it aim to control the tobacco trade without that law? Assistant Editor, MUYIWA LUCAS, writes.

    Globally, the tobacco industry is perceived in bad light. It is a business many love to hate because its products endanger life.  Tobacco smoking, doctors say, is not good for health. Non-smokers too are affected by tobacco fumes. It is not surprising that like, in other countries, various stakeholders in Nigeria have either called for the prohibition of tobacco or its regulation. The Nigeria National Tobacco Control Bill (NNTCB) to control tobacco business and use is lying at the National Assembly.

    Civil society groups have expressed worry over the slow pace of passing the Bill, saying that its non-passage has violated the World Health Organisation Framework Convention on Tobacco Control (WHO-FCTC), which Nigeria signed in 2004. The NNTCB is a comprehensive law which when passed, will regulate the manufacturing, advertising distribution and consumption of tobacco products in Nigeria. It also aims to domesticate the Framework Convention on Tobacco Control (FCTC) because Nigeria is a signatory to that convention. The major highlight of the bill is the prohibition of smoking in public places, such as restaurants and bars, public transport, schools and hospitals.

    The West Africa Sub-Regional Coordinator, Campaign for Tobacco-Free Kids, Mrs. Hilda Ochefu, urged the law makers to be resolute in ensuring early passage of the bill because the situation was bad for the nation’s healthcare delivery index. Similarly, the Director, Environment Rights Action/Friends of the Earth Nigeria (ERA/FoEN), Akinbode Oluwafemi, said Nigeria had lost many talented sportsmen, musicians and journalists to tobacco-related illnesses. For him, tobacco production as well as other corporate activities related to cigarette manufacturing should be regulated in the country. “It is necessary to partner with the government on issues such as this to protect public health,” he said.

    It was, therefore, heart warming when Governor Babatunde Fashola on February 16, this year, signed the Lagos State Anti-Smoking Bill into law. The law bans  cigarette smoking in public places, such as public toilets, tertiary institutions, public transport, shopping centres, stadia and restaurants. The law also compelled management of public places to conspicuously display “No Smoking” sign at appropriate positions within their premises and criminalise smoking by minors.

    Also, the Lagos State Environmental Protection Agency (LASEPA) has held a parley with other stakeholders  on the Lagos tobacco law. According to the General Manager/Chief Executive Officer of LASEPA, Mr. Rasheed Shabi, the tobacco law will not infringe on the rights of smokers. “Smokers have the right to smoke. Non-smokers too have a right not to be impacted by the smoke from the cigarettes in their personal space. Vulnerabe groups, such as children and senior citizens also have the right to be protected, while everyone has the basic right to clear air. Our society has to find a balance to the delicate interrelationships between all groups involved such that no person’s right is violated. This is the essence of the state restriction on this non-smoking law in public places,” he said.

    At the parley, the representative of British American Tobacco Nigeria (BATN), Mr. Sola Dosunmu, praised the Lagos State House of Assembly for the passage of the law and that having studied the law, the tobacco firm’s verdict is that it is balanced and respects choices. “We have studied the law and we, particularly, liked the fact that it is balanced and respect choices. There are key facts about the public place smoking law which we want to highlight. Section 1 defines public places to exclude streets, roads, highways etc. Section 2 states that from the commencement of the law, no person shall smoke in all public places listed in schedule one which includes creches, nursery, primary and secondary schools, health institutions, public transportations,” Dosunmu said.

    Tobacco control to be succinct is about reducing or eradicating the effects of tobacco smoke on the consumer. The question, however, is that, has the war on tobacco smoking control failed or worked? As the world marked another World No Tobacco Day last Saturday, it became pertinent that all proponents for and against tobacco control policies should evaluate if the tobacco control policies or the drive for its implementation in several countries globally failed or succeeded. Different schools of thought have begun to emerge to look critically at the push for several policies and the appropriate strategies that may be deemed effective for those whom the policies wish to affect.

    According to WHO, “the tobacco epidemic is one of the biggest public health threats the world has ever faced, killing nearly six million people a year. This submission by the world health body supports the position of various advocacy groups that cigarette smoking is harmful to human health, and poses a serious threat to public health. Sadly, of a global one billion smokers, about 80 per cent live in low and middle income countries, where the burden of tobacco-related illness and death is heaviest. It is understandable why there is apprehension in the country over the tobacco policy and the continued delay in the passage of the anti-tobacco bill.

    Although the Global Adult Survey on smoking in Nigeria and a 2012 Health Metrics and Evaluation (IHME) study from the Journal of the American Medical Association (JAMA) shows that Nigeria is among the countries which have a low incidence of smoking, however, the percentage incidence issue should not deter the push for a tobacco control law to be in place in the country.

    Besides, Nigeria is a signatory to the WHO Framework Convention on Tobacco Control (FCTC) of 2004, which was ratified in 2005, hence, there is need to take steps to check the use of tobacco. But, what approach should this take?

    One way of doing this is, going by WHO’s findings, by increasing the tax on tobacco. This is a strong recommendation under the WHO FCTC, which says that countries should implement tax and price policies on tobacco products to reduce tobacco consumption. The body submits that various researches show that higher taxes are especially effective in reducing tobacco use among lower-income groups and in preventing young people from  smoking. It noted that a tax increase that takes tobacco prices up by 10 per cent discourages tobacco consumption by about four per cent in high-income countries and by up to eight per cent in most low- and middle-income countries.

    Furthermore, increasing excise taxes on tobacco is considered to be the most cost-effective tobacco control measure. A WHO report in 2010 indicated that a 50 per cent increase in tobacco excise taxes would generate a little more than $ 1.4 billion in additional funds in 22 low-income countries. If allocated to health, the report said, the government health spending in these countries could increase by up to 50 per cent.

    A sociologist, and Principal Partner, Action for Sustainable Development, a non-governmental organisation (NGO), Mayowa Sodipo, agrees with the regulation of tobacco. He however cautioned that there was a need to be careful in dealing with the trade, because if the business is over regulated or stifled, then illegal trading in tobacco will be the order of the day. “In a country where we do not have the capacity to deal with smugglers, where we contend with porous borders and the criminality surrounding the illegal tobacco trade, then we will simply leave our public health to faceless cabals whom we will find difficult to deal with,” Sodipo argues.

    Buttressing his point, he cited Canada, which he said is one of the strictest anti-tobacco legislation,where a harsh anti-tobacco legislation can backfire. With the exception of Quebec, Alberta and the Northwest Territories, it is illegal to smoke in any vehicle that is carrying a child; while in many of the country’s provinces, it is illegal to smoke in any public place or in a car carrying a child.

    This legislation, he believes, has placed tobacco business in Canada in the firm control of bootleggers. Besides, the tobacco quality is not guaranteed, while proceed from illicit trading in tobacco has been traced to funding of criminal gangs that operate outside  Quebec. A report on a research conducted by Fraser Institute in CBC News, a television station with offices in Montreal and Quebec, seemed to lend credence to this. According to the report, sales of contraband cigarettes are supporting groups, such as the Hells Angels and Hezbollah while tobacco tax policies are doing little to curtail smoking in Canada. “The sale of contraband cigarettes originating from native reserves in Ontario and Quebec is fuelling organised crime.

    ‘’Smuggling and trafficking of contraband cigarettes is an unintended consequence of federal and provincial tobacco tax policies,” said Diane Katz, a co-author of the report and  director of Risk, Environment and Energy policy at the institute.

    Similarly, The Vancouver Sun reported how a smuggling ring based in Montreal was  nabbed by the police. According to the report, the smuggling ring, which was allegedly linked to the mafia and to aboriginal organised crime, was a cross-border operation with bulk tobacco being shipped into Canada by truck from North Carolina. The publication further revealed “locations ranging from St. Leonard to Dundee were raided by police forces, resulting in a total of 28 arrests and the seizure of approximately 40,000 kilogrammes of contraband tobacco, an amount worth approximately $7 million. The investigative force, which consisted of about 400 police officers,  also seized roughly $450, 000, 1, 300 marijuana plants, 14 vehicles, and a 9 mm pistol. The contraband tobacco was supposedly shipped through the Lacolle border crossing, or through the Akwesane aboriginal reserve, and was sold in the Kahnawake aboriginal reserve in  south of Montreal”.

    The fears of WHO and other groups are understandable. This is because in some countries, children from poor households are frequently employed in tobacco farming to provide family income. These children are especially vulnerable to “green tobacco sickness”, which is caused by the nicotine that is absorbed through the skin from the handling of wet tobacco leaves.

    Besides, tobacco farming, through its processing, is said to be culpable for degrading its operating environment, and violating child labour law on tobacco farms.

    The Head of Leaf Operations, British American Tobacco Iseyin Agronomy, BATIA, Mr. Thomas Omofoye, said the company is ensuring that environmental issues are well addressed just like many other concerns which has already been articulated in the guidelines on global sustainability and corporate social responsibility standard practice.

    He said BATIA, through instructions and training to farmers had continued to prevent farmers from felling trees to remove the environmental abuse which, the anti-tobacco movement, had often cited against tobacco investors.

    “From 2009 to 2013, BATIA had planted 349,853 Malina and 450 timbers (Teak) trees, which are used by the farmer for smoking the tobacco leaves, away to discourage deforestation. Besides, we do not encourage child labour on the farm and the farmers know this; there is a heavy penalty for this. We tell the farmers that it’s not that we are asking their children not to help them on the farm but we emphasise that it should not be during school hours. We have non-government organisations who from time to time monitor compliance in this regard,” Omofoye added.

    Buttressing Omofoye’s position is Mr. Alani, a big tobacco farmer in Igboho, Oke-Ogun, Oyo State. He said tobacco farmers have their own trees which they cultivate for use rather than going into the forest to fell trees and destroying the forest in the process.

    “For instance, to avoid being tempted into cutting trees from the forest, I planted Malina trees on four hectare of land which I cannot even exhaust in 20 years; these trees have a very fast growth rate,” he noted. Alani said that in Igboho, BATIA denied some farmers from receiving benefits for engaging children in the farm.

    “They frown seriously against this practice,” said Alani. Also, a member of Nigeria Independent Tobacco Farmers Association (NITFA, ), Ilua Chapter in Oke Ogun, and a retired teacher, Mr. Emmanuel Egbeleye, said  BATIA has continued to encourage us to plant our own Mailna trees.

    “I have been to Sapele and saw how people cut trees but here in tobacco communities, BATIA has partnered with us to plant trees on hectares of land without having to go into the forest to cut trees to process our tobacco leaf,” he said.

    The Chairman of NITFA, Alhaji Rasheed Bakare,  advised the government to appreciate the level of progress, employment and life tobacco farming business has brought to communities. “Our understanding is that the government is taking steps towards tobacco business and control. For us, tobacco farmers, tobacco farming is our mainstay. If tobacco is banned, our communities will suffer; people will be thrown out of jobs. We have not felt the impact of the crude oil money in our communities, but we really feel the impact of BATIA here because they have been providing us facilities like projects on environment, boreholes, health centres, etc. They give our children scholarships, which is even extended to non-tobacco farmers. We get bonus for the quality of farm produce,” he said.

    Tobacco farming in the region, according to the Oniru of Otu, Oke-Ogun, Oba Sunday Oyetunde Adepoju, is fast making farming to appeal to the youth of the communities considering how the job has changed lives of average farmers.

    “Tobacco farming now appeals to our youths. Some of them are returning home while our under age children no longer work in the farm to comply with the child labour law. We have graduates who come here to farm and this has improved the economy of our community. This is just because farmers in our communities now have cars, build houses and could send their children to higher institutions,” he said. For the traditional ruler, tobacco farming is the crude oil generating wealth for his community, and any attempt by the government to stop the trade, he reckons, will have negative effect on the society such as joblessness and increase in crime rate.

    Oba Adepoju’s fears are valid. In Oke-Ogun, tobacco farming, in partnership with BATIA, is estimated to generate about N1 billion yearly to the region.

    But for Oluwafemi, the perceived incentives from tobacco firms are tricks to kill more Nigerians with tobacco products. Similarly, WHO noted that many governments, especially those large producers of tobacco products and tobacco leaves, fear that tobacco control would generate unemployment among tobacco sector employees. However, the world body says that the tobacco sector represents a small fraction of most countries’ economies.

    Sodipo submits that the decision as to whether to smoke or not should be for each individual to make. “At best, smoking should be restricted to exclusive places; definitely not for it to be over regulated or overtaxed because such measures will also come with negative consequences as seen in the Canadian scenario,” he admonished.

    Whatever is the outcome of the anti-tobacco bill, Sodipo said what should be avoided is a situation where things go from bad to worse for the citizens the law is meant to protect. This fear may not be misplaced considering that there are countries where this went from fair to bad after the introduction of stiffer anti-tobacco legislation.