The Nation Newspaper

Category: Issues

  • Cutting cost of doing business

    Cutting cost of doing business

    The cost of doing business in Nigeria is said to be among the highest worldwide. With the on-going privatisation of public firms, the power and banking reforms, among others, expectations are that things will change for the better. EMEKA UGWUANYI, TOBA AGBOOLA and SULAIMAN SALAWUDEEN, examine the development.

     

    The primary objective of setting up a business enterprise is to provide quality goods and services at very competitive prices and earn reasonable profit, but unstable power supply has largely made this goal unachievable in Nigeria. Power is central to industrialisation and overall development of any country.

    The first step to becoming a developed economy, according to the Nigerian Institution of Electrical and Electronics Engineers (NIEEE), is by getting the power sector right.

    However, in well over a decade, the Federal Government has been striving to fix the power sector because of its aspiration to become the commercial hub in sub-Sahara Africa, and also its desire to be among the 20 leading economies in the world in 2020. Notwithstanding, its objective options it adopted for tackling the power problem seem not to have achieved results. The government has promised to deliver on the sector’s privatisation considering that most of the factors hampering business development have to do with power.

    Reports have it that Nigeria ranks among the costliest countries in the world to do business, and that the exit of Dunlop and Michelin, two tyre producing firms, from Nigeria, as well as the collapse of the textile industry, which some years ago was booming, appeared to buttress the report .

    Apart from inconsistent government policies, insecurity, difficulty in accessing funds and poor infrastructure, are identified as being intrinsically connected to jacking up the cost of doing business locally. For instance, it is argued that if there was stable power supply, everywhere would be well-illuminated, which would deter criminals from carrying out their acts, as technologies, such as close-circuit television (CCTV) can be applied at all times to monitor and track criminals. Besides, there would be jobs as people will be engaged in various vocations that steady power supply would engender.

    Aside from power, Nigeria’s banks are also culpable in hiking the cost of doing business on account of the high interest rates attached to credit for borrowers. Besides, there are several associated charges that banks railroad into the cost quotient that have ballooned the cost of loans, and by extension, adding to the cost of doing business in Nigeria. But they also have their reasons. They hold the absence of power as one reason they are helpless in controlling their operational cost.

    Many firms provide them power to preserve their production process. It is in view of this development that some rich companies, such as Dangote Plc and the multinational oil companies build mini and big power plants depending on the size of the operation or the facility. However, the fact remains that the end-user of a product or service suffers at last by bearing the entire cost.

    Power supply

    Power generation level has substantially increased in the past two years from about 3000MW at the beginning of 2011 to 4,517MW as at the end of last year.

    To sustain the tempo, Vice President Namadi Sambo, had directed the Niger Delta Power Holding Company (NDPHC) to ensure that all contractors handling projects in the National Integrated Power Project (NIPP), complete them by the end of the year, which would eventually add at least 4100 megawatts to the grid.

    A member of the Presidential Task Force on Power (PTFP), Simeon Atakulu, gave an update on the status of generation. In his report, he said a cumulative generation capacity of about 10,362MW is expected at the end of this year.

    He said a combine 846MW is expected from IPPs and another 1,130MW from Agip’s Okpai plant in Delta State and Shell’s Afam VI in Rivers State, while the NIPP will be generating 4147MW and PHCN’s hydro and thermal plants would be generating 4239MW. He noted, however, that although there would be 10,362MW, only about 7,175MW would be be delivered, citing some constraints.

    Apart from Shell and Agip’s power plants and two other IPPs, which were built where they have access to adequate gas supply, operators of the NIPP, PHCN and other assets, lament the dearth of gas supply. Besides, if something strategic is not done to strengthen the transmission network; there is fear that it wouldn’t be able to wheel more than 5,000MW. Therefore, the government should focus on the construction of gas infrastructure to supply gas to thermal stations, as well as strengthen the transmission network.

    Cost of epileptic power supply

    During the Lagos State Economic Summit known as Ehingbeti 2012, a partner at KPMG, Kunle Elebute, warned that if the poor power supply situation should linger till 2020, Nigeria stands to lose about $130 billion. He urged the Federal Government to tackle the issue of lack of electricity infrastructure, such as gas pipelines, transmission lines and transformers. He said the government should provide a conducive investment environment and incentives, among others, to attract the private sector into the power sector. He said poor supply poses serious challenge to industrial and overall economic development of the country despite the huge potential in the country to actualise its energy needs.

    He said Nigeria has the potential to become an energy-sufficient country if only it could adequately utilise the abundant resources in the country. The former Secretary for Energy and two-term Governor of New Mexico, United States, Bill Richardson, also corroborated him, adding that Nigeria has abundant alternative clean energy.

    He said the success of the telecoms sector is a clear indication that the same feat can be repeated in the power sector, if the right regulatory and operating framework are put in place, adding that building a 21st century electricity facility is possible and urged the government to fast-track the privatisation process in a transparent and accountable manner.

    “Nigeria can choose a clean path in providing electricity. You have abundant gas resources; have the opportunity to provide renewable energy. You also have hydro resources; you have wind energy and other renewable energy sources,” he added.

    Manufacturing sector

    The Chairman, Infrastructure Committee of the Manufacturers Association of Nigeria (MAN), Reginald Odiah, an engineer, said power, which is usually five per cent to 10 per cent of production cost in most countries, constitutes between 30 per cent and 40 per cent of cost of production in Nigeria. He said a recent survey conducted by the association reveals that on the average, PHCN supplies only 31 per cent of total energy required by manufacturers, while 69 per cent is generated in-house through self electricity generation.

    He said an audit survey recently conducted by MAN on 1,500 manufacturing companies nationwide, revealed that members of the association spend about N954 million for the maintenance of their plants, while an average of 8,679,638 litres of diesel is consumed weekly in running these plants.

    He noted that the much-needed capital for maintaining and increasing production at factories and production lines are locked up in purchasing generators. He said the manufacturing sector of the economy requires about 4,000MW of electricity to keep the factories running at installed capacity.

    A report from MAN also showed that some companies in Ikeja spend N5 million on diesel weekly and at least N20 million monthly.

    The Director-General, Nigerian Textiles Manufacturers Association, Jayeola Olarewaju, said money is just a small percentage of the problems of local textiles manufacturing, adding that power is a major challenge. He said between 30 and 35 per cent of their cost of production go to power generation.

    President, Cement Manufacturers Association of Nigeria (CMAN), Joseph Makoju, said energy cost accounts for over 35 per cent of production in Nigeria, whereas it is 10 per cent in China.

    Hospitality and SMEs’ sectors

    Investigation in Ekiti State showed that the hospitality industry and the small and medium enterprises (SMEs) are worst hit by poor electricity supply situation. Midas Hotel, a newly-built four-star hotel in Ado-Ekiti just opened for business on February 9, 2013, but the management said that it has discovered that to remain in business means more than putting in place first class structures and facilities.

    According to the Director of the hotel, Mr Ayeni, the greatest challenge has been running on diesel-powered electricity generating sets all day. He said the hotel requires a minimum of N60,000 to sustain all-round electricity generation for a day. Of course, it means that we would be spending a minimum of N1,800,000 monthly.

    “I am not saying the PHCN does not give us light at all. But we know what it means when such a standard hotel like Midas with high patronage gets supply for a maximum of 30 minutes on a good day. For now, we supply our own electricity. Experiences across other hotels aren’t much different.

    Investigation by The Nation also showed that artisans such as barbers, hairdressers, technicians, welders and others are equally suffering poor power supply. According to Dolapo, an electrician, the effect has devastated our business and has sent many temporarily out of business. “I lose customers and money every day in past few months. It is either you are ready to burn fuel for a whole day or you are out of business. But I cannot afford the cost of powering the generator a whole day. Unfortunately, I cannot increase the cost of my service because I use generator lest the few customers that still patronise me may leave,” he said.

    The spokesman of PHCN in Ekiti State, Mr Kayode Brown, assured there would be improved supply in the that very soon noting that the poor state of power has been as a result of fault from main source outside the state, which is being handled by the concerned section of PHCN. Brown noted that the development has affected not only Ekiti but even parts of Ondo and Osun states, adding that the problem had to do with transmission from Osogbo.

    Lack of industrialisation

    The former Minister of Power, Prof. Barth Nnaji, had explained how poor power supply compelled him to develop interest in championing efforts at addressing electricity problems in Nigeria. He said: “It was the fledging auto industry in Nnewi, Anambra State, which inspired me in the late 1990s to take steps to establish in Nigeria a state-of-the -art company to manufacture auto parts, including engines.

    “I was then the ALCOA Foundation Professor of Manufacturing Engineering at the University of Pittsburgh, on a leave of absence from the University of Massachusetts as distinguished Professor of Industrial and Mechanical Engineering and Director of the Automation and Robotics Laboratory.

    “I was keenly interested in how the Nigerian domestic auto industry could be assisted to produce world class parts, which would be exported to even developed countries. The dream was suspended on account of the worsening electricity crisis in Nigeria. So, I naturally turned attention to how to address the perennial power problem.”

    Like Nnaji, noble dreams of many Nigerians, which could have taken the country to the next level, were aborted because of power supply. Some companies built in the cities were originally planned to be constructed in the rural areas but for lack of power, they crowded in the cities jostling for the limited supply from public power supply.

    Government’s efforts

    A Chinese firm, Sepco111 and a Nigerian company, Pacific Energy Limited, had last year said they were preparing to construct 1,200 megawatts (MW) coal power plant worth $4 billion in Benue State, but nothing has happened since then.

    Prof. Nnaji had said that the government planned to diversify the sources of electricity generation through the building of three coal power plants in Enugu, Benue and Kogi States.

    The Federal Government also signed some memoranda of understandings (MoUs) with a few world class energy companies. For instance, the General Electric (GE), which agreed to provide $10 billion for the construction some power plants as well as with South Korea and others, but these MoUs are not yet translating into tangible results.

    The Federal Government also support IPPs by buying off their generated power, for instance, 135MW from Dangote Group, which has excess generation from the two power plants built for the Obajana and Ibeshe cement factories in Kogi and Ogun states. The two power plants have combined total generation of 257MW, but the two cement factories can only consume 122MW leaving an unused 135MW.

    The government also said it would stop direct building power generation plants by end of next year as the subsequent power plants would be built by the private sector. The Minister of Power, Prof. Chinedu Nebo, said the government is reviewing the power sector roadmap to reflect realities.

    The Lagos State Government in the past few years has begun to focus on construction captive power plants to supply steady electricity to some designated facilities and areas such as the Central Business District.

    Way forward

    The President of the German Federal Environment Agency, Jochen Flasbarth, during his visit to Abuja was reportedly said to have advised Nigeria not to depend on the 4000MW generation or its economy would flop. He advised the government not only to embrace renewable energy as an alternative source of power supply. He said it would be impossible to provide the country with electricity through a centralised electricity supply structure, and called for the decentralisation. He said the grid system of power supply is costly and expensive to maintain, especially when it is used to cover the country. He said the grid system should be used when the source of electricity supply is near while off-grid system should be where the source of generation is very far from the grid.

    With the commencement of finalisation of negotiations of transaction documents between the government and the preferred bidders for PHCN successor generation companies (Gencos) and successor distribution companies (Discos) in January this year, it seems the solution to the power problem is in sight as private sector entrepreneurs take over management and control of the 11 and six Discos and Gencos.

    The Director-General of Bureau of Public Enterprises (BPE) Benjamin Dikki said following the receipt of bank guarantees for 15 per cent of the transaction value within the November, last year deadline, that the BPE can confirm that its bankers have verified all the bank guarantees provided by the preferred bidders. Thus, the preferred bidders are qualified to enter this stage of the privatisation process which is the finalisation of negotiation between the Federal Government and the bidders.

    He noted that 15 business days after signing of the Sale and Purchase Agreement or the Shareholders’ Agreement, whichever is earlier, or at a mutually agreed earlier date, the bidders should make a down payment of 25 percent of the share sales purchase price. It is after finalisation of negotiations that transaction documents would be executed. As Nigerians wait for this historic period, sincerity of purpose must be ensured even post-handover of these power assets. As it is believed that privatisation is the only tonic for getting the power sector right, politics and partisan patronage must be sacrificed for competence, probity and accountability.

    He noted that the reform processes being taken by the government doesn’t mean the power sector issues are over but it marks the beginning of a strategic transition to a common national aspiration.

    “This does not mean that the electricity industry in Nigeria is out of the woods. It is still facing some challenges in all segments of the value chain. These challenges include low generation capacity, inadequate transmission and distribution infrastructure, poor operational performance, poor revenue collection, inadequate metering, poor billing and electricity theft.

    “Others are poor maintenance culture, inappropriate industry and market structure, unclear delineation of roles and responsibilities. These are the issues that give rise to the reform initiatives that led us to the process we are undertaking,” he said.

     

  • Should customs or agents handle destination inspection?

    The Nigeria Customs Service was preparing to take over destination inspection (DI) at the ports, airports and border ports from destination inspection agents (DIAS), following the expiration of their contracts on December 31, last year, when the government renewed the pact on January 1. The extension of the contracts has generated a controversy over who should handle such a sensitive assignment, OLUWAKEMI DAUDA writes.

     

    Seven years ago, the Federal Government awarded the contract for the re- introduction of Destination Inspection (DI).

    Three companies, SGS, Global Scan Systems Limited and Cotecna Destination Inspection Limited were named as service providers.

    They were contracted to inspect imports to determine the duty payable and to prevent the entry of unwholesome and prohibited goods.

    The contract was in three parts- Capacity for Customs, Risk Management System and Scanning, operations. The service providers functions were divided into three: port/point of arrival and entry into Nigeria. SGS zone covers the Port Harcourt main port and airport, Onne Port, Idiroko border post, and the Ilorin International Airport.

    Global Scan covers Calabar Port, Warri, Lagos Airport, and Service Border Area; Cotecna covers the Apapa Port, Tincan Island Port, Abuja Airport, Kano Airport, and the Jibiya and Banki border posts.

     

    Terms of engagement

    The service providers were contracted to plug revenue leakages and ensure trade facilitation.

    They were also expected to build, equip, train and transfer the technology and expertise to the Customs.

    The aim of the policy was primarily to strengthen the capacity of the Nigerian Customs Service (NCS) by replacing pre-shipment inspection (PSI) in exporting countries with inspection on arrival in Nigeria using the latest technology tools.

    This objective was envisioned to take care of irregularities in the maritime business.

    Other reasons for the destination inspection include the facilitation of trade through risk management and the use of non-intrusive inspection (x-ray scanning) of selected imports prior to Customs clearances thereby minimising the need for physical examination and enhance regulatory compliance and collection of import duties/taxes.

    Based on the terms of agreement, the service providers are expected to design, implement, operate and maintain a computerised Risk Management System.

    The scanning service entails the provision, installation, management and maintenance of advanced scanning technology. Also the contract stipulates that the service providers should install mobile and fixed scanners at designated seaports, airports and border posts.

    On December 31, last year, the contracts expired but it was renewed by the government on January 1.

    The six months’ extension generated a controversy which is yet to die down.

    The question stakeholders are asking is why the government extended the contract.

     

    Reasons for contract

    extension

    Sources at the Ministry of Finance told The Nation that the government extended the contract to avoid congestion at the ports.

    The source also traced the extension to the lack of preparedness by the customs for the job, adding that the government was not initially against the customs plan to take over from the service providers on December 31, last year, but that there was a change of position, when it realised that the Customs management was planning to start total physical examination of goods at the ports.

    He said the customs plan is against the electronic examination being done by the service providers using scanners, which he said,would have led to a delay in goods delivery at the ports.

    The source alleged that it would have led to more corruption at the ports as some Customs officials would have been left with the responsibility of value determination as against the current system where the service providers determine the value of the goods being declared by the importers.

    The source said the Ministry of Finance, had on realising the danger of physical examination, drew the attention of the Presidency, which approved the extension of the service providers’ contracts.

    The President of the National Council of Managing Directors of Customs Agents (NCMDCA), Mr Lucky Amiwero, told The Nation that the country must learn from Ghana’s experience as far as DI is concerned. He said the issue of scanning equipment and training should be addressed first, followed by a transition period during which the Customs can take over.

    Some importers said physical examination was an avenue through which Customs rip off importers, by jacking up duties on some items and compelling them to offer settlement if they hope to get lower debit notes (DNs) on such goods.

    They claimed that it did not matter that such items had been correctly valued at the country of export, adding that on arrival in Nigeria, some Customs men will look for ways of extorting the importers through frivolous DNs.

     

    Introduction of PAAR against RAR by Customs

    Sources accused Customs of hurriedly sending a backdated letter to stakeholders, informing them of the new scheme to be known as Pre-Arrival Assessment Report (PAAR), about 10 days to the expiration of the service providers contracts.

    The introduction of PAAR by Customs, the sources said, was seen by the Presidency as compounding the problem at the ports. Customs, the sources said, should have waited after it took over before introducing PAAR.

    The letter sent by Customs to stakeholders on the new scheme reads: “The PAAR application system is a dynamic , real time and consistent Risk Management platform utilised by NCS and partner regulatory agencies, including Commercial Banks for classification, Valuation, Price Verification and added value services in a modernised Risk Management environment.”

    Sources said the government doubted the success of the PAAR scheme as it seems to have been done in a hurry.

    President Jonathan, the source said, extended the contracts to avert the looming crisis at the ports.

    But the President, Association of Nigerian Licensed Customs Agents (ANCLA), Prince Olayiwola Shittu, said the DIs have failed to ensure that the right machines are provided for scanning cargoes, such that actual contents/images are generated without recourse to physical examination.

    This, he said, has always led to physical examination of about 75 per cent of the cargoes thereby resulting in delays.

    He said the Customs had since found that RAR was not sacrosanct and proposed to replace it with Pre-Arrival Assessment Report (PAAR).

     

    Problems of RAR

    Shittu said ANCLA supported PAAR because RAR is a mere importer’s document “to inform the Customs that this is the minimum amount you can pay.”

    He said although Customs has no right to reduce the duty payable under RAR, it has the right to review it upward and that has been giving us problem because there is evidence to show that importers have outsmarted them, by influencing RAR. A lot of RARs end up with additional debit note being issued on them.

    “So, if the RAR is just advisory, and Customs will still perform their function, why should we still continue issuing the RAR and, at the same time, paying the service providers one per cent fee for service that is not relevant again? That is our grouse,” he said.

    “It would be of interest to Customs licensed agents that they have RAR in another form because what we are talking about is risk management system, but this time, the document would be issued by Customs under the proposed PAAR and that would save us a lot of troubles.

    “What customs is doing under RAR is check and balance. Even when the cargo is released, you see officers from the Customs Intelligent Unit (CIU), the valuation and examination units, coming forward to say the amount you paid was not correct. But with the introduction of PAAR, they are trying to turn it to a one-stop-shop where PAAR will be the final documentation of assessment of your cargo by Customs to pay your duty. This is in line with the single window and one-stop-shop, which the Minister of Transport had worked on.

    “ This is to allow importers to pay shipping companies and terminal operators once and carry their cargoes. PAAR will save us a lot of problems and it will enable us to achieve the 48-hour cargo clearance policy,” he added.

    He said PAAR would use pre-classification and prevaluation mechanisms to facilitate the importation of goods and enhance Customs efficiency.

     

    Contract sum

    The amount involved in the contract is one of the major issues why all eyes are set on the job of the service providers. For instance, the House of Representatives directed its Committee on Customs and Excise to probe the extension of the N275billion contracts. Under the deal, the DIs, House sources said, would get N21 billion, irrespective of the quality of work done.

    Sources said the House of Reps was not happy that the country’s revenue potential is not being realised because the DIs are not paying the correct taxes. Over $1 billion was alleged to have been lost. The probe, source said, was initiated by the House to prevent the continued loss of revenue.

     

    House Committee’s report

    The Chairman, House of Representatives Committee on Customs and Excise, Sabo Nakudu, said in another six months, officers of the Nigeria Customs Service (NCS) should be able to take over the job of the service providers.

    He made the statement during an oversight function visit to the two service providers.

    He said Cotecna and Global Scansystems have done well in training Customs officers to take over the Destination Inspection Scheme..

    Some of their recommendations include: “That the NCS should ensure that its officers trained by the various service providers are attached to the service providers in the interim to acquire more knowledge and not post them out to areas irrelevant to the training already received.”

    The report also recommended that the service providers Webb Fontaine, COTECNA, SGS and Global Scan, should take steps to harmonise their different risk assesment platforms into a single window for the use of the NCS.

    The committee recommended: “A central data management system that will aid in harmonisation and integration of all data from relevant agencies for effective monitoring should be immediately established, and that pending the complete takeover of destination inspection services by the Nigeria Customs Service, an implementable transition timetable should be put in place to ensure orderly transition to the Nigeria Customs Service,” warning that “this transition should not extend beyond the end of 2013.”

    The report added: “The service providers should ensure that there is no skills gap in the Nigeria Custom Service within the transition period.”

     

    World Bank team meets

    stakeholders

    During a closed door meeting between the World Bank team led by Mr Ramesh Silver and leaders of freight forwarding associations, there were serious issues raised by the two groups.

    Sources at the meeting said while some members of the World Bank team expressed doubt over the capacity of the Customs to take over from the DIAs in June, the leader of the agents said that the Customs can do so.

    At the end of the meeting Silver said: “So far, it looks as if they (Customs) are well-prepared, but we still have to have some more detailed discussion, to understand how ready they are.

     

    ANLCA’s threat

    Sources said last week that ANLCA has started mobilising its members against the extension of the service providers’ contracts, adding that the association’s leadership has directed its members at the seaports and borders to withdraw their services, if the Federal Government extends the firms’ contracts beyond June.

     

    Sabotage

    The Secretary-General of NAGAFF, Mr Increase Uche, said there is no question that the Customs is ready to take-over the DI job.

    “There is no doubt that there are clear signs of element of sabotage in the whole essence of transfer to the Customs. Customs is prepared to take the responsibility and they have the support of the critical stakeholders to do so,” he said.

    But some of the service providers, who spoke with The Nation under the condition of anonymity, denied the sabotage allegation.

    They claimed that if they are saboteurs, they would not have sent officers and men of Customs Service on training locally and abroad in areas of analysis, scanner operations and maintenance, risk profiling.

    “We have always said we are ready for collaboration with the Federal Government and the Customs to ensure that the laudable project of Destination Inspection is executed and handed over to the Customs when the government desires.

    “Most of the Customs officers trained by us have won the Comptroller-General’s award as the Best Scanning Officers. Who is then alleging that we are sabotaging the efforts of Customs to take over?” the officer asked.

    To prove that Customs to do the job, he said the service providers have to deployed 22 mobile and fixed scanning equipment, trained 6,788 customs officers, and provided an ICT network backbone to enable customs to deliver e-customs services to the public.

    He said following these, Customs to take-over effectively had engaged experts on ICT technology to develop an indigenous PAAR with capability to over-come the inefficiencies of the previous destination inspection system.

     

    How prepared is Customs

    Following the extension of the contract, Comptroller-General of Customs,Alhaji Dikko Abudullahi, said a new crop of Customs officers are being trained to take over DI scheme in June.

    Dikko spoke when the World Bank officials visited the customs headquarters to ascertain its level of preparedness to take over the destination inspection from service providers.

    He said most of the newly recruited staff had been trained in various areas of specialisation to ensure effective management of the service.

  • Market making: The gains, the risks

    Market making: The gains, the risks

    From optimism to scepticism, market making is at the heart of growing concerns about the prospects of the capital market, reports Taofik Salako

     

    Nigerian equities are setting new highs. With a full-year average return of 35.4 per cent implying accretion of about N2.44 trillion in capital gains to investors last year, a strong start this year has seen most equities rising.

    The stock market opened last week with a year-to-date return of about 19 per cent, indicating addition of almost N1.71 trillion in capital gains in the past two months.

    Beyond the fundamentals, one of the initiatives driving the market is the introduction of market making by the Nigerian Stock Exchange (NSE).

    The NSE introduced the market making initiative on September 18, last year with an initial portfolio of 16 stocks. Market making refers to the system of providing liquidity to securities through provision of bid and offer prices in the trading system of a stock exchange. A member of the exchange that undertakes the function of market making, is called a market maker. Market makers can be categorised according to the level of liquidity support they provide.

    A primary market maker is regarded as the foremost liquidity provider of a particular security, while the supplemental market maker acts as a supplementary liquidity provider.

    In April last year, NSE appointed 10 stockbrokers as primary market makers. They include Stanbic IBTC Stockbrokers, Renaissance Capital, Future View Securities, Vetiva Capital, ESS/DunnLoren Merrifield, WSTC Financial Services, Capital Bancorp, FBN Securities, Greenwich Securities and CSL Stockbrokers.

    Under the operating rules, stocks in the market making basket are allowed to witness maximum daily change of 10 per cent as against the maximum daily allowable percentage change of five per cent for the general market. From the initial 16 stocks that started the programme, NSE has continuously added new stocks in line with the overall intention to roll stocks trading above nominal value into the market making programme within six months.

    Forty-three stocks are in the market making basket. They are Flour Mills Nigeria Plc, Unilever Nigeria Plc, Royal Exchange Plc, Wema Bank Plc, Oando, Unity Bank Plc, Seven-Up Bottling Company Plc, United Bank for Africa Plc, Access Bank, PZ Cussons Nigeria Plc, Nigerian Bag Manufacturing Company Plc, Presco Plc and Ecobank Transnational Incorporated (ETI).

    Others are International Breweries, Lafarge Wapco Cement Nigeria, Julius Berger Nigeria Plc, Guinness Nigeria Plc, Dangote Flour Mills Plc, Academy Press, Fidson Healthcare Plc, Redstar Express Plc and Ashaka Cement Plc.

    Other market-making stocks are Skye Bank Plc, Zenith Bank Plc, Dangote Cement Plc, UAC-Property Development Company, Custodian & Allied Insurance, Sterling Bank Plc, Prestige Assurance Company Plc and FBN Holdings.

    There are also DN Meyer, Stanbic IBTC Holdings, Nestle Nigeria Plc, Diamond Bank, Dangote Sugar Refinery, Fidelity Bank Plc, Union Bank of Nigeria, National Salt Company of Nigeria (NASCON), Nigerian Breweries Plc, Transnational Corporation of Nigeria Plc, Airline Services & Logistics Plc, AIICO Insurance Plc, Guaranty Trust Bank Plc and UAC of Nigeria Plc.

     

    Advancing market

    development

    Chief Executive Officer, NSE, Mr Oscar Onyema, said the introduction of market making was a major landmark aimed at bringing back liquidity and depth into the market. He pointed out that all necessary structures and processes have been put in place to ensure the success of the initiative and reduce likelihood of infractions.

    He explained that stockbroking firms that were selected as market makers went through a rigorous process and met the minimum net capital requirement of N570 million, while the NSE also examined their compliance history and their operational capabilities.

    To further safeguard the efficiency of the market’s price discovery system, the basket of stocks for each market maker was enacted through a blind draw. Besides, operational guidelines for market making require market makers to disclose any corporate involvement, such as directorships or substantial shareholding above five per cent in companies in whose securities they engage in market making activities.

    “Market makers are required to establish, maintain and enforce written policies and procedures reasonably designed, taking into consideration the nature of market making business, to prevent the misuse of material non-public information. Market makers must not exercise voting rights in the companies in whose securities they make markets, nor intervene in the management of the company concerned, or exert any influence on the company to buy back such shares or back the share price,” the guidelines stated.

    But there are also privileges for market makers. Although all market participants are allowed to sell short, only market makers are allowed in the meantime to execute a short sale transaction, provided that they have borrowed the securities or have entered into a bona-fide arrangement to borrow the securities which will be available on the date of delivery. All other dealing members must have borrowed the securities before executing a short sale transaction.

    “No dealing member other than a market maker may execute a short sale transaction on the basis of a bona- fide arrangement to borrow the securities,” the guidelines indicated. Short selling or short sale is the sale of a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller.

    “On the extreme, naked short selling refers to the practice of seeking to profit from an expected fall in the price of an asset by selling shares one does not own without borrowing, or making arrangements to borrow them. Naked short-selling is prohibited on the NSE.”

    Head, Broker-Dealer Regulation, NSE, Olufemi Shobanjo, said the operational guidelines are meant to provide market participants with a guide on acceptable conduct in relation to the new initiatives, adding that operators are still required to conduct their transactions in line with all relevant rules and guidelines of the Exchange and SEC.

    He warned that any contravention of the subsisting rules and regulations, as well as the new guidelines, would be sanctioned.

     

    Improving liquidity

    Many operators and investment experts said market making has impacted considerably well on the market situation. Chairman of Stanbic IBTC Holdings Plc, Atedo Peterside, said the introduction of market-making initiative has helped to boost liquidity in the equities market. He pointed out that daily trading band has doubled at the capital market.

    Managing Director, GTI Securities, Tunde Oyekunle, said the market makers will assist the market, as they could provide additional liquidity to ensure that stocks are priced appropriately.

    According to him, the stock market needs all efforts to jumpstart its recovery to win both domestic and foreign investor confidence.

    Similarly, investment advisor and economist, Sterling Capital Markets, Mr Sewa Wusu, described the introduction of market makers as commendable. He pointed out that they would increase competitiveness and efficiency of the stock market.

     

    Building up another bubble?

    But there appears to be growing concerns about the operation of market makers. Investors, especially minority shareholders who are still struggling in the aftermath of the recent meltdown and market pundits, are worried that the pricing trends for market-making stocks could be laying the foundation for another steep decline.

    General Secretary, Independent Shareholders Association of Nigeria (ISAN), Mr Adebayo Adeleke, is worried that the operations of market makers could lead to another bubble and undermine the long-term recovery and stability of the capital market.

    According to him, the operations of the market making appeared to be unduly influencing the market values of selected stocks.

    Adeleke, who sits on the board of many quoted companies and serves on several statutory corporate committees, noted that market-making operations could lead to another burst due to what he described as lack of consideration for fundamental strengths of some companies.

    He said by allowing some select stockbrokers to be “pushing share prices” of selected companies, the market making function could undermine the price efficiency function of the market forces.

    “It’s more of a manipulative process; they should allow market forces to dictate the share prices, not market makers. They are inflating the balloon again, and we must sound the alarm before any burst,” Adeleke said.

    Another shareholders’ group leader, Alhaji Gbadebo Olatokunbo, expressed concerns that some stockbrokers might be hiding under the guise of market making to arbitrarily increase prices of stocks without any visible fundamental changes.

    Citing a particular stock that recorded nearly 350 per cent gain within a short period of being designated as a market-making stock, Olatokunbo said the steep price movements were not justifiable and called on market regulators to take closer look at the market making programme.

    “Now is the time to review the operations of market making so far and apply some cautions. Some share price movements are questionable and both SEC and NSE should investigate how ethical and fundamentally sound were some price gains,” Olatokunbo said.

    Managing Director, Financial Derivatives Company (FDC) Limited, Mr Bismarck Rewane, weighed in with introspective caution of an analyst and market insider.

    He cautioned that traces of pumping and dumping are raising doubts about the true impact of market making, reiterating concerns that had been expressed by several stakeholders.

    “Market making activity must be closely watched to ensure an asset bubble is not built up again,” Rewane said.

    He, however, ruled out any immediate threat of assets bubble due to share pricing mechanism so far. According to him, though there were echoes of asset bubble, Nigerian equities are still far from any such depression given the earnings outlooks of companies.

     

    Forestalling the risks

    The NSE appears also not to be unmindful of the inherent risks in unbridled market-making. Few days to the expiration of the stated six-month period for rolling al stocks trading above nominal value unto the market-making basket, NSE has only included some one third of eligible stocks. For a market that had been bedeviled with share price manipulations and criminal collusions, market making exposes the market to subtle maneuvering unless there is adequate and efficient regulatory framework to forestall possible abuses.

    The management of the NSE said it was ready to apply the maximum sanction as deterrent to erring market maker. Onyema has warned that the NSE may withdraw the operating license of any erring market maker. Besides, the NSE would deduct 10 per cent of total value of transaction engaged in by a defaulting market maker in the case of a less-impact breach.The Exchange has also expressed willingness to learn from the process and review the modus operandi as the dynamics dictate. “We are going to roll out over a six months period. During that period, we are going to learn a lot,” Onyema said.

    But the investment profile of the market and the market makers also portend higher risk of externally-induced meltdown. While the large stake of foreign investors, averaging some 60 per cent of turnover, indicates attractiveness of the market to foreign investors, this could also exacerbate decline in case of negative counterbalance effect from global economic challenges especially from the United States of America and Greece-induced Eurozone.

    Rewane cautioned that there might be little headroom for the market to manoeuvre if United States debt ceiling is not avoided this month and Eurozone crisis comes flooding back. With foreign investors accounting for nearly two-thirds of turnover on the NSE, slight or massive sales orders from foreign portfolio managers and investors-either due to profit-taking or deficit financing and rebalancing, would have corresponding effect on the market.

    “However, a strong dominance by foreign investors will make the local market susceptible to volatility from the global financial market space. Our bond and equity markets direction may then be strongly influenced by global events,” Managing Director, Investment One Financial Services Limited, Mr Mr Nicholas Nyamali said.

    Some of the most active brokers and market makers have foreign affiliation or ownership. In the event of a downtrend, market making, which has orchestrated the uptrend with its 10 per cent headroom, could also exacerbate the downtrend. Market authorities need to show greater sensitivity to these subtle undertones and take necessary steps to reassured nervous investors.

  • Waiting for delivery of second Niger Bridge

    Waiting for delivery of second Niger Bridge

    The Second Niger Bridge was proposed in 1992. Twenty-one years after, it has yet to get off the drawing board. Being a bridge of strategic importance to the Southeast and Southsouth, the Federal Government has promised to deliver the project in 16 months. Will it live up to this promise?
    OKWY IROEGBU-CHIKEZIE reports.

     

    With N12 billion voted for the second Niger Bridge in the budget, the Federal Government is set to make good on its promise to deliver on the project within a short time.

    The bridge is the link between the Southsouth and Southeast and its holds a lot of promise for businesses in the Asaba-Onitsha axis. Analysts believe the construction of the Second Niger bridge is long overdue, because of its commercial importance to the country.

    It is always a nightmare during the yuletide for people travelling to the east because of the traffic gridlock on the only bridge now servicing the axis. It takes hours for motorists to drive across the bridge while going to Onitsha on Asaba.

    The first bridge was initiated by the British colonial government and completed just before the civil war.

    The Minister of Works, Mr Mike Onolememen, said the second bridge, which would be completed in 16 months, has been awarded to Messrs Roughton International Limited for transactional advisory services for N325million under Public-Private Partnership (PPP).

    He said the ground breaking of the bridge would be done by the third quarter of this year, adding that the project was approved “because government is concerned about the challenges posed to road users on the route.

     

    Previous attempts

    Former President Olusegun Obasanjo attempted to kick-start the second Niger Bridge in Onitsha, the Anambra State commercial hub, about five days to the end of his tenure. He described the project as “a promise fulfilled.” He blamed the delay in the execution of the project on the National Assembly’s failure to pass a law that would enhance the government’s participation in the PPP.

    Obasanjo observed that the volume of traffic on the old Niger Bridge clearly justifies the need for a second bridge, adding: “If anything happens to the old bridge, half of the country will be cut off.”

    He described the Niger Bridge as “the most significant line of communication between the Eastern and Western parts of the country.”

    Anambra State Governor, Peter Obi, however, told the Senate Committee on Works then that the touted commencement of the second Niger Bridge by Obasanjo, was a fraud. He regretted that after the brisk foundation laying, no structure was added to justify its flag-off. He called on the government to redress the situation to enable the people of the zone to actualise their potential, socially, economically and otherwise.

    The Nigerian Society of Engineers (NSE) also showed interest in the matter, forming a management consultancy company, NSE PREMS, which designed the bridge. Despite NSE’s effort, the project did not take off, as the government spoke of adding an East -West rail line to the project.

    This marked the beginning of intense politicking over the bridge with successive governments merely paying lip service to the project.

    For over three years, the then Minister of Works, Senator Mohammed Sanusi Daggash, raised the hope of millions of users of the bridge.

    He said the construction of a second bridge across the Niger River had become expedient, assuring Nigerians that while maintenance work will continue on the existing bridge, the government will work assiduously to construct a new one.

     

    Current efforts

    Onolememen, in a recent statement, said the government was desirous of taking immediate action to construct the bridge to provide smooth movement of traffic between affected geopolitical zones. He added that the government, in furtherance of its transformation agenda of addressing infrastructural deficit and improving the quality of public infrastructural services, recognised leveraging on private sector investment.

    The government, he said, also recognised the capacity to complement the drive towards bridging the country’s enormous infrastructure gap through the PPP.

    The issue resonated recently at one of the sessions of the House of Representatives.

    The House passed a motion sponsored by Mr Ezenwa Onyewuchi, representing Owerri Federal Constituency of Imo State. In the motion, he observed that the current River Niger bridge, which was built in 1965, is at the brink of collapse. In passing the motion, the House urged the Federal Government to engage the services of a competent contractor to commence the construction of the second Niger bridge to support the existing one.

    Presenting the motion, Onyewuchi noted that the bridge, which links the Southeast, Southsouth and Southwest and some northern states, is on the verge of collapse because of its age, over use and lack of maintenance. There is evidence of corrosion and cracks to the structural members of the bridge, which has been stretched beyond its limit and capacity.”

    He expressed worry that should the bridge collapse, it would result in the death of many Nigerians and motorists, adding that a lot of properties will be lost in the mayhem as sections of the country will be cut off.

    Onyewuchi stressed that the collapse of the bridge would lead to the dislocation and disruption of commercial activities, adding that the government will be forced to channel all its energy and resources in cushioning the hardship and other effects resulting from such collapse.

    “The promises of constructing a second Niger Bridge by the past and present administrations have been a mirage,” he said.

    In the Senate, Senators Hope Uzodinma and Margery Chuba- Okadigbo, also raised concern on the state of the bridge; the imminent danger it constitutes to the millions that use it and the desirability for the second Niger Bridge. They called for urgent action to be taken in expediting the construction of the new bridge.

    A Highway Engineer, Mr Afolabi Adedeji, notes that the issue of the second Niger Bridge has dragged on for too long, considering its importance as the ‘gateway’ to the Southeast and Southsouth.He said the route has been of great strategic importance for decades, noting that the existing bridge has become inadequate because of aging, wear and tear, poor maintenance and phenomenal demographic changes. He recommended the PPP approach as the best delivery model and asked the government to adopt it to fast-track its construction.

     

    Stakeholders’ perspective

    A driver who plies the route regularly, Mr Innocent Okechukwu, hails recent efforts to kick-start the construction of the second bridge and the maintenance of the existing one.

    He recalled the pressure he went through during the yuletide and how he almost slept on the bridge on December, 24, last year. He criticised the Southeast leaders whom he accused of not negotiating properly with political god fathers to attract infrastructure to the zone.

    A lawyer, Mr Nkem Duru, who experienced traffic logjam on the bridge during the Christmas season, said President Goodluck Jonathan would have scored a good political point if he succeeds in delivering on the second Niger Bridge.

     

    How will the second bridge look like?

    Onolememen told the Senate Committee on Works that the proposed bridge would be located downstream of the existing bridge on a new alignment with a dual carriageway bridge with eight traffic lanes and pedestrian walkways.

    The main bridge, he said, shall be approximately two kilometres long, depending on the location, adding that there will be other minor bridges, interchanges/flyovers along the road alignment; the approach roads will also be eight-lane dual carriageway with a total length of about 37 kilometres.

    He said experience has shown that PPP stimulate faster implementation of projects, and reduce the whole life costs of project.

    Onolememen said: “It offers better risk allocation between public and private sectors, better and sustainable incentive to perform, engender accountability in fund utilisation, and improve the overall quality of service. Evidently, it also leads to the generation of additional revenue and overall value for money for the entire economy.”

     

    Way forward

    He said his ministry has begun the procurement of the services of experienced concessionaires with full complement of relevant skills, comprising technical, financial and legal, to assist through the regulated phases of the PPP life cycle.

    The Outline Business Case (OBC), he said, has been submitted to the Infrastructure Concession Regulation Commission (ICRC) in compliance with the provisions in the National Policy on PPP. He said as soon as the “No Objection” is issued by ICRC, the ministry will re-seek the President’s anticipatory approval to enable the project to proceed to the next phase of the procurement. Early construction works will start immediately on site once the concession has been awarded to the preferred bidder.

    On the existing bridge, he said his ministry has issued a letter of intent for the rehabilitation of the existing Niger River Bridge at Onitsha to Messrs Matiere – Johnson Consortium of France. They are experts in steel bridges and participated in the bidding for the second Niger Bridge, and emerged as the reserved bidder. The company is expected to move to site within 30 days.

    The government, Onolememen added, would take steps to strengthen this strategic and crucial bridge, the only major link across the River Niger, while finalising the take-off of the Second Niger Bridge project.

  • A land deal gone awry

    A land deal gone awry

    •FAAN, concessionaire bicker over plot

     

    The Federal Airports Authority of Nigeria ( FAAN) and the Chief Harry Akande-owned AIC Hotels Limited are squabbling over a land at the Murtala Muhammed International Airport (MMIA), Ikeja, Lagos. The land was said to have been given to AIC to build an international hotel, but FAAN is contending that recent developments bordering on safety and security have altered the equation. KELVIN OSA-OKUNBOR reports.

     

    Some years ago, the Federal Airports Authority of Nigeria (FAAN) ceded a land around the Murtala Muhammed Airport (MMIA), Ikeja to AIC Hotels Limited to build an international hotel under a concession arrangement.

    The firm is owned by Chief Harry Akande.

    The deal has gone awry as the parties are squabbling over the land. FAAN is claiming to have repossessed the land, but AIC is insisting that it has an agreement with the landlord which has not been vacated.

    Neither side is ready to shift ground. FAAN says it is reviewing its concession agreements with many organisations in tandem with public interest. Recent developments, it said, made it imperative for the status quo to be altered. Citing security reasons, FAAN said it is leaving nothing to chance in ensuring that all concessions, including lease agreement on the use of land around MMIA guarantee public interest.

    FAAN’s resolve to work out a new template for concessions is a fallout of its lingering tussle with AIC over the land near the diplomatic car park of the MMIA .

    While the firm insists that the land belongs to it, by virtue of the approval it got from government in 1998, FAAN claims that the issue has been overtaken by events.

    The concessionaire’s attempts to resume construction at the site, which it abandoned some years ago, have been frustrated by FAAN.

    Since the crisis broke, FAAN and the firm have been throwing brickbats. Other issues have also reared their head.

    Resolving the dispute remains a major challenge. AIC is asking for $78 million compensation, which FAAN considers outrageous.

    The question being asked is why should FAAN pay the concessionaire that much, when the firm has nothing on ground to show that it means business, after many years of inability to deliver the project?

    The General Manager, Corporate Communication, FAAN, Mr Yakubu Dati, accused the firm of taking the law into its hands by attempting to forcefully gain access to the land belonging to the Federal Government.

    Said Dati: “On January 13, AIC Limited, in an unprecedented act of brigandage by a private investor, forcefully took possession of part of Murtala Muhammed International Airport land with the help of armed policemen and hired thugs thereby causing a security breach at the airport.

    “Again on January 24, thugs hired by the company physically assaulted top officials of FAAN who went to inspect the site of the incident of January 14, causing bodily harm to some of them.”

    Dati said FAAN has alerted relevant security agencies to the security risk posed by the continued presence of armed thugs at a site separated only from the tarmac of the Murtala Muhammed Airport by a mesh fence, adding that the authority has increased security surveillance to ensure the hoodlums do not take undue advantage of their unauthorised presence close to the airport to perpetrate any unlawful act.

    He said: ”It is imperative we state that contrary to claims by AIC, the company has no court order authorising it to take possession of any portion of land at MMIA because there was no dispute over land between FAAN and AIC Limited.

    “The case between the parties went into arbitration, which concluded that FAAN should pay a compensation of $74 million to AIC for depriving it of 35 years revenue as implied in the concession agreement. FAAN has, however, appealed against the judgment of that arbitration and the case is yet to be determined.

    “We feel that the reasonable thing for AIC to do is to pursue the payment of this compensation, rather than resort to self-help by forcefully taking possession of the land belonging to the Federal Government, and by so doing, exposed the country’s foremost gateway to serious security threat, especially considering the present security situation in the country.

    “The portion of land allocated for the project was meant for the expansion of the international terminal and apron, under the airport’s master plan. Again, siting the hotel so close to the restricted area of the airport clearly jeopardised security and safety at the airport.”

    Dati said the intrigue by the concessionaire is one of the steps taken by some private sector players to derail the implementation of the transformation agenda of the government.

    FAAN, he said, would not be deterred because by March, construction of a new international terminal for MMIA as envisaged in the airport master plan will begin on the land. He said the government has already entered into a Memorandum of Understanding (MoU) with China for this project, which will effectively turn MMIA into a major hub in the West African air transport region.

    He said : “ Without prejudice to the fact that the Federal Government did not find the parcel of land in question fit for a hotel project from the beginning, this land is being acquired now by the government in the public interest for the reasons stated earlier.

    “It is curious that AIC chose this time to forcefully enter into the said piece of land, having kept quiet for over 15 years. We hate to believe that this act of brigandage is a calculated attempt to blackmail the Federal Government, which is on a mission to rescue the aviation industry from the rot that resulted from many years of neglect.

    “We are informing all aviation stakeholders that FAAN has the mandate of government to transform all our airports to meet acceptable international standards and no act of blackmail, or intimidation can deter the government from accomplishing this mandate,” Dati said.

    Speaking on the issue, the Personal Assistant to Chief Harry Akande, Mr Gbenga Akinyemi, said the company was on the land by virtue of the lease agreement it entered into with FAAN since February 1998.

    He alleged that personnel of FAAN numbering about 20, led by a retired Colonel in conjunction with security agencies, chased workers out of the site last week. He insisted that the land belonged to the company.

    He said there was a subsisting court order, which stopped FAAN from coming into the land to harass its workers.

    He said: “I don’t know why they are here because they are not supposed to come here and disturb the on-going construction work. This is a development that has been approved since 1998 when we had the lease agreement signed.

    He said: “What FAAN is saying is not right. In a society that is normal, that kind of a statement is outrageous and uncalled for. In addition, there is a 50-year lease, which is still subsisting till now. Even if FAAN insists that the land is too close to the airport, there are some security measures in place to ensure total security of the environment. There are airport hotels around the world attached to terminals like in Amsterdam airport and others.

    “I would say FAAN is talking from both sides of its mouth. First, they claimed the land belongs to them and secondly, they said they are so concerned about the security of the airport.”

    Dati has, however, urged the firm to strive to be on the side of the law, rather than holding on to double claims.

    He said: “The land was given to them for 50 years, but there was a problem because part of this land was supposed to be for expansion of the airport. So an arbitrator was appointed, and after the whole arguments, the arbitrator said they cannot have this land, but they will be compensated to the tune of $78million, but FAAN is saying it does not have such amount for compensation.

    “So, the issue has already been settled. The land belongs to FAAN. He can’t collect compensation and still want to collect the land.”

    As the tussle over the land gathers momentum, stakeholders in the aviation sector have urged FAAN to overhaul its concession agreement template in order to attract investors.

    Speaking in an interview, the General Manager , Administration and Business Development, AIC Hotel Limited, Chief Niyi Akande, said the land was leased to AIC Hotel Limited in 1998 and the agreement was registered as NUmber 55 on page 55 in Volume 2010 of the Land Registry of Lagos State.

    Akande said: “There is a court injunction which is still subsisting. We did not go through the back door. They leased the land to us for 50 years. We signed an agreement and we did not just come here to take the land. FAAN should obey court decisions.”

    On February, 18, 2002, Justice R.O Nwodo, granted AIC Limited an injunction restraining FAAN from disturbing AIC Limited from conducting its legal business on the land.”

    With men of the police keeping watch over the disputed land to avoid any break down of law and order, the controversy still rages.

    Will overriding public interest, national security and other safety considerations stop AIC Hotel Limited from building its proposed hotel at the Lagos International Airport? Only time will tell.

    But,the commissioner of police, Murtala Muhammed Airport Command, Mr Olatunde Caulkrick, said the Police will maintain security at the site until peace returns.

    Director of Legal Services, FAAN, Mr Jacob Mark, said: “All the land around the airport anywhere in Nigeria belongs to the Federal Government. Not to any individual. When the land is given to any individual or organisation, it is given as lease, under some terms and conditions for a specified number of years that the agreement covers.

    In the case of AIC Hotel Limited, which claims to own land at the airport, it is unthinkable for anybody to reason that way and hold on to such argument.

    “The land is vested to FAAN by the government. For anybody to hold on to a parcel of land, it is unthinkable for anybody to think he or she owns the land. Such claim is a misnormer, unacceptable and a twist of the truth and law. Nobody can own any land around the airport permanently.

    Though FAAN granted a concession to AIC Hotel Limited in 1998, but, in 2001, FAAN realised that because of several implications, it can no longer validate the approval given to AIC Hotel Limited, part of which is the closeness of the land to the taxi way of the MMIA. No responsible government will allow anybody build a hotel adjacent to the taxi way, FAAN argued.

    “Imagine, how close the land is to aircraft landing and taking off. And what was AIC Hotel Limited supposed to build on that land, a hotel. For God sake, it is only an irresponsible operator that will come and build a hotel near the airport taxi way, where people, visitors who have different intentions can lodge and do anything sinister to any aircraft taking off or landing from their hotel rooms. This is one of the reasons why we revoked the agreement.

    “Apart from that, the Federal Government through FAAN can say, agreed, we gave the go ahead to build a hotel, but based on emerging security trends and challenges, as well as overidding public interest, we can no longer. allow you to go ahead.

    “We are now saying no, because government is not irresponsible and will not expose Nigerians and foreigners to unwarranted dangers by allowing anybody build a hotel near the airport runway or terminal building. It is not as if FAAN, or the Federal Government is out to shortchange any concessionaire. That is far from the truth. The Federal Government has right any time to revoke any agreement that does not protect public interest. We will not allow terrorists have access to vulnerable areas in the. country, including the airports.

    “That is where we are. We went for arbitration to let AIC Hotel Limited know that the amount of money awarded to them is too much. The firm went for arbitration and six years after, they are claiming, third party relationships as damages. They did not even put a single block on the ground. Why should FAAN pay them huge millions as compensation? That is where we stand as an organisation. Though, we agree with the terms of the arbitration that the firm be paid, the amount put at $57 million is far beyond what FAAN can handle.

    “We are handling it at different levels. The firm does not have a right to the land and cannot use force to take the land. It is unacceptable. Not in Nigeria of today. We are pursuing it at different levels, not land that belongs to the Federal Government. Even, if mistakes were made in the agreement in the past by FAAN, but the present leadership will not allow such infraction. Personal interest must die when national and overidding public interest comes to the front burner,” FAAN said.

     

     

  • PPP: Service delivery with ease

    PPP: Service delivery with ease

    To make its impact felt, government at all levels has adopted an initiative which it believes will work.Through the Public-Private Partnership (PPP), the Federal, State and local governments have been addressing many public needs. But more needs to be done, reports DANIEL ESSIET.

     

    Governments face challenges in the construction and maintenance of public infrastructure. Some of these challenges stem from bureaucratic bottlenecks in the civil service.

    To overcome the bureaucracy, which accounts for delays, high cost of projects, the Public-Private Partnership (PPP) model is now being embraced by governments.

    It is a contractual agreement between public agencies and private sector entities, for faster delivery of infrastructure, projects and services.

    In such partnerships, public and private resources are pooled and responsibilities divided so that the partners’ efforts are complementary. In general, PPP borders on collaboration between public authorities and the private sector to finance, construct, renovate, manage, operate or maintain an infrastructure or service, which also involves risk sharing between the public and private sectors.

     

    Origin

    PPP arose from pressure to change the standard model of public procurement following concerns about the level of public debts, which grew during the macroeconomic dislocation of the 1970s and 1980s.

    Until recently, there was simply no regulatory framework for PPP in Nigeria. There was a gap in regulations dealing with issues. The government has filled that gap with the passage of the Infrastructure Concession Regulatory Commission (ICRC) law.

    The first known Federal Government project executed under PPP is the Bi-Courtney. The National Council on Privatisation also concessioned some seaports in Lagos, Warri and Port Harcourt under the PPP arrangement.

    The Federal Ministry of Agriculture under the National Food Reserve Agency (NRFA) is undertaking PPP in its silos and reservation facilities. At the state level, the Lagos State Government has a special office coordinating PPP activities in the Ministry of Finance.

     

    Importance

    Stakeholders in the economy speak glowingly about the benefits of PPP. At a seminar on PPP in Lagos organised by ICRC, the Head, Centre for Infrastructure Policy, Regulation and Advancement (CIPRA), Lagos Business School (LBS), Dr. Ernest Ndukwe, said private investment in municipal waste management has been successfully mobilised through PPP.

    He highlighted the importance of understanding the skills and motivations of private sector partners and the impact they can have on long term development of utility systems. The government, he said, is promoting the involvement of the private sector in the development of public infrastructure. This policy is partly driven by the need to finance the provision of infrastructure, but also by a strongly held belief that the private sector will be more disciplined than the public sector in designing and constructing infrastructure related projects and be more commercially minded in operating them.

    Ndukwe said the development of a national PPP competence centre is an advantage for the development of national know-how and provision of assistance to local authorities.

    A faculty member of LBS, Dr Bongo Adi, said the PPPs can reduce development risks, provide more cost effective and timely infrastructure delivery, offer the potential for better ongoing maintenance, and leverage limited public sector resources, while maintaining the appropriate level of public control over the projects.

    He noted that a strong and functional institutional framework is the primary success factor for any PPP arrangement. Also, the PPP initiative demands a transparent process, which is necessary for confidence-building among the participants in the initiative, particularly on risk sharing.

    States are executing PPP projects. For instance, Lagos State Government not only hosted an international workshop on the Public-Private Partnership initiative, it also has a special Unit in the Ministry of Finance which coordinates PPP-related activities.

    The Lekki Concessioning Company (LCC) is undertaking the construction of major roads in Lagos, such as the Lekki-Epe Expressway, Lagos under the Build, Operate and Transfer (BOT) terms for 30 years. Many local governments in Lagos State have also latched on to the PPP initiative to combat rural infrastructure challenges.

    Rotimi Amaechi’s administration in River State has resorted to the Public-Private Partnership scheme to fund its public health and housing programmes.

     

    Caution

    In mainstreaming PPP initiative, cognizance must be given to the social character of the policy. Thus, while the PPP arrangement should guarantee profit for the private investors on their investment, it should not repudiate states’ social responsibility to the citizenry.

    Despite the advantages, there are misperceptions about PPPs that lead to criticism and quick dismissal without proper evaluation. He said a complete and proper evaluation of project delivery incorporates a number of considerations that provide a more comprehensive look at the total costs associated with procurement than is traditionally conducted.

    Many public agencies have multiple PPP arrangements that have been in place for more than a decade. Furthermore, they continue to invite the private sector to compete for the opportunity to develop, finance, operate, and maintain public facilities for terms ranging from 30 to 50 years.

    Adi said a successful PPP will include appropriate performance measures for the maintenance and condition of physical infrastructure, as well as management of user charges and rates, where applicable.

    An Executive Director at the Centre for Infrastructure Policy, Regulation and Advancement, Dr Ese Owie, said governments revenues are finite and PPPs complement government’s investment in infrastructure, adding that PPPs are the most effective and efficient ways of improving public infrastructure and stimulating economic development.

     

    Adoption and

    achievements

    Owie said governments started adopting PPP following pressure to change the standard model of public procurement which arose initially from concerns about the level of public debt, which grew rapidly during the macroeconomic dislocation of the 1970s and 1980s. According to him, citizens get access to best services from private sector entities collaborating with government.

    He said there has been resistance to using PPPs in some areas. The resistance comes in part because of a misunderstanding of how much control the public sector has over the partnerships, a focus on a few poorly structured PPPs, as well as an attitude by public officials that “this is not the way we do it,” which can lead to unnecessary process delays and even the failure to reach an appropriate deal.

    He listed laws supporting PPP to include Public Enterprises(Privatisation & Commercialisation) Act 1999, Infrastructure Concession Regulatory Commission Act 2005, Public Procurement Act 2007, Lagos State Public Private Partnership Law 2011 and the Edo State PPP Policy 2010.

    He said the Infrastructure Concession Regulatory Commission was conceptualised as an agency that would engender a comprehensive, competitive and attractive PPP industry in Nigeria, to attract significant private sector resources for infrastructural development.

    Specifically, he said the ICRC handles PPP at the national level, while state PPP offices handle such programmes at the state level. The key strategic objective for the ICRC is to accelerate investment in national infrastructure through private sector funding by assisting the Federal Government and its Ministries, Departments, and Agencies (MDAs) to implement and establish effective PPP process. The scope of the Federal Government’s programme for PPP is the creation of new infrastructure and the key expansion and refurbishment of existing assets at the federal level.

    Owie, who is an experienced international trade law and policy lawyer, said the government should use all the tools at its disposal to facilitate private investment financing for the development of infrastructure. This, he noted, include bringing in new investors into the nation’s infrastructure; introducing new sources of revenue, such as tolling; allowing local authorities more flexibility in the way they use local receipts to fund major infrastructure in specific circumstances; and being willing to consider guarantees against specific risks that the market cannot bear.

    He said the Edo State Government established a PPP office in 2010 headed by a cabinet ranking executive director. Apart from developing a state PPP policy, the office has attracted over $3 billion worth of investments since inception; successfully incubated all PPP projects; developed critical human capital and competence in the conceptualisation and structuring of PPP transactions and interfacing with the private sector more effective and efficient on sustainability strategy.

    Owie listed PPP projects in the state to include Edo-Azura 450MW IPP, Ultra-modern Shopping Centre, star-category Hotel, Agbado Shopping Mall, Ihonvbor Industrial Estate, Benin Airport Concession, Trailer Park and Urhonigbe Rubber Plantation.

    Also the River State Commissioner for Finance, Dr Chamberlain Peterside, said there was a substantial need for investment in infrastructure and this requires the harnessing of all viable investment methods.

    He said the parties must access the most effective type of PPP for a given project with the appropriate parameters, balanced distribution of risks, appropriate duration, and clarity of responsibilities within the various regulatory environments.

    He highlighted the need for rigorous preparation and planning to ensure that the PPP approach delivers value for money and is sustainable. He said governments must justify the use of PPP’s, which includes a demonstration that the structure will be more cost-effective than the traditional procurement methods and that it will deliver superior value for money. This, Peterside observed, is important for justifying a PPP approach, but also generally for assessing whether the project design is the most effective and where the strengths and weaknesses of the project lie.

    Peterside said conducive legal, regulatory and financial framework would help the development and implementation of PPPs.

    Speaking on the topic, “Addressing the Infrastructure challenge in Nigeria: The PPP imperative,” the Director-General, Infrastructure Concession Regulatory Commission, Mansur Ahmed, said the ICRC is working to ensure that economic operators have better access to the various forms of public private partnership in a situation of legal certainty and effective competition. Ahmed, who spoke through the Head of Communications, Olugbenga Odugbesan, said the commission encouraged private sector involvement in the upgrade of public utilities and infrastructure through PPPs. In most cases, PPPs have been implemented either through ‘design-build-operate’ (DBO) contracts or ‘design-build-finance-operate’ (DBFO) contracts, in which the private sector had also contributed to finance the assets.

    He said the commission has also undertaken considerable work to define the principles of PPP and to assist in their application. The considerations that influence the form and structure of PPPs include the project’s size, scope, complexity, regulatory and operational requirements, application of user charges and risk allocation. The degree of risk transfer, he noted, is a crucial issue to the success of PPP projects.

    In many cases however, Ahmed observed that a comprehensive evaluation is neither contemplated nor completed, leading many decision makers to dismiss a project delivery option that could potentially protect the public interest while maintaining cost-effectiveness.

    He said the ICRC wants government agencies to undertake realistic and rigorous project preparation,particularly on affordability and financial sustainability factors, as these are critical to project success.

    According to him, the main objectives of the PPP are to enhance the quality and the efficiency of the services to the public by attracting the best technology and expertise available.

    He said there was need for a coherent legal environment essential to support the development of effective PPPs. This should be coordinated with a policy and strategic approach to overall financing of infrastructure and service provision.

     

    Considerations

    To build a successful PPP in any sector, Ahmed said a diligent and sophisticated cost-benefit and competition analysis must be carried out, which ensures the long-term viability of the project without public financial support. He said problems arise when government agencies which do not possess sufficient understanding of the PPP process or the analytical framework required to assess the true costs and value for money of a PPP solution carry out such assignments. Ineffective structuring of projects, Ahmed noted, could lead to substantial costs to the state, which could have been avoided through better analysis and more effective tendering.

    The Managing Director, Lekki Concession Company (LCC), Opuiyo Oforiokuma, said successful PPPs require an effective legislative and control framework and for each partner to recognise the objectives and needs of the other.

    He said road construction by PPP represents the largest capital investments. This is to be expected given the scale of projects and the investment requirements. Again, he said that road construction represents the longest project contract durations often over 20 years. This is inherent of the relationship between the size of capital invested, degree of private sector involvement and length of time required to ensure investment and profit recovery.

    According to him, risk transfer is a key factor, which is at the heart of effective PPP design and if a good balance is not achieved, it will result in increased costs and the inability of one or both parties to fully realize their potential. For project to be sustained, he said the private contractor must be selected through international competitive tendering standards. The terms and conditions of the agreement are considered consistent with international best practice. The agreement would help create a source of capital to support an upgrade and extension of the system.

    He said political and public pressures can play a negative role on the further expansion of PPP projects or the further expansion of private sector participation. According to him, the potential disruptive effects of public outcry should also not be underestimated.

    Citing the example of the Lekki Express Way, Oforiokuma said a PPP approach was considered necessary. To run the project, Oforiokuma said experienced technical, traffic, financial and legal advisers were involved to achieve a satisfactory allocation of risk and an appropriate revenue support mechanism. Oforiokuma explained that the financial viability of a capital-intensive road project is dependent on achieving loan maturities of acceptable length. Even without the improvement on overall economic position, he said the rate of return to investors would have been significantly improved by refinancing the initial borrowings, once construction risks had disappeared and the financial results for a number of the early operating years can be made available to lenders.

    He said LCC project is a good example of what can be achieved through a pragmatic approach to developing infrastructure projects through PPPs.

    Delivering a paper entitled: “Strategies for promoting Public-Private Partnerships,” the Chief Knowledge and Responsibility Officer of Chiers Company Limited, Mr Kehinde Sogunle, said PPP is a win-win relationship between the government and various private sector players. It shares the risks and rewards of the venture under a contractual obligation.

     

    Challenges

    Speaking on some of the challenges in PPP, Sogunle said many PPPs have left the contractual parties dissatisfied. This indicates that either the authorities or investors may have had too high expectations to what could be achieved. Conceivably, some contracts have been granted under circumstances subject to corrupt practices or contingent upon political links. This makes them susceptible to changes in the political environment.

    Sogunle said bona fide PPPs have also suffered from inflated or unrealistic expectations. He said award procedures often lack transparency and are not based on objective evaluation criteria. He said many private investors have had to contend with conflicting public authorities, for instance, central versus sub- national governments, or regulatory bodies versus ministries. In addition, non-existent or inexperienced regulators created avoidable uncertainty about price and tariff setting.

    Risk reduction – Given the size of many infrastructure projects, cost overruns and delays are common, especially if there are subsequent modifications to the design as a result of political or environmental concerns. The private sector typically bears this risk, even when the project will, ultimately, be run by a public entity.

    Currency Risk – Perhaps the greatest risk to the profitability of a project involves the risk of devaluation. Infrastructure projects are often financed in part through international lending. These debt repayments, together with payments of dividends, must be made in foreign currencies while profits usually accrue in the local currency.

    As a result, any sudden devaluation can modify the profitability of a project. Therefore, there is need to understand the challenges of PPPs and to be committed to continuous improvement in the delivery model. There is a substantial private investor base with a significant appetite for investment in public infrastructure projects, thus making PPPs a viable option in spite of a ‘turbulent’ capital market.

    PPPs have consistently been found to deliver more projects on time and on budget than traditional arrangements. Particularly for large-scale, high-value projects, the use of private funds for capital expenses can mean that PPP-based projects achieve faster groundbreaking and more rapid construction once negotiations are complete, rather than waiting to secure public financing.

  • Foreigners rule the maritime world

    Foreigners rule the maritime world

    The maritime sub-sector is experiencing capital flight because of foreign control. For the sector to impact on the economy, there must be effective implementation of the Cabotage Law, which gives local operators a leverage. TAIWO DISU reports.

     

    •Cabotage Act fails to save local operators 

    The maritime sector is very strategic to the development of any economy, especially Nigeria, which derives over 90 per cent of its revenue from crude oil.

    Besides, maritime, which is the second largest revenue earner for Nigeria, has the capacity to provide over five million indirect and direct jobs.

    At a Presidential retreat on “Harnessing the potential of Nigeria’s maritime sector for sustainable economic development”, at the Presidential Villa, Abuja, Minister of Finance/Coordinating Minister for the Economy Dr Ngozi Okonjo-Iweala said Nigeria loses more than N2 trillion yearly to capital flight because of Nigerians’ inability to fully participate in the industry.

    The poor participation of indigenous operators in the maritime, oil and gas industries led to the enactment of the Cabotage Act under the auspices of the Nigerian Maritime Administration and Safety Agency (NIMASA) for the maritime sector; the Nigerian Content Act for the oil and gas industry and supervised by Nigerian Content Development and Monitoring Board (NCDMB ).

    Stakeholders in the industry are wondering why the Jones Act has been used successfully in the United States to develop and empower American marine business and technology, while the Nigeria Cabotage Act remains largely under-utilised seven years into its existence? Why has the Local Content Policy been used successfully in Brazil and Malaysia, while the Nigerian Content Policy is yet to meet set targets?

    Experts say there may be several answers to these questions, but the undeniable fact is that in the countries where successes have been achieved, the common thread that runs through them is the insistence on the implementation of the laws and policies by their governments.

    Nigeria has a coastline stretching about 870 kilometres, 3,000 kilometres of inland waterways, and 913, 075 square kilometres in land mass. Despite these enormous coastline resources, foreigners dominate the Nigerian coastal and inland shipping marine sector from reports and available data.

    N100 billion lost in freight forwarding yearly

    It is estimated that Nigeria loses about N100 billion annually to foreign operators in the freight forwarding business.

    Nigerian freight forwarders are consigned merely to clearing and forwarding businesses at the ports; foreigners are in absolute control of the oil and gas component of the business where the potentials lie.

    National President, Association of Nigerian Custom Licensed Agents (ANLCA), Prince Olayiwola Shittu, said most Nigerian operators limit themselves to the clearing and forwarding and are, therefore, edged out on the bigger picture. He said Nigerian operators lack the technical knowledge of the business, that is why foreigners dominate freight forwarding.

    According to the Central Bank of Nigeria (CBN) Statistical bulletin, about 80 per cent of goods consumed in the country are imported, thus confirming the size of the freight forwarding business in Nigeria.

    An international freight forwarder, who does not want his name in print, said freight forwarding is done over the Internet and phones. “A typical freight forwarder will spend most of the day at a desk in front of a computer, but I really have to bewail the slow pace at which indigenous practitioners are catching up with the modern technology in the freight forwarding industry”, he explained.

    He said there is need for the government to control foreigners’ involvement in the freight forwarding business in line with its local content policy.

     

    Seafarers not in the mainstream of Cabotage law

    Nigeria is losing over N284.5billion to the non-employment of indigenous seafarers following the dominance of the local shipping industry by foreign shipping firms and their crewmen. Recent study indicates that there are about 120,000 seafaring jobs in the shipping industry in Nigeria, while fewer than 800 seafarers are Nigerians.

    Stakeholders in the industry pointed out that if after 52 years of independence, foreigners still dominate more than 85 per cent of maritime work force in Nigeria in spite of an Act of Parliament enacted to restrict the trade and employment 100 per cent to Nigerians, it means there is a failure on the part of government.

    Recently, the spokesman of the maritime workers, Mr Adeola Lawal, said all areas of our maritime life are dominated by foreigners at the expense of Nigerian seamen, which is actually killing the Nigerian economy. “Nigerian seamen roam the streets while other nationals occupy our positions,” he explained.

    However, it is said the indigenous seafarers lack the required expertise and experience to work on specialised vessels, and the Maritime Academy of Nigeria (MAN), Oron, Akwa Ibom state, which graduates a fairly large number of cadets who are supposed to be employed in the maritime industry, is perceived as providing substandard training. Also, Nigeria does not have a national carrier for the cadets to get sea experience.

    The implication of all these is that Nigeria’s seafarers who are trained locally, will find it difficult to secure jobs on board international vessels. Unfortunately, these men and women with paramilitary training roaming the streets, become easy recruits for piracy.

    It is on record that Singapore and Philippines that are not blessed with oil and gas depend on their maritime industry and are the highest suppliers of seafarers worldwide. In the process, they rake in millions of dollars as remittances into their economies.

     

    Maritime Academy

    The neglect and misplaced priority in maritime education have also caused capital flight in the industry. This is as a result of those who leave Nigeria to Ghana, Malaysia, Egypt, South Africa, Norway, and the United Kingdom and for training and certification so that they could avail themselves of the opportunity of doing their practicals in an ocean going vessel, and in turn, obtain certificates that will enable them to get jobs locally and internationally.

    At present, the only maritime institution recognised by the International Maritime Organisation (IMO) in Nigeria is MAN. After 33 years of its existence, the institution does not have a training vessel for its cadets.

    However, poor funding has helped to retard the capacity of the institution to produce the required manpower with the requisite skills to take over the sector dominated by foreigners.

    Dr Olaniyi Oyenekan, a master mariner, said it is surprising that NIMASA, which has a duty to give the academy at least five per cent of their statutory annual collection as support, some years ago, evolved a programme, the Nigeria Seafarers Development Programme (NSDP), under which 25 seafarers from each state of the federation are to be trained overseas.

    The state governments are to bear 60 per cent of the cost of the training, while the maritime agency will take up the balance.

    However, some of the state governments had said the programme is expensive, and that the $25,000 per annum required for one seafarer, as a nautical scientist, ship master or marine engineer, is too high for them.

    NIMASA is partnering some universities in Nigeria on maritime education.

    Stakeholders in the industry said the questions that should be addressed are: how much does a training ship cost that the Federal Government has not been able to acquire it over the years? Why is NIMASA not placing priority on MAN by evolving competing programmes and partnering other institutions?

    Oyenekan said corruption, neglect and misplaced priorities are the immediate causes associated with maritime education in Nigeria.

    A recent international study by the Baltic International Maritime Council (BIMCO) and International Shipping Federation (ISF) highlighted a forecast shortage of about 27,000 officers worldwide in the maritime sector by 2015, and projected a shortfall of up to 83,000 officers in less than three years.

    Experts in the industry believe that now is the time for the government not only to address the problem of capital flight in the sector, but to also take advantage of employment opportunities for the seamen locally and internationally.

     

    Shipping in Nigeria

    There is serious mismatch between domestic and foreign input in the maritime sector. These problems created the incentives for capital to flee whether or not stringent measures are put in place to control capital flight.

    According to the indigenous Ship Owners Association of Nigeria (ISAN), Nigeria loses over N2 trillion annually in capital flight to foreign countries that owns vessels used for lifting about 150 million tons of cargoes, including oil products from this country as no Nigerian ship plys international routes

    Data from the Organisation of Petroleum Exporting Countries (OPEC) made on tonnage shows that among the 13 member-countries of OPEC, which have a total of 134 tankers, Nigeria has only two tankers, which are merely used for storage rather than lifting crude oil. The records further show that out of a total of 24 million deadweight of crude per day, Nigeria lifts less than 500 deadweight.

    Executive Vice-Chairman/ Chief Executive Officer, Sifax Group, Dr. Taiwo Afolabi, said during a seminar in Ogbomoso, Oyo state that over 90 per cent of income in the shipping sector is earned by foreign shipping companies alone.

    general secretary, ISAN, Capt. Niyi Labinjo, said Nigeria is also losing revenue through shipping ancillary services, especially the financial sector, because if the indigenous ships are working, they will be insured. Since this is not the case, Nigeria is losing about N 16.5 billion.

    Chairman of ISAN Chief Isaac Jolapamo said: “It is disheartening to note that Nigeria has failed to take advantage of the vast potential in the industry to get our youths employed. Nobody can solve our problems better than ourselves”, noting that the implementation is what is missing in NIMASA and NCDMB.

    Afolabi noted that Nigeria’s experience with Cabotage law regime has exposed and underlined one basic fact. It is not just in making the law, enforcing the law is also critical, he stated.

     

    Fishing business

    The incursion of foreign trawlers in the fishery segment of the maritime industry is also making Nigeria to lose about N300billion as a result of inadequate protection of our waters. Instead, we now depend on importation. Right now, Nigeria imports between 700,000 and 900, 000 metric tons of fish yearly to partially meet a shortfall of about 1,800,000 metric tons.

    Stakeholders say the fishing industry is at the brink of collapse, owing to the dangers of pirates and foreign trawlers. With huge maritime potential of a coastline measuring about 853 kilometres, Nigeria should be self-sufficient in fish production and able to export aquatic foods.

    Mrs Okonjo-Iweala said the security threats in the Gulf of Guinea of which Nigeria is a major stakeholder had steadily risen from 45 per cent in 2010 to 64 per cent in 2012 threatening Nigeria’s more than 600 million potential in fishing business. He added that the development has created major economic problems for the country and should be urgently addressed.

    Recently, because of the incessant attacks on fishing crews, the Nigerian Trawler Owners Association (NTOA) called its fleet of over 200 trawlers and 20, 000 workers back to the shore, leading to a shortfall in fish supply.

    According to NTOA, foreign trawlers from European and Asian countries come to the nation’s coastal areas to raid tonnes of fish, they come with better industrial trawlers that can stay at sea for weeks and even months, equipped with ice boxes.

    The International Maritime Bureau (IMB) said piracy figures and attacks worldwide continue to rise, and cases of death are always recorded, stating that this is a major challenge to the world.

     

    Expert advice

    Adenekan said the developed countries make the best use of the sea because 90 per cent of world trade is done on sea. Today, over 75 per cent of shipping business he whole of West Africa is, done in Nigeria alone.

    He, however, advised that for the industry to become the maritime hub of west and central Africa and further check the incidence of capital flight, the government through its agencies and departments must start to implement its policies/laws, assess progress, review challenges, chart a realistic way forward and where necessary, reward/punish operators and set timelines for the attainment of goals.

     

  • Forces against PIB

    Forces against PIB

    The Petroleum Industry Bill (PIB) was born in crisis. The crisis keeps growing despite all efforts to resolve it. At a time, it was the oil companies against the government. Now lawmakers from the North have picked up the gauntlet against the bill, which is before the National Assembly. Will the bill be passed by the Assembly? asks EMEKA UGWUANYI, Assistant Editor (Energy).

     

     

    The Petroleum Industry Bill (PIB) was conceived over 10 years ago by – wait for it- a Northerner, Dr Rilwanu Lukman, former Minister of Petroleum Resources. Lukman saw something good in intiating the bill, but today the North is kicking against it, claiming that it is lopsided.

    The PIB is based on the report of the Oil and Gas Reform Implementation Committee (OGIC) set up by the Federal Government in 2000 to carry out a comprehensive reform of the oil industry. The OGIC was charged with making recommendations for a far-reaching restructuring of the oil and gas industry. The committee was chaired by Lukman, who was then the Presidential Adviser on Petroleum and Energy.

    Lukman describes the PIB as a reform legislation designed to encapsulate the legislative and administrative instruments governing the petroleum industry in one omnibus legislation establishing clear rules, procedures and institutions for the industry.

    There are 16 laws guiding operations in the oil and gas industry, which have been brought as one document under the PIB. Besides, some loopholes found in these laws were as much as possible plugged in the PIB.

    The main laws brought under the PIB are the Petroleum Act 1969 (as amended), Petroleum Profits Tax Act 1959 (as amended), and Nigerian National Petroleum Corporation Act of 1977 (as amended). These, and practically every other law regulating the sector, needed to be updated to reflect the changing dynamics of the oil and gas industry worldwide.

    In a presentation at a stakeholders’ session in 2009, Lukman said: “The Nigeria Petroleum Industry Bill is a remarkable document, which contains most of the legal requirements that will apply to the petroleum industry in Nigeria.

    “The PIB combines 16 different petroleum laws in a transparent and coherent document. This is the first time that such a large scale consolidation has happened anywhere in the world. Good governance is promoted through the removal of much of the confidentiality as well as creating transparency.

    “Confidentiality encourages corruption. The best way to fight corruption is to remove confidentiality for all procedures, contracts and payments. Every Nigerian, including stakeholders, should have the right to know what is going on. The bill removes confidentiality on a scale not seen in the world before. Nigeria will move in one step from one of the most opaque petroleum nations in Africa, to one of the most open and transparent in the world.

    “The texts of all licences, leases and contracts and any of the changes to such documents will no longer be confidential. Payments to the government of Nigeria will be public information. All petroleum geological, geophysical, technical and well data will be accessible for all interested persons in a national data base.

    “The proposed bill will result in a significant increase in transparency. From now on, petroleum prospecting licences and petroleum mining leases can only be granted by the Minister through a truly competitive bid process. Such process will be open and accessible to all qualified companies.

    “Every company involved in the upstream petroleum industry will be subject to the same system of rents, royalties and taxes, depending on whether they operate in the onshore, shallow or deep offshore or inland areas.

    “This means it will not be possible under the bill to treat certain companies more favourably than others. Nigerians can only fully benefit from their petroleum resources, if there is a sound petroleum administration.”

     

    Criticisms

    Despite the intellectual and technical input from some of the industry’s best hands, the bill has not been well received in some quarters. Some industry operators also criticised it. When efforts were being made to see if the bill would be passed into law during the Sixth National Assembly, it was dogged by all manner of allegations. Some alleged that the operator companies – mostly the multinationals – influenced members of the National Assembly to stall the bill’s passage.

    The Sixth Assembly organised a public hearing so that it could hear first hand from stakeholders. That was not to be as it was alleged that there were several versions of the bill. It was alleged that the copy of PIB submitted to the National Assembly then was that of NNPC. At the end of the day, the Sixth Assembly’s tenure ended without the bill’s passage.

    The multinational oil firms have continued to kick against the perceived contentious provisions in the bill, especially the fiscal terms. They claim that the benefits the government wants from operations are so high that if the bill is passed in its present state, they would be running their business at a loss. It is because of this that they are opposed to the bill.

    Other issues in the bill that operators frown on include undue powers conferred on the minister of Petroleum and some conditions attached to acreage leases to oil firms. These and other issues that border on downstream sector are what the government was trying to resolve before Northern lawmakers joined the fray.

     

    Mounting opposition

    Reports have it that the lawmakers are opposed to the bill beause of the alleged establishment of the Host Community Fund, said to give oil producing states dominance, especially the Southsouth states over their northern counterparts. Besides, they claimed, the north would pay more for petroleum products if the bill is passed in its current state, among other issues.

    The lawmakers’ position, according to reports, is hinged on the consensus reached by the Northern Governors Forum, Northern Caucus in the House of Representatives and the Northern Senators Forum. The consensus is based on the report of an independent assessment of the bill by a consultant employed by the group to examine the bill and its effect on the North when passed into law. The consultant’s report was considered favourable to the regions, hence the north’s opposition to the bill.

    According to reports, all the complaints raised against the PIB were contained in a single document. The document showed that the North may not benefit from oil and gas revenues as it does now.

    The document reads: “On top of the 13.5 per cent statutory derivation from the Federation Account, the mandatory Federal budgetary allocation to the Ministry of Niger Delta, Niger Delta Development Commission (NDDC) levy of three per cent of oil operations and the massive amount of federal funds being spent on the Niger Delta Amnesty programme, the new PIB is adding 10 per cent of the profit of all oil and gas companies to the Niger Delta States and Communities.

    “Currently, without this new addition, four states (Akwa Ibom, Bayelsa, Delta, and Rivers) earn more than the 19 Northern states combined. One wonders what kind of federation we would end up with, if this situation is escalated by the new PIB. In any case, what really is the constitutional standing of this particular provision in the Bill?”

    The northern caucus should also put into consideration that producing oil communities directly bear the brunt of exploitation both the people and the environment. Besides, after over 50 years of oil production and export, most of these communities lack basic infrastructure and social amenities. The northern lawmakers or caucus, if they see the country as a true federation, should endeavour to compel governments at all levels to develop these communities and improve their standard of living considering the contribution they make to the country.

    The position of the North on PIB was confirmed by the Chairman, Senate Committee on Housing, Senator Bukar Abba-Ibrahim, who said the region is opposed to PIB beacuse of the provision of additional 10 per cent revenue for oil producing communities.

    He said: “The additional revenue is unecceptable because the oil producing communities have the Federal Government’s take home, the Niger Delta Development Commission’s (NDDC) over N500 billion for projects in the oil producing communities, the Niger Delta Ministry with over N400 billion allocation and oil companies’corporate social responsibility programmes.”

     

    Finding the way out

    Following criticisms of the bill by operators and other stakeholders, the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, raised a committee to harmonise various groups’ interests in the bill to make it acceptable to all.

    Critics took her up for this, but Mrs Alison-Madueke said she was only reacting to public demand for more transparency in the industry, which the PIB stands for.

    She said the committee was established to ensure a speedy passage of the bill. She said: “Though the members of the OGIC did a good job, we have all seen that the bill lacked the requirements of the Sixth Assembly and needed to be redefined, and gingered up for speedy and very expedient passage by the Seventh Assembly. As a matter of fact, you are all also aware that at the end of the Sixth Assembly, there was more than one version going around. So, the government expects that the committee will put up all the indices in place to redefine the bill, look at certain sections and include strategic aspects so that we can get it right.”

     

    The Panel

    Senator Udoma Udo Udoma headed the task force, which members comprised Senator Tunde Ogbeha, Senator Emmanuel Agboti, Senator M. T. Liman, Hon. Chibudom Nwuche, Hon. Abdullahi Gumel, Hon. Habeeb Fashinro; and Comrade Peter Esele, President, Trade Union Congress. The Minister said at the inauguration of the committee: “We have listened to the voices of the people of Nigeria, when over the last few weeks, they spoke in unison for accelerated reforms in the oil and gas industry. These reforms will anchor on a new PIB. The special taskforce is saddled with speeding up the process of re-drafting the PIB.”

    The minister also inaugurated a technical committee consisting of experts in the industry to assist the special taskforce. The Technical Committee chaired by the Director, Department of Petroleum Resources (DPR), Osten Olorunsola had Chief Sena Anthony, Alhaji Umar Abba Gana, Mr. George Osahon, Mallam I.D.Waziri, Mr Victor Briggs, Dr. Francis Adigwe, Mr. Victor Oyenkpa and Mr. Seyi Bickersteth as members.

     

    Benefits

    Mrs Alison-Madueke said when the bill is passed, the gas sector will become the crux of the economy going forward.

    She said: “We have much more gas reserves than we have in crude. The PIB is a long and indepth bill, a historic, critical and extensive bill encompassing the 16 hitherto existing laws with the oil and gas industry.

    “Once the PIB is fully passed, transparency in the oil and gas industry would be achieved. It is a truism to say that the oil and gas industry has been characterised by too much opaqueness, high level of confidentiality. To this end, therefore, the PIB would remove opaqueness on a scale that has never been seen. Consequently, data would be accessible to all interested persons. One of the benefits of the bill would be in the creation of over 300,000 jobs in the industry in the next four to five years, compulsory execution of corporate social responsibility (CSR) for host communities, end of gas flaring and commercialisation of NNPC, among others.

    ‘’The PIB would ensure that transparency and good governance are promoted through the removal of much of the confidentiality as well as creating transparency. The bill on passage will ensure that all operations comply with all modern technical standards, are sound commercial proposition, don’t involve excessive costs, meet all health and safety standards, include Nigerian content plan that ensures maximisation of Nigerian employment and business opportunities, ensure maximum local economic spin-offs and job opportunities, meet all environmental standards, including approved environmental management plan and encourage investment in small oil and gas fields.”

     

    Stakeholders’reactions

    The Lead Director, Centre for Social Justice, Eze Onyekpere, said it is surprising that people are saying the PIB has been dumped because some northern legislators are against some provisions of the bill. “It is only a bill and it should undergo a normal legislative process, which it is undergoing.

    “Certainly, some people may not like some provisions in the bill and, of course, we shouldn’t expect the bill to come out exactly the way it went in or was submitted by the executive. Therefore, I’m surprised to hear people say that northern legislators reject PIB,” he said.

    The immediate past President of Nigerian Association of Petroleum Explorationists (NAPE), Dr. Lawrence Afe Mayowa, described the non-passage of the Bill as “an embarrassment.”

    He said poor inflow of investment into the oil industry was because of non-passage of the PIB. He said the passage of the bill would open up the industry and create windows of opportunities for the country including employment. He said passage of the PIB would give credibility to the government and encourage investments in the sector. “The passage of the bill will certainly move Nigeria forward and attract more investors to our country,” he said.

    He said if the PIB becomes law, it would address anomalies in the industry, including the persistent inadequate supply of gas to the electricity generating stations because provisions for all these are made in the bill. “The foot-dragging over the passage of the PIB has made Nigeria to a laughing stock before the international community,” he added.

    NAPE also made efforts to get stakeholders to a round table on how to stop the negative impact the PIB’s delay is having on the economy. Nigeria, according to the association, lost over N543 billion ($3.62 billion) in revenue from existing Production Sharing Contracts (PSC) in 2011 to the delay in the passage of the PIB. NAPE said the figure could be more than that as the country’s multi-billion dollars oil and gas industry is faced with imminent investments’ drain “as a result of the delay.”

    Mayowa reiterated calls for the quick passage of the bill “to save the country from the huge loss in revenue.” He added that the association is at the forefront of efforts to place the oil and gas industry on the right track, adding that would continue to ensure that things are done right in the industry.

    The Principal Consultant, Lonadek Oil and Gas Consultants, Dr. Ibilola Amao, said: “To give direction and focus to the oil and gas industry, the Federal Government has to ensure that the PIB, which has long been before the National Assembly, is passed into law and the downstream sector fully deregulated.’’

    She noted that the poor investment inflow into the oil and gas industry in recent times is because investors are not sure of the fiscal terms and impact that the passage of the PIB would have on their operations. Prompt passage of the Bill would clearly address these problems, she added.

    She said the passage of PIB should boost government’s efforts to improve gas supply to power sector for stable electricity supply. To achieve this, she said there was need for the government to support gas aggregation and monetisation and ensure that the Final Investment Decision (FID) for projects, such as Brass LNG and NLNG Train 7 is taken quickly.

    She stressed the importance of government’s commitment to the implementation of the Gas Master Plan, which should address domestic use in a most favourable manner. These projects, when in place, would contribute to uninterrupted power supply and help boost the growth of Small and Medium Enterprises (SMEs).

     

    Conclusion

    However, some stakeholders in the industry see something good in the PIB. They argue it is incontrovertible that a reform of the petroleum industry is overdue. Certainly, they said there must be provisions in the bill that don’t appeal to everybody, hence the need for legislative tinkering to sort things out. No doubt, the interests of stakeholders should be considered to ensure the industry attracts the required investment to attain the expected growth, technology transfer, best practices for safety and protection of the environment and most of all, adding value to Nigerians and the economy.

     

  • StanbicIBTC introduces new product

    Stanbic IBTC Bank has deployed a new product, SME Quick Loans, to bridge the huge funding gap in the Small and Medium Enterprises (SMEs) segment of the economy.

    The product, according to a statement, will enable eligible SMEs access finance within five days of applying for a loan.

    Chief Executive Officer, Stanbic IBTC Bank, Mrs Sola David-Borha, said the introduction of SME Quick Loan will benefit SMEs that could not access funding due to lack of financial statements and collateral. She reiterated the bank’s commitment to the deployment of innovative products and services to the retail segment of the market.

    According to her, the product not only provides finance to a large pool of entrepreneurs, but does so quickly, in recognition of the urgent financial needs of growing businesses.

    Head of Personal and Business Banking, Stanbic IBTC Bank, Obinnia Abajue, said the bank is committed to closing the financing gap for small businesses, through its SME Quick Loan product.

    “Small businesses, which are typically the backbone of the economy, suffer considerably from inadequate access to capital. SME Quick Loan will help to mitigate this problem and empower SMEs to contribute more optimally to economic development.

    “It entails a new credit evaluation approach that reduces loan disbursement process from weeks to less than five days, reduces application forms from 19 pages to two,” he said.

    “Stanbic IBTC invested significantly in research in the SME segment in Nigeria, to complement the credit evaluation with processes that fit the SME business owner. All this has improved our ability to determine future risk profiles of customers. The combination of this together with affordability assessments as well as fraud management and prevention allows the bank to increase credit risk appetite. We are able to offer unsecured loans ranging from N100,000 to N4.5 million, to SMEs to enable them to achieve high level of productivity and capacity.”

     

     

     

     

     

     

  • Access Bank campaign ends

    The Divisional Director, Retail Banking Division of Access Bank, Obinna Nwosu, said the ‘Access Early Savers Back to School’ campaign initiative is part of its resolve to promote financial and independence among the younger generation.

    He said it would ensure that children, parents and guardians do not relent on their efforts to achieve financial independence, as the campaign ended on Monday.

    Nwosu, said in a statement, “With a minimum balance of N50,000 maintained in their account, account holders immediately qualify for ‘Dora branded Lunch Box’. This scheme is neither a raffle draw nor a promotion, but a reward for customer loyalty.

    “This serves as an avenue for showing our sincere appreciation to our numerous ‘Early Savers’ account holders for their loyalty and continued patronage over the last one year; and to encourage other kids to pursue a secure financial future by opening an Early Savers Account,” Nwosu added.

    He said: “ ‘Early Savers Back to School Campaign”is an initiative that is more than just a financial product but rather an interactive experience for account holders as it comes on the heels of the bank’s strategic partnership with Nickelodeon, a global family entertainment brand to drive its financial inclusion strategy for kids, parents and educators.”