The Nation Newspaper

Category: THE CEO

  • ‘Fed Govt must come out with sustainable energy blueprint’

    ‘Fed Govt must come out with sustainable energy blueprint’

    Power to run the engine of the national economy has been in deficit over the years due to neglect of the sector by successive administrations. Mr Hyacinth Udemba, an engineer and chief executive officer, Prostar Global Energy, a firm that specialises in renewable energy, says the Federal Government must come out with a blueprint that will spell out yearly addition of megawatts to the national grid. In this interview with LUCAS AJANAKU, he speaks on the constraints facing telecoms companies, the need for governments and banks to fund alternative power provision and other sundry issues. Excerpts:

     

    How would you assess the performance of the economy, especially when the Federal Government says the economy is growing and such growth is not creating jobs?

    Job creation may not be the only index for scoring a performing economy. I can rate the performance with reference to where the economy was before leadership changed hands from Umaru Musa Ya Adua to Goodluck Jonathan.

    At the moment, we seem to look at our currency exchange rate in relation to other major currencies. So far, it has been fairly stable. The exchange rate might be comparatively high, but that is a function of the level of our exports and narrow band economic activities in terms of variety of local manufacturing and export commodities. It may remain high as long as we have a mono export commodity which is oil. Job creation becomes a possibility when the enabling frameworks are put in place. The main factor to achieving the feat remains the availability of electricity. Aside this, we can actually give ourselves a pass mark if we look around and see the level of infrastructural changes. I guess our thinking of poor performance is in relation of manpower and resources available to us compared with some other nations. In a way, Nigeria is really a peculiar nation and more complex than we sometimes assume. I believe we are making progress.

    How can the economy be made to work?

    Believing in one nation is the key. The economy can be made to work as expected if we all do what we are supposed to do and the government is sincere with programmes and policies. We all should learn to sound less about political party or tribal affiliations. All manners of corruption are tied to the fact that we do not love the country, hence, tribal or party affairs take precedent in our hearts.

    At what level of megawatts of electricity would Nigeria be at peace?

    I will base my answer on the fact that we are clamouring for industrialisation as the needed antidote for quick growth. If this must come through, then we must make provision for its sustainability through availability of electricity. I will like to look at a situation where companies are hooking on to the national grid as power is gradually being made available. To this extent, considering the size of the country, Nigeria would need about 50,000Mw in the next 25 years. Of the 50,000Mw, 10,000Mw will be a reserve while 40,000Mw remains the daily output to the grid.

    In seeking alternative electricity supply to the national grid, at what point should government come in?

    The government has no reason not to advance technologically in the power sector like other developing countries which include Kenya, South Aftrica, India, Malaysia and Indonasia. The story is different these days as the cost of renewable energy materials and accessories are nose diving. Nigeria can actually pick up with other countries when the right policy is in place with incentives. What stops Nigeria from producing solar panels or wind turbine parts? One of the government agencies, the National Agency for Science and Engineering Infrastructure or NASENI, under the Ministry of Science and Technology, tried to lead the way in producing solar panels locally. What is the fate of the age ncy today? If the policy for the use of solar energy in Nigeria is promises incentives, foreigners will troop in to manufacture, solving the problem in the sector and creating jobs. The enabling environment for foreign manufacturers may include but not limited to loan facilities (access to credit), land acquisition, provision of security, and for the users of solar power, a grant of carbon credit.

    How is this going to happen?

    One of the ways to get the country running for the renewable energy sector is to put a policy in place. For instance, the government sets aside $900 million as laon for people going into battery and inverter production, solar panel assembly and also make a policy that every new estate built must incorporate renewable energy, or that every bank, estate must use solar energy for their perimeter lighting. Such a policy will spur people to purchase these materials massively. Those who want to come into the industry will have confidence that there is a policy in place. Before an installation of a 10Mw production capacity of solar panels, the manufacturers must have extrapolated the sale of at least 1Mw of solar panels per annum. This will assure the manufacturers that installation of a 10 MW photovoltaic plant will lead to recouping investment in about five years time. Without such policy, it will be difficult to get investors to the sector. No sane entrepreneur will go to the bank and obtain loan without assurance that there is a policy in place that will guarantee the market for the product. For instance, anybody can now come and invest in the oil and gas sector because the market is there. If an investor wishes to refine petroleum in the country, he can refine and sell. If he’s able to refine at competitive price, he will sell because the market is there for him.

    How?

    When Germany began her own 100,000 roofs on solar programme in 2004, banks were involved because people had to take loans secured by the government and insured by insurance companies. During summer, they sell the power to the government, during winter, they buy from the government, thus, they gradually offset their loan and at a constant interest rate which was cheap enough to attract investors. The government also put incentives in place to compensate them for saving the environment from global warming, hence, the carbon credit. So, there must be some incentives to attract investors. Until the right things are done, at the right time, we may not really get anywhere.

    You are calling for an all-encompassing power sector policy?

    Yes, a policy not only on the conventional means of generating power but that which will encapsulate renewable energy and spur people to invest in the sector. That is the way it is in Germany, Japan and even South Africa. These countries have policies in place that allow people to invest. The advantage of this is that you will be creating employment opportunities. One of the ways President Obama of the US is creating job is through the support he is giving to alternative energy, wind energy precisely. By the time you set up about four to five factories in the US, that will employ tens of thousands of people. The same thing can happen here. Let us begin with the battery and inverter production. Solar panel may not be a big employer of labour but it is part of it.

    Imagine the volume and value of contract jobs that are given out each year. Before the end of the year, the government would have given out about N20 billion worth of contracts on renewable energy. I am aware of the amount the Ministry of Environment, Health, Transport, Energy Commission, some state governments and the rest of them may be spending in the sector without really being serious about the correct function of the installed systems. Can’t we make a policy that this N20 billion that we are going to spend, part of it be directed to local production of some of the components? Why do we have to continue to import and install? The government should make a policy that will be private-sector-driven in power generation through both conventional and renewable sources.

    It might take several years to get the stable power the government is promising. Anything shorter than 30 to 40 years power plan will bring about power plants that will stop functioning after the exit of President Jonathan.

    Thirty and forty years plan?

    Yes, Nigeria at the moment is talking about six-10MW power generation if all the plans go well. How do we compare Nigeria with South Africa that currently generates about 47Mw? We may claim to be having fairly constant power supply now and not yet stable power supply. It is only when you have stable power supply that companies like the Nigerian Breweries and the likes will once more hook on to the national grid. Until then, what we have today may best be for domestic use. By the time the redundant loads gets in, we might be back to where were. Nigerians should not be fooled by the slogan of government that they will get stable power supply between now and next two years. It is not possible. It is just not possible.

    Nigerians should not expect stable power supply?

    Yes, we cannot afford it now. I may be seen as being pessimistic in this regard, it is the truth. Remember what happened under the late Bola Ige when he was appointed power minister. He openly told Nigerians that there will be stable power in Nigeria within six months. It’s the same advisers in the ministry that gave him the wrong signal. The late President Umaru Yar’ Adua came to power with his seven-point agenda, he made same promise of power stability. Once again, those who think that they are helping Jonathan achieve his transformation agenda are beginning to hurry the winners of power generation stations to get going in haste. Setting up and running a power generation station efficiently is not a tea party.

    You said Nigeria cannot afford stable power. What do you mean?

    We cannot afford it because there is no policy in place to drive that. The operators in the power sector keep telling Nigerians about 6000Mw generation. This is barely enough for domestic energy needs. They are not talking about suppressed demand, those that were switched off because they know the power is not there. When you bring the firms that should be running on the national grid together, you will discover that 6000MW is a dip compared to the demand that will surge. Nigeria does not generate what the New York Fire Department in the USA need for its operation. Imagine the sheer size and industrial level of the country compared with South Africa which has 47000 MW.

    Each time they mention 6000MW as the target, I feel ashamed because with those ridiculous megawatts, we are simply going nowhere. So, we just have to think of how many megawatts to add to the national grid yearly. Let the government have a policy that yearly about 1000MW will be added to the national grid. This should be followed to a logical conclusion.

    President Jonathan can do it. Add just 1,000Mw to the grid, you will see an improvement. Before the end of his tenure he would have achieved enough. Given that many power stations are under construction at the moment, it is an indication that such may be achieved, at least, to 70 per cent. India is doing just that. India is adding a minimum of 3,500MW yearly. Even if you have enough, you keep the excess as reserve in case there is failure. Despite the volume of power generation in India, the country still experienced failures that nearly crippled its economy a few months ago. This is one of the reasons the government should aim higher and become more focused and target-oriented in this sector.

    So, before this country can have stable power supply, it will be between the next 30 to 40 years. We can only prove that wrong if we begin to do something positive from today.

    And what do we do?

    Aside the policy that will add about 1000MW or whatever we think is within reach into the system, government must ensure that every measure that will make it run steadily is in place. We must also ensure that existing ones run at, at least, 75 per cent of installed capacities. If we are able to do so, then would have charted the path to end the nightmare. We must also make sure that 0.5 per cent of our energy needs is put off the national grid and switched into renewable energy every year. If we now quantify the power needs of the domestic sector, we will know the deficit. In India, today, many British and other foreign companies are setting up business because the country has steady policies. Its textile industry is working fine. Almost all the textile mills in the UK have their base in India.

    If telecoms operators run Base Transmission Stattions (BTS) on solar, would there be any respite to their challenges?

    To provide renewable energy to the cell sites, because of the capacity of the BTS, the solar panels required will occupy about 90 square metres which is not tenable given the problem of securing land. Anywhere they install BTS, they don’t have enough land and they pay heavily for the small plot.To be able to accommodate about 12,000 watts of power required by each BTS, solar panel of not less than 10,000 watts is required and it will occupy a surface area of not less than 50-60 square metres. You have to supply security for the solar panel too because they will be stolen. If Nigerians steal bridge rails, the rods, irons, pipes used to protect us from falling into the lagoon on Eko Bridge, and also steal our own street lights, how are you sure that the solar panels will not be stolen? So, another thing is the security implication. That is why they find it difficult to deploy renewable energy to power their BTS. The late General Abacha commissioned the use of solar cells to power the railway communication link systems, but within six months of installation, they were all vandalsied. Abacha was resuscitating rail transportation then and you cannot use the rail without communication links as they move from one station to the other. Now, to make sure that communication is enhanced, solar was used but they were vandalised.

    With the migration to cash-less economy which means that ATMs and other electronic channels of payment would require energy constantly, why are banks not exploring the solar power option?

    Every bank needs a large quantity of energy to run its operation and solar system may not be an option now because of the cost implication compared with the power demand. But ATMs can depend on solar or inverter backup depending on location or the branch of the bank. Deploying solar for full bank operations will require a large space for the panels. But what we are saying is that if banks have policies in place to support renewable energy as we have in other countries, it will be okay. But banks are not looking in that direction perhaps, they are not aware of the roles they can play in the sector.

     

    Operators are therefore left to do the little they can. So, at the moment, we are not encouraged in the sense that the incentives from government through the banks is not there. And also, any time the government wants to give major jobs out, they don’t give them to indigenous experts. It is either they are given to foreign installers, or companies or they are done the same way they do other projects in the country. I want to believe that all that is now changing by virtue of the new Procurement Act, I think they are beginning to give jobs to those who have the competence to do the jobs. But as government is beginning to pick interest in the sector, if things are done properly, I want to believe that in the next five years, we shall be somewhere in the area of energy in the country. It is only then that the rolls of the banking industry in the sector may be established.

     

    But Lagos State is using solar to light the streets and they are not subjected to vandalism. Why?

    In the area of using solar power to improve street lights, Lagos State is a just an isolated case because I also know that Peter Odili, former governor of Rivers State did the same in Port Harcourt and within few weeks, many of them installed along the airport road were vandalised. They are only safe if they are installed within the city. Like the one we have in Morrocco Road, Aggrey Road, First Avenue, they are not vandalised but the ones along airport road in Port Harcourt were all vandalised because they were in remote areas. In Lagos State, because they are located within the city, the chances of their being save is there. In Asaba, most of the installed solar street lights were completely vandalised. Same story abound in many other locations including Abuja FCT. You must also bear in mind that Lagos has improved on its security network since the inception of Raji Fashola’s government, so the possibility of safeguarding public infrastructure has improved there.

    Are you saying it is the security of the solar panels and other equipment that are keeping telecoms operators away from embracing renewable energy?

    There are two principal factors. The first is security while the second is non-avalability of land to accommodate the solar panels that will be able to power base stations.

    What peculiar challenges do you have as an operator in the renewable energy sector?

    The peculiar challenge we have is the initial cost of deployment and lack of banking sector support. Besides most contracts in the sector are not given to the experts for a reason I may ascribe to corrupt practices. I get ashamed as an expert each time I see failed solar street lights. Its not encouraging at all.

     

    People have talked about inconsistent government policy, especially as it concerns duty paid on some imported components of renewable energy. What is the situation?

    As an expert, I believe that the misunderstanding we have in tariffs with officials of Nigeria Customs Service (NCS) can be attributed to lack of knowledge on the part of the NCS officers. They are supposed to have gone for training to understand some of these things, about the interpretation of certain items especially in a new sector like renewable energy. Renewable energy is new worldwide, even standards are yet to be formed in all aspects of the components of the renewable energy sector, so, many of the components are yet to have standards so, they are not well known. In Nigeria, our Customs men fail in their duty for refusing to learn in some cases and insist on what they think is right even when is very clear that they are wrong in some of the clasifications, so when you stand to educate them, they just do what they like. Therefore we are discouraged from importing a lot of things because the duty will make the cost to be completely outrageous. Let me give you an example; if you import a solar freezer, which is just like ordinary freezer because they look alike, but what makes the difference is the compressor. The compressor for solar freezer uses battery, where conventional freezers uses power supplied from the national grid or generators. Because the cost of the solar compressor is extremely high, being a high-tech compressor, if I bring it into the country and pay the same duty as would be paid on conventional refrigerator, I cannot sell it. The retail price will be out of reach. Now see this logic and you can understand me better. If I import the solar freezer, with solar panel and battery, all packed together as one package, it will be seen as a solar freezer and I will pay zero duty, but not so when the solar freezer is imported alone when I will be made to pay 35% duty. But the fact is that one may not need to import the freezer and the batteries all the time. If you look at it, they cannot understand what is inside. That is why I said they still need training to understand some of these things and be able to make some logical decisions in that respect. So generally, the inability of the NCS to correctly interpret the tariff is still a problem but I believe that in the next three, four years, we would have overcome all these challenges.

    And also the inconstancy of the officials of the NCS is another problem. An officer may be there for one year within which period he must have learned certain things, but the following year, he is removed and posted to another location. Another person replaces him and you are back to square one. And here, we are not known to have continuity in everything we do. Despite all my views as stated so far let it be on record that I have faith in this country. I have travelled far and wide across the continents and after all This is where I belong and am proud to be part of it contributing my small quota in building the place I can call my Home, my Nation and my Pride.

     

     

     

  • ‘Bad eggs cause distortions in stock market‘

    ‘Bad eggs cause distortions in stock market‘

    The market is gaining back its lost ground as all indices indicate. The Managing Director, BGL Securities Limited, Mr Sunday Adebola, attributed the development to the introduction of the market making system. He speaks on infractions and the listing of cash-cows, such as telecoms and oil and gas firms to further deepen the market. AKINOLA AJIBADE met him.

     

    What is the focus of BGL Securities Limited?

    The company is a dealing member of the Nigerian Stock Exchange (NSE), operating in the secondary market. By this, we are licensed to buy and sell shares on behalf of our clients, as well as taking trading positions in the market.

    Besides, we are also registered by Securities and Exchange Commission (SEC) as an issuing house, which has put us in a position to raise capital for many companies. For instance, during the banking consolidation, we raised capital for many banks and, over the years brought many companies for listing on the Nigerian Stock Exchange.

    We are also the distribution arm of BGL Group responsible for marketing of financial products being packaged by BGL Group. I would like to say at this juncture that the holding company is BGL Plc. The holding company has three subsidiaries, namely BGL Securities Limited, BGL Assets Management Company Limited and BGL Private Equity Limited. However, BGL Securities Limited is the only dealing member of the NSE.

    What is your volume of transaction?

    We have traded over a trillion naira worth of shares, and the total volume is in excess of N200 billion.

    What is the level of confidence in the market, is it reassuring?

    Confidence is gradually returning to the market due to the efforts of the NSE and the SEC. The two bodies have put in place measures to bring confidence back to the market. If you look at some of the measures, you will realise that they are meant to bring the much-needed growth to the market.

    Recently, NSE introduced market making system programme to foster growth. What this implies is that there are market makers appointed by the NSE, who hold themselves out as being ready  to buy or sell the shares of companies under the market making arrangement  for their respective accounts on regular and continuous basis,  and sell them when there are demands for them. This has brought the much –needed liquidity into the  market.

    Another step taken to return confidence to the market is the entrenchment of best practices derived from the enthronement of corporate governance. Where there is corporate governance, people would do what they are supposed to do. When this happens, shareholders’ value would improve.

    The introduction of Exchange Traded Funds (ETFs)  is another initiative by the Stock Exchange that is highly commendable. More ETFs are still being expected to be introduced to the market in the very near future.  In the past, some companies were not rendering quarterly and annual returns as at when due. The Exchange has taken corrective measures and sanctioned most of these companies.

    Some of them were put on full suspension, while others were delisted for not complying with the listing rules of the exchange. Also, the introduction of securities lending has helped in making the market more liquid. It is instructive to note that without Securities lending, the market makers cannot achieve the desired  objectives.

    How has the introduction of market makers impacted on the system?

    We commenced market making programme in September, and we have seen the positive reaction of the market to this noble initiative. Some stocks have grown by 40 per cent in terms of price movement in the past few weeks. Some have grown by 56 per cent. This is what is making confidence to come back to the market. SEC has been having meetings with stakeholders on how to make sure that the market moves forward. This, among others, is one of the measures put in place to re-invigorate the market. If this continues, we believe within a short period of time, the market will bounce back in a sustainable manner and the investors would be better for it.

    What is the motivating factor for investors now?

    Every investor has his own objective of participating in the market. I can say that investors have made a fortune from the market in the past and even this year.  This year alone; the market has gained about 32. 60 per cent compared to about the 18.5 per cent it lost last year. This has made the market worth looking at by those people that have left the market. We are happy that investors are gradually coming back to the market.

    In recent times, the volume traded has improved. Before, we were trading between N150billion and N200billion worth of shares, but now, we are trading on the average N2.8trillion naira worth of shares. Also, if you look at market indicators, you will observe that the All-Share Index has actually moved up. It is over 27,200 points now. The market capitalisation is over N8.328 trillion compared to about N6.5trillion in the beginning of this year.

    By how much has the market grown in the past one year?

    To be precise, the NSE All-Share Index year-to-date (YTD) is about 31.63 per cent, which is remarkable enough, compared to the 18.3 per cent recorded last year.  On Sectoral Indices year-to-date movement, NSE 30 Index recorded growth of 40.14 per cent YTD, NSE Banking Index also recorded increase of 61.91 per cent, NSE Consumer Index  grew by 301.27 per cent, while NSE Insurance Index  fell by 1.8 per cent. NSE Oil/Gas Index also moved southward by 26.02 per cent. These indicators on the average, showed remarkable growth of the market.

    A lot of infractions were made and attributed to the stockbrokers. What measures have been put in place to prevent a recurrence?

    Before the meltdown, people alleged stockbrokers of many infractions, saying, they are the ones causing distortions in the market. In my opinion, these allegations are not right. For Instance, when you mandated a stockbroker to buy some stocks for you, he would do so in line with the instructions given to him. He would also sell in line with the mandate given to him. We have seen instances  where people  would give stockbrokers mandate to sell their stocks. When they realise that prices of those stocks are going up, they deny ever giving such a mandate, claiming that their mandates were forged.

    That is not to say that we do don’t have few bad persons among stockbrokers. But it cannot be generalised that stockbrokers are the ones causing distortions in the market, I do not agree.  There are principles guiding the market and the market is a structured one that has rules and principles driving it. These are followed by Authorised Dealing Clerks and the Dealing members. Erring operators are properly sanctioned on fair and equity basis.

    Are you saying brokers and investors connive to cause infractions in the market?

    Far from it. There are various infractions in the market. My own understanding of infraction is when you violate the rules and regulations guiding the operations of the market. In the past, we have where people committed series of professional misconduct. They were duly punished and sanctioned appropriately.

    Regulators neither condone market indiscipline nor professional misconduct. That is why our market is still one of the best in the world. Some of the erring operators were suspended, while others have their licences revoked. These are some of the disciplinary actions the regulators have taken to protect the integrity of the market.

    Do you see the surge being sustained or just a flash in the pan?

    It is an undeniable fact that  stock market is  a the barometer of the economy. Events in the economy have reflections on the stock market. Once the economy improves, the market witnesses a lot of activities. If the economy is improving, companies performance will improve and precipitate the release of good results to the market. Once companies’ performances are improving, it will impact positively on shareholders’ value which have direct influence on their prices and lead to market indicators moving upward.

    Besides, it is our prayer that the economy will continue to do well as other macroeconomic factors become more favourable to the market.

    First, it has been observed that there is direct correlation between the price of crude oil and out stock market returns. If the price of our crude oil continue to go up, we are going to see many foreign investors showing interest in the Nigerian market.  Secondly, availability of funding within the economy has also been impacting on the growth of the market. Once there is liquidity squeeze, market becomes sluggish. Thirdly, the decision of the monetary authorities to bring down the interest rate would help improve activities in the market.

    Nigeria’s oil price has been on the increase in recent times. To what extent has it attracted foreign investors to the country?

    According to a data released by the NSE, over 60 per cent of the activities on the buy-side in the nation’s stock market are being controlled by foreign investors. The reason is because the returns in our market are relatively higher than what it is obtained in other emerging markets.

    This has attracted so many foreign investors into the country. Once the oil prices are going up, foreign investors consider the Nigerian market of the positive correlation between crude oil prices and stock market returns. The more we have the oil prices going up, the more our economy becomes buoyant and our market becomes attractive to foreign investors.

    Who are those controlling activities in the stock market-Institutional investors or foreign portfolio investors?

    When we are talking about foreign investments, they are of two types. We have foreign portfolio investment and direct foreign  investment.

    The former refers to a situation whereby foreign investors come to invest in financial instruments in our domestic market, while the latter explains  foreign  investors coming to invest in physical assets  in  manufacturing, power and fast moving consumer goods, among other areas. Here, we are talking about foreign portfolio investors. We have seen some of them coming to buy shares in our market.

    Can you put a figure to year-to-date value of foreign  portfolio investments in the market?

    In foreign portfolio investment, the market has recorded some growth. If the market capitalisation has moved from N6.5 trillion to over N8.6trilion this year. We can safely say that over 60 per cent of this comes from the foreign portfolio investors. It has been estimated that fresh funds of about N419.93billion has been invested this year alone. I want to assume that 66 per cent of this is done by the foreign portfolio investors which  translates to N277.15billion.

    To what extent can we say the infighting between the leadership of SEC and its staff has affected the market?

    This is an internal  issue in SEC, and it cannot affect the market in any way. I believe the issue cannot have any meaningful effect on the market and the issue would soon be resolved soon.

    What is your assessment of the performance of the leadership of the Exchange?

    We can give him a pass mark, considering the good initiatives he has brought into the market. He has brought dynamism that has transformed the landscape of the market. He has initiated certain reforms, and they are yielding fruits. Before now, for the price of a stock to move,  we need to  trade some  stocks up to 50,000 units. This principle has not favoured some high priced stocks thus making their prices to be creeping for sometimes.  But now, with 10,000 units in a single trade, price of such stocks can move. The introduction of market makers is another noble achievement in the market. Others are the introduction of Exchange Traded Fund and the Investors Clinic to educate investors.

    However, the management of Stock Exchange can do better by intensifying efforts in collaborating with other stakeholders to bring more companies to the market. I am talking about giant telecommunications companies, power firms, Energy and oil.  This will go a long way to build capacity and deepen the market. Interestingly, the market currently has 235 dealing members but less than 200 quoted companies. There is the need for more companies to come to the market for listings, as well as introducing more securities so as to increase the market depth and width.

    What are the prospects for fixed-income securities like bonds?

    Some years ago, the Federal Government bonds, called Federal Government  Development stocks, were being traded on the Stock Exchange. At a point, the trading on these bonds stopped and became inactive. Then,  the Federal Government used to appoint stockbroker brokers to buy and sell on behalf of  other stockbrokers. With the establishment of Debt Management Office (DMO), government revisited the bond market by appointing primary market dealers Market makers (PDs/MMs) to trade in bonds.

    However, there is an on-going process  to deepen the bond market. NSE, SEC and DMO are working together to ensure that the retail aspect of bond is returned to the platform of the NSE. Permit me to say that any market that does not have solid retail platform cannot stand the test of time. This initiative of  bringing the retail aspect of bond trading to the exchange is a laudable one. The development would make more Nigerians to participate in bond market. It is only banks and discount houses that are trading in the Federal Government bond market because of their appointment as market dealers makers. They are dealing on wholesale basis. This excludes participation of retail investors in the secondary market.  By returning bond trading to the NSE platform, retail investors would be able to participate in the bond market.

    In what other ways can the government make the bond market stronger?

    For our any country to have a vibrant capital market, you  must have a good payment system, viable REPO market, as well as opening up your market to foreign investors. The inclusion of Nigeria’s bond in JP Morgan Bond Index is one way of opening the financial services market to foreign investors. Through this, foreign investors would have access to relevant data on the instruments and  our capital market would be better for it. Besides, interest rate management by monetary authorities should also be done to ensure that the interest of the market is considered. Furthermore, enlightenment programme by various regulators and market operators should be intensified so as to increase the number of participants in the bond market.

  • ‘Nigeria needs to develop local production capacity’

    ‘Nigeria needs to develop local production capacity’

    Founder and Managing Director, The Capital Markets Academy, Mr Delme Thompson, is a financial expert. A former head of training at the London Stock Exchange (LSE), he has worked with top executives of various stock exchanges, regulators, government bodies and several FTSE 100 and global corporations across the world in designing and implementing major changes in the financial market and the economy. In this interview with Taofik Salako, Thompson speaks on the role of market makers, the place of efficient regulators and the need to lay a very solid foundation for the Nigerian financial market and the economy.

     

     

    What’s your first impression about Nigeria?

    Interesting! There are challenges and it’s not like any other country. But there are a lot of people here interested in learning and training, so we have like-minded people. But careful, gradual steps now will yield results in the months and years to come. It’s important we don’t rush in with a big initiative; it’s important we understand what the market wants and get all these together to build a solid foundation to be able to go forward.

    I have interacted with people from different backgrounds. The interest is high and that’s really great. It’s been really great; we have been talking about the Nigerian market and how things work around the world, not just the London or New York market. We have been looking generally at the principles – these are how things work. Why don’t you look at it from these perspectives? It’s been an interesting experience.

    Given your experience with other emerging markets, what do you think Nigeria needs to unlock the potential of its market?

    From what I have seen over the past few days, about the people, the processes and things going on, Nigeria is Nigeria. It’s not like any other country and it shouldn’t be treated like any other country. But there are similarities in terms of when you look at the sectors, the population of the whole business community; the ones who benefit most have always been the ones most willing to engage the process and they are willing to engage in conversation with people who are driving the change whether it’s the securities regulator, the central bank, the advisory community, the stockbrokers and others. The ones who benefit are the ones who make themselves available. You cannot sit on the sideline and expect growth; it comes with the responsibility to participate.

    From my experience, getting the right skills is very important to the growth cycle. Training goes first. You have to start educating and growing skills of the people. That comes down to the responsibility of the management to know what skills are required and what you need to acquire these skills, whether internally or externally. It’s the responsibility of the owners of the companies to ensure their staff are equipped just as it is the responsibility of the parents to guide their children. So, knowledge and skills come first, there is no good in having good roads when people don’t know how to drive.

    If you look at initiative such as market making, it provides liquidity for the market. The market making initiative in the Nigerian market has started well, the volume is still small but it’s going to grow. But initiatives like market making will work if people understand what market making is and have the confidence in the process. It all comes down to confidence. To increase volume you need confidence- confidence in the market making itself, confidence in the companies, confidence in the market operators; that’s one key element.

    How do you see the introduction of derivatives and other hybrid instruments?

    I think the key is about understanding the market itself. Sometimes you can be ahead of the game. You really have to be sure about the timing and understanding that there will be demand for these products in the marketplace. If we provide this initiative, how are people going to use it? What will stop people from using it? But what will facilitate acceptance is understanding. Whatever you are doing, it’s important to get the audience to understand it very well using all available means of communication. Then, there has to be proper regulations in place.

    For an emerging market such as Nigeria’s, which one is preferable, government-owned or private-owned stock exchanges?

    My experience generally is that if a stock exchange is privately owned, you see more of commercial mindset; where things are done based on business needs, business requirements. Quite often, things are quicker and clearer. You know what they stand for, there are clear strategies led by goal-driven people and they achieve what they are going for. I see some of these in Nigeria. I see clear strategies; a lot of efforts going on. I think if the Nigerian economy has a bright future, the stock exchange will be a central part of it.

    Looking at the economy, what do you think are needed to firmly place it as a leading emerging economy?

    I think you are on the way there. There are tremendous foreign interests in Nigeria. But I think the key is to create the middle class in Nigeria. Foreign investments help in growing the economy but there are also things that must backflow into local investments by creating opportunities for Nigerian businesses to engage with international businesses and create real jobs in Nigeria. By this, you are sowing seeds, you are using this year’s harvest to plant next year’s, we need to find balance between international money coming in to generate profits in Nigeria and what will create jobs and investments in Nigeria. We need to find that balance between international and local trades and have money plough back into the Nigerian economy. You will notice that you will have more people engage in such process, it won’t be a drive for profit repatriation, you are certainly engaging a lot of local people in the growth.

    It’s all about getting a model that ensures Nigeria’s wealth is ploughed back from years to years, for generations to come. Then, there is the need to develop the ability to produce in Nigeria; take your own raw materials and produce your own goods. Not just exporting cotton to import textiles but turning cotton into textiles. If we have the production base in Nigeria, that will help transform the economy.

    Talking about your own firm, what are your short, medium to long-term objectives in Nigeria?

    It’s always educating going to a country for first time. That enables you to fine-tune your plan. We are very proud of what we are offering as a firm, but we haven’t proved ourselves to Nigeria yet. So, the early engagement is about getting to answer a lot of questions that may be in the minds of the people- can we trust you? Are you here for the long term? Our plan is to work very discreetly, very carefully with the financial and business communities to identify things that the financial and business communities will like to see in Nigeria; to work with them to identify training needs and then build around these. Our plan is to produce training catalogue that will be made available to the Nigerian business communities so that people can choose which offerings they want and how they want these delivered to them.

    Ultimately, I will want to see a training academy, a world-class centre of excellence, established in Lagos. But the first thing is; we have to make sure our understanding of the Nigerian market is correct. We have to get credible feedback from the Nigerian community that what we have is actually what they are interested in. That will assure us that we have the right product. I will need to make sure little by little we build trust. I have lived all my life in London, taking the decision to come and invest in Nigeria is not what we made lightly; it’s not been an easy decision. There are sure to be bumps on the way, but we believe this is within the vision of our company, which was set up to help people change things for better. It’s not going to be easy, we know that from the onset, so we have to make sure we get things right.

    Several people are worried about the dominance of foreign portfolios, which account for nearly three-quarters of trades in the Nigerian market. How do we balance this to achieve stable and steady market growth?

    As I mentioned earlier, if you generate more internal wealth, there will emerge a viable middle class. Then, you can encourage the people to invest in their own market. But people are not going to invest unless they trust the market structures-the regulators, the companies, the brokers. If all the basic things are in place, they will invest. They also have to see the benefits. So, it’s all about creating the disposable incomes and also about educating people on how things work. Why should I invest my money in the capital market? You must show people why they need to invest in the market. Companies need to go out there and reaffirm their credentials, how their businesses work, their books and their strategies.

    What advice do you have for the securities regulators?

    The stock exchange is a market; it’s a market where people come to buy and sell shares of companies. It’s pretty much like the high-street market where people come to buy and sell a number of things. In building a great stock exchange, it’s really key to keep that simplistic summary in mind. So, if it’s a place where people come to trade, what will make them to come and do trades? Having the right control, keeping a safe environment, being transparent and efficient and getting all the right things in place. Given all these, people will come. Efficient regulation is key. Nobody is going to talk about regulator when things are going well, when everybody is happy. But when things go wrong, the first reaction is usually about where the regulator was when things were going this way. Regulations help to protect orderly market to ensure that individuals and companies behave themselves. Often times, when things go wrong, the first reaction may be bring in more rules. Yes, you may need more rules but it may also be that the rules are fine but you need more enforcement or you need better understanding of them by the regulator or within the community or both. I think it’s important people understands their roles and also that the community understand what they are doing.

    In Nigeria, we have more retail investors investing directly in the market rather than through collective investment schemes like mutual funds. But in most advanced and emerging markets, you see mutual funds playing bigger roles. How do you see this?

    For me, I am not for or against that. I think both form key parts. They are all key market participants. Again, it comes down to understanding and education. If you want people to invest through mutual funds, you have to show them the benefits in them; people have got to show their credentials and returns. Just the same if you want more retail investors to participate in the market. You need both to build a strong market.

  • ‘PIB’s non-passage is a disaster’

    ‘PIB’s non-passage is a disaster’

    How would you assess the success of the Local
    Content Act in terms of bridging skills gap and empowering local players?

    The Local Content Act is a combination of efforts, which originated from the private sector. The Federal Government keyed into it and got the Nigerian National Petroleum Corporation (NNPC) involved. So, between the private sector service companies such as ours and the NNPC, we were able to put together what we have today.

    We thank the NNPC (representing the Federal Government) for moving when it was required. On the effect and importance of the Act in terms of local content capacity building, it will improve local content capacity. Capacity is not about rhetorics, it means more opportunities for Nigerians and trickling down of value. It amounts to more funding and will expose more Nigerians to the industry.

    Exposing Nigerians and creating more opportunities within the Local Content Act, we synergise and have a system that will allow more players to come in. This means that at the end of the day, Nigerians will have better control over the exploration, production and other activities in the oil and gas industry. Beyond providing more jobs and boosting the economy, the Local Content Act provides better security as far as control of our energy resources is concerned. In many ways, the Local Content Act impact is positive.

    The pioneer Executive Secretary of the Nigerian Content Development and Monitoring Board, Mr Ernest Nwapa, an engineer, is very experienced. I know there are lots of works to be done but I assure you that he is up to the task. The management of the board can make a lot of difference but if issues are not managed properly, it can backfire in many ways; but we don’t expect that.

    Operators are contesting some provisions of the Act, which they say are grey areas that should be addressed, what is your view?
    You can call them grey areas or potential pitfalls.

    The way we do things sometimes is not very good. We have to ensure that the award of contracts to briefcase contractors who will inturn give the contracts to foreigners in the name of local content, is discouraged. This will not help us to build capacity. Secondly, politicians should ensure that nobody makes them use their influence where they don’t have to.

    They should avoid negative influence by supporting companies and contractors not qualified in the sense that they are not prepared to develop capacity but to take up the contract, collect the money and disappear without doing the job.

    This will create serious credibility problem and it will affect the Local Content Act and its practice. It is not just the politicians but anyone in position of authority should know that the Act is primarily for Nigeria and Nigerians. Our ability to use it positively will enhance the economy in many ways. Another issue is the local content fund being put together by virtue of the Act where one per cent of all contracts go into. This fund has to be deployed properly for capacity building. It has to be used in a way that builds up local content.

    Stakeholders including PETAN chairman have identified funding and not skills gap as the major challenge to local capacity building. Do you agree?
    I agree with them 100 per cent. Skills can be acquired. I can tell you that the skills in Nigeria are enormous, but there are still areas we are yet to build up skills. There are many ways to get the technology we need.

    Some 20 years ago, it was a different ball game. We were not opportuned to have the technologies of today. That is history because some of us are handling projects worth more than $200 million at a time. So skill is not the issue. The issue is finance, as the chairman of PETAN said.

    The finance regime in Nigeria is counter-productive. There is no way you can raise funds at 20-25 per cent interest per annum and make profit. There is no way you can build capacity with that kind of cost. There has to be a concerted effort to get finance cost lowered to build capacity. I know it cannot be done by fiat, the government cannot decree but it is important that it establishes some fund or even some security that will enable banks lend at a cheaper rate.

    It is our duty as practitioners to give support so that risks borne by the banks are also reduced. It will encourage them to lend more. It is not a major issue but it is not an easy one to deal with. I believe that until we deal with cost of finance, our ability to grow will be limited.

    Oilserve has subsidiaries that play in the exploration and production (E&P) segment of the industry, as well as in the power sector. How would you rate Nigerians’ participation in the E&P. Is it encouraging?
    It is not encouraging but that doesn’t mean that it is bad.

    There has been movement in the past 30 years. We have some Nigerian E&P companies today and we expect to have more. Certainly we have to work on it but what is important actually is the way the blocks are given. The government has to conscientiously put a process that is very transparent to encourage the real players to come into the industry. If you look at some of the players today, you will see a difference. Some years back many blocks were awarded, how many of them came to fruition? Only very few are being operated by Nigerians.

    They are the few examples that I can give and both are managed by professionals. Although you cannot stop anybody from being an investor, you don’t have to be an expert in oil and gas to invest today but you can be an investor and you risk your money. But it is important that when that is done, there has to be a proper process in place to ensure that Nigerians get the best out of it.

    How would that happen? It is by ensuring that these fields are run by Nigerians mostly? You can achieve this by putting up a proper process during bidding in such a way that there have to be criteria; with the criteria that encourage Nigerians to manage the blocks, that will make a lot of difference.

    I believe that the future is still looking good, we have learnt from our mistakes and like I said earlier, we want to be higher than where we are today. Where we are today is a major move from where we were 20 years ago.
    Can you talk on your marginal field?
    We are only a participant in it. We are not the operating arm, at all. But I can tell you also that one of our sister companies, Frazimex won a block in Sierra Leone. It is a deepwater block offshore Sierra Leone.
    Do you have any intention of playing in the E&P terrain in Nigeria?
    Yes, it is a matter of having the right plan and system put in place. Our major purpose in Nigeria is entirely service delivery but we are ready to move into E&P because we can now synergise. We move into this field, we now have what it takes even to support most of the farm-ins. We are waiting for the next bid round to come up. We will also be involved in the next round of bidding for marginal fields.

    The passage of the Petroleum Industry Bill (PIB) has been delayed for long. Do you believe the non-passage of the Bill has impacted the oil industry negatively?
    You are conservative and modest. I can tell you categorically that non-passage of the PIB is a disaster to Nigeria oil and gas industry. It is a complete disservice to Nigerians. We have to make sure that we pass a PIB that reflects a situation where we get the best value for our resources while encouraging foreign participation as much as possible. It has to be a PIB that opens up the industry further to investments by Nigerians and non-Nigerians. It has to be a PIB that lays a ground work that will enable Nigeria as a country tap the most out of the resources they have.

    We have experienced people in the National Assembly. In my opinion, the onus is on the executive arm to do the right thing for Nigerians. I’m urging everyone involved in the process to realise that it’s time to move. I know that they are patriotic but they also know the duty they owe Nigerians, and I’m sure they will be able to do that because the cry is getting louder by the day and I know they know what to do.
    As an operator, can you list some challenges facing indigenous players?

    There are challenges but funding is the major one. Availability of finance and cost is a major issue, if not more than 50 per cent of the challenges. The other is security. It has to be dealt with to reduce the cost of doing business. Also, we have to continue to build capacity in terms of skills. To move forward, we have to keep building capacity and skills. Even America as advanced as it is today continues to build capacity and skill. They train people, retrain them and give them the opportunity to keep growing and learn new things because technology evolves.

    The technology we have today may be obsolete in a year or two, so we have to keep training and retraining. It is a fact that we have to make a conscious effort to work on because, without that, we cannot be in a position to tap the best out of our resources.

    The oil industry says that Nigerian graduates are not employable. Don’t you think, it is a serious blow to the already extant gap we have in the industry as a country?
    There is a major issue with the quality of our education.

    To say the least, it is very poor and many things led to this. But again I’m one of those in life who don’t believe in just complaining about something but also in doing something about it. Until Nigeria does something about our education, the country will remain limited in her ability. And the issue that is even more disturbing is our ability to take the best advantage of what we have. If we don’t have people that can compete with the rest of the world, what it means is, we will end up holding the wrong end of the stick, end up always being on the losing side because education is key.

    Without education, people, nations and systems will have a bleak future. The only way we have to improve is education. Take yourself as an example, if you didn’t have the opportunity to go to school in one form or the other, you wouldn’t be here today. You probably would be wasting or wasted somewhere and the same thing applies to me. The reason why we can sit down today and talk about competing with the rest of the world is because we were given the opportunity to go to school and we got quality education. So, education is the key and until the government gives the sector serious attention, we are not going anywhere.

    Do you see a Nigerian company being competitive enough to rub shoulder with international oil companies in future?
    I see that. It is possible, not only from standpoint of belief that anything is possible but looking at the factors that are involved, it is possible. It is just that it doesn’t just happen; you have to make it happen. You have to work for it, plan for it and it is not just by the efforts of the investors including Nigerians, it is also by concerted efforts of the government in setting up policies that will encourage that. It is a multitude of factors that will lead to that but it is very possible and that is what we want to do.
    What is your assessment of the government’s amnesty pro-gramme?
    In my view, it is a very good programme and to a large extent it has been executed very well. I give kudos to the Federal Government for thinking about that and taking the right decision but we have to go beyond that. What I mean by this, is that we have to find a way to empower Nigerians, particularly, those in the Niger Delta, so they will have work to do, think properly and not resort to carrying arms and that requires longer term plan and execution.

    Your company has done a couple of projects in Nigeria. Which one excited you most?
    It is a difficult question you asked because we have done a myriad of projects and each of them is peculiar. For example we did phases one, two and three of Greater Lagos pipeline project for Oando. That is peculiar because it was the first time pipeline is being laid in a very densely populated area, such as Lagos. People thought it would not be possible.

    We started it in 2001 but by 2002, we finished the first phase, did the second phase and finished the third phase three years ago. It is a peculiar one; it is something we are proud of. It is even more peculiar because in a situation we have a local company like Oilserv executing a major EPC project for a local company like Oando. There is nothing more important and significant like that when you talk of local content. Another one is clear intervention we did for Shell. I remember when Nembe oil field was taken out because of sabotage of a pipeline.

    Normally it was to take four weeks to solve the problem because getting into the swamp, detecting the leak, excavating, building a cofferdam, preparing, testing and reinstating, will take you a longer time but we went in there instead of doing it in two months or so, we delivered that in 14 days. It was a major activity and it was an activity that foreign multinational companies could not do, but Oilserv did that. We also built a 36-inch TNP manifold for Shell. That was a project that commenced in 1993 and was abandoned. In 2001, we moved in there and started it all afresh and delivered it in less than six months. These are key projects we’ve done that are very typical but beyond that, we have done many other projects such as building major export pipeline for Global Gas Refining, which is an indigenous company, from Cawthorne Channel to Bonny River six years ago. It is 26km in the swamp.

    We built a power plant, which included 13km of pipeline from Ikeja to Akute to power the Lagos Water Corporation and Akute Power Plant. That was the first time an indigenous company took such an EPC job from beginning to end. There are quite a lot of others but we are glad to have done all these.
    Why don’t Nigerian operators play in the deepwater terrain?

    The major difference between offshore and operating on land, or in swamp is purely the issue of the cost of the project and the issue of logistics. The technology is there, we can lay pipelines in offshore the way we lay on land. All it requires is that we need to invest more, get a lay barge that will cost millions of dollars but make sure that you have the opportunities because you cannot get a lay barge and keep. It is infeasible. Basically, the major impediment in offshore projects that doesn’t allow Nigerians not to move into offshore is cost. We require deep pocket to do that because the technology and knowledge are there already.

    An Oilserve subsidiary undertakes power projects, why shouldn’t Nigeria fix its power problems?
    It is not a big problem. Every technical challenge has a solution. And trying to use the solution, you create opportunities. We don’t run away from problems, we deal with them. Nigeria’s power sector has suffered tremendous difficulties. It was neglected for many years and when decision was taken to act, the decisions were good but the processes were not well thought through and some errors were made at the very beginning.

    I know now there is a lot of effort to solve the problem. I know the president is very committed but let us be clear about the issue. Improving capacity in power is not a one day affair, it takes time. It is a long process because here we are talking of generation, transmission and distribution.

    You have to put all those things together in order to achieve result. If you generate a lot of capacity and you cannot transmit, there is no power still. If you generate and you can transmit but the distribution system doesn’t have the capacity to take the power and give to various end-users, you still have a problem. So, you have to integrate entirely and it is only when you do this integration that you can be in a position to solve the problem.

    How would you describe the importance of Offshore Technology Conference (OTC) to the oil and gas industry?
    OTC as an event is very important to the oil and gas industry in many ways. We have to accept certain facts. One is that OTC is the biggest oil and gas show in the world as far as it concerns a show that showcases technology, the activities and all the various opportunities in the oil and gas industry. So, participation in OTC is most important way of showcasing the oil and gas industry to the rest of the world.

    The industry is quite active in Nigeria and we know that it is our duty to make sure the world knows what we are doing and put to the world all the opportunities that are available that can create synergy as far as production or exploration is concerned. It is also good for Nigerians to come here and see the technologies that are coming up that can be deployed in operations in Nigeria that can make our own work more efficient.