The Nation Newspaper

Category: Issues

  • The gas supply nightmare

    The gas supply nightmare

    One year after the privatisation of the power sector, Nigerians are yet to enjoy stable electricity due largely to inadequate gas supply. Experts say that unless a sound policy framework is put in place to ensure optimal production and delivery of gas to power Generation Companies (GENCOs), the nation’s target of 20,000 Megawatts (Mw) of electricity by 2020 would not be met, writes AKINOLA AJIBADE.

    With an estimated 187 trillion proven gas reserves, and 600trillion unproven gas reserves, Nigeria, ordinarily, should not be agonising over shortage of gas to power her turbines and guarantee steady supply of electricity to her citizens. In fact, experts say that Nigeria has enough gas to power the whole of Africa. They said the gas that is flared daily can generate enough electricity for the country.

    Besides, countries that do not have gas are not having electricity problems. For instance, as President, Liquefied Petroleum Gas Association of Nigeria (LPGAN), Mr. Dapo Adesina, noted, South Africa, with 55 million population, generates about 40,000 Megawatts (Mw) of electricity despite not having gas in abundance. In the absence of gas, Isreal also uses coal to generate electricity, ditto Rwanda that generates 350 megawatts of electricity through renewable energy sources.

    But Nigeria, despite her quantum of proven gas reserves, has not been able to ensure a fairly stable supply of electricity either through the use of gas, hydro or renewable energy sources such as coal, wind, solar or bio-mass. Rather than do so, The Nation learnt that a combination of the activities of pipeline vandals, infrastructural decay, long distance between the locations of the power plants and the gas pipelines, and inadequate incentives for investors who invest in gas plants, conspired to frustrate efforts at achieving uninterrupted gas supply to the power plants.

    For instance, rising incidents of outright sabotage of some crucial gas pipelines is blamed for the recent drop in gas supply to the power sector. The Nigerian National Petroleum Corporation (NNPC)’s reported that saboteurs were responsible for the destruction of Escravos gas pipeline in 2013. The Corporation said the Escravos-Warri stretch of the Escravos Lagos Pipeline System (ELPS), and the Trans Forcados crude pipeline, were destroyed, adding that investigations conducted by the Nigerian Gas Company (NGC), its subsidiary, revealed that the pipelines were punctured.

    The NNPC said 20 ruptured pipelines have been identified at the last count, all due to deliberate sabotage. “The cumulative effect of the above interruptions is a real degradation of power supply to Nigerians. The Ministry of Petroleum Resources (DPR) and NNPC would continue to make efforts to ensure gas supply in a difficult situation,” the NNPC explained.

    The challenge of gas supply, which has become a torn in the flesh of the new core investors in the power sector, government and electricity consumers in general, may have been accentuated by the dynamics of the nation’s power sector. Gas- powered plants require huge volume of gas to generate electricity. For instance, as the President, Petroleum and Technology Association of Nigeria (PETAN), Emeke Ene, noted, Nigeria’s power sector operates on 80 per cent turbines and 20 per cent hydro, which means that the power plants need an uninterrupted gas supply to guarantee steady electricity supply.

    Ene said the power sector uses more than 70 per cent of the domestic gas production, while the remaining percentage is shared among the petrochemical and fertiliser companies.“The capacities of the turbines are different, ditto the volume of gas required to generate power. The turbines are designed to meet certain production targets. The plants can only meet their targets when they access gas regularly. For Nigeria to increase power generation from 5,000 Mw  to 10,000 Mw gas must be supplied regularly to the sector.” Ene explained.

    The Chief Executive officer, Niger Delta Exploration and Production Company (NDEPC), Lai Fatona, agrees with him, noting that turbines require millions of standard cubic feet of gas per day for optimum performance. Fatona said 200,635 standard cubic feet of gas per day is needed to produce 1,000 megawatts, while 2.635 million standard cubic feet of gas per day would give the country 10,000 megawatts of electricity. Giving a breakdown, Fatona said while 10,031 standard cubit feet of gas per day will produce 50 megawatts, 20,063 standard cubit feet of gas per day will provide 100 megawatts.

    Similarly, the NNPC said power firms need millions of metric tonnes of gas per day to generate electricity and attain optimal level. Also,the Special Adviser to Minister of Power on Investments, Finance and Donor Relations, Olajuwon Olaleye, said power and oil and gas sector needs each other for growth. Olaleye said failure to develop one affects the other, arguing that the two should be developed if Nigeria’s power situation would improve like that of United States, Germany, and other developed economies.

    Power supply in Nigeria has been dropping for a long time now. At present, Nigeria survives on less than 5,000 Mw of electricity, a level considered a far cry from the 20, 000 Mw of electricity the nation targets to realise the much-trumpeted Vision 20: 2020. Between July to September 2014 alone, power supply dropped below 3, 500 Mw, the lowest this year. According to analysts, this means that the impact of the privatisation of the power sector, which saw the assets of the now defunct Power Holding Company of Nigeria (PHCN) sold to fifteen new private investors, is far from being felt one year down the line.

    The expectation was that the sale of the assets would bring succour to Nigerians most of who have been groping in darkness for long, but this has not been the case, as there has not been much improvement in electricity supply even as consumers daily complain of estimated bills.  Experts blame this on government’s inability to wheel enough gas to the sector for the purpose of generating electricity. The occasional drop in the water level of the hydro power plants also contributed to the poor power supply in the country.

    And as the Chief Executive officer, Frontier Oil Limited, Dada Thomas puts it: “There is no adequate infrastructure in place to ensure speedy and uninterrupted supply of gas to the power plants. This has a cumulative effect on the operation of the power sector, which relies on gas for sustenance. There is the need to explore opportunities in the marginal oil fields across the country. Some oil wells have huge gas reserves. The  Uquo Marginal Oil Field in Eket, Akwa-Ibom State is one of the wells that boasts huge gas reserves. Frontier Oil Limited and Seven Energy International partnered to develop the field. Now, the field has the capacity to supply millions of metric tonnes of gas power plants to areas in the South -South region.’’

    However, government says it is making efforts to address the gas supply challenge. Speaking during the recent third edition of the Worldstage Power Conference in Lagos, Olaleye said government is making frantic efforts to produce 20, 000 Mw by 2020 as part of on-going plans to become one of the biggest economies in the world. He assured that with the construction of the 10 National Independent Power Plants (NIPPs), and the decision of the government to provide gas to the plants to enable them meet their target of 5,000 megawatts of electricity, as well as plans to increase hydro power projects, among other initiatives, power generation would improve soon.

    He said power plays important role in achieving meaningful development, arguing that no country can achieve growth without a robust energy programme. Hear him: “Nobody can underestimate the importance of gas to the power sector. Globally, the bulk of electricity is generated through turbines. Though many counties are exploring opportunities  in the off-grid electricity, gas helps in generating electricity sufficient to grow the economy. Based on this, the Federal Government has put in place machineries to solve the gas problem, one of which is the recent increase in the price of gas  from $1.5 per 1,000 standard cubit feet of gas to $2.5 per 1,000 standard cubit of gas.”

    Olaleye explained that the aim of increasing the price of gas  was to encourage more investment in gas in order to fast-track the growth of the power sector. He said another effort aimed at addressing gas shortage is the on-going collaboration between the Ministry of Petroleum Resources, the Ministry of Power, the Nigerian National Petroleum Corporation(NNPC), and the Nigerian Electricity Regulatory Commission (NERC), among other stakeholders to provide modalities on how to make gas available to the power firms to improve electricity generation.

    While stating that the problems in the sector are nearing solution, Olaleye said government is advocating the adoption of energy mix in the country. According to him, government sees energy mix as a platform to improve electricity supply in the country. The Commissioner for Energy in Lagos State, Taofiq Ajibade, also said that energy mix is the only option through which Nigeria can overcome its electricity challenges. He said the issue of combining various sources of generating electricity is vital to the growth of the economy, urging the federal and state governments to embrace the idea

    According to the commissioner, Lagos receives 930 Mw of electricity from the grid, which is not enough to meet the needs of its population. That is why the state government set up Independent Power Plants (IPPs) and invested in solar energy, among other projects to compliment whatever it is getting from the grid,” he added.

    The Minister of Power, Professor Chinedu Nebo, said the government is set to inject additional 4, 000 Mw of electricity to the current power capacity with new renewable energy contracts for 14 hydro power projects. He said the government is planning to provide a renewable energy policy that would set the guidelines for the use of solar and coal for power generation, adding that the country is blessed with natural resources that can be used to generate power.

  • Let there be light

    Let there be light

    Six months after the coming of the distribution and generation companies, DISCOs and GENCOs, power supply and generation remain absymally low. The privatisation of the Power Holding Company of Nigeria (PHCN) seems not to have solved the epileptic power problem. What is the way out? The DISCOs and GENCOs say it is by sacking the inherited PHCN workers, who they believe do not measure up. They plan to inject fresh funds into their operation after the planned sack; writes Assistant Editor, EMEKA UGWUANYI.

    When private investors acquired the assets of the Power Holding Company of Nigeria (PHCN) last year, many electricity consumers felt their prayers had been answered. They thought that the era of blackouts, excessive load-shedding, power rationing and paying for electricity not consumed was over. But things have not gone that way. Shortly after the generation and distribution companies GENCOs and DISCOs took over, supply dropped and has since remained so.

    Then came the blame game. The Federal Government blamed the GENCOs for not supplying enough electricity for transmission and distribution; the GENCOs berated the government for failing to wheel enough gas to run the turbines. Since gas is the feedstock for the turbines, it is difficult to run them without it.

    However, the power sector is undergoing a paradigm shift. To meet consumers’expectations, The Nation gathered that the investors are set to implement their agenda for improving power.

     

    Current investment/operational plans

    Initially, investors in the 11 DISCOs had an understanding with the Nigerian Electricity Regulatory Commission (NERC) to invest $1.8 billion between last year and 2017 as capital expenditure (CAPEX) to improve supply on sustainable basis through repairs and replacement of damaged and obsolete equipment.

    A breakdown of the investment shows that Ikeja Electricity Distribution Company (IKEDC) requires an average annual investment of $58.737 million for five years to improve power supply, Eko and Ibadan Electricity Distribution Companies, $45.17 million and $43.865 million yearly, and Abuja Electricity Distribution Company, $36.606 million.

    Others include Kano DISCO, $30.379 million; Kaduna DISCO, $29.96 million; Enugu DISCO, $27.23 million; Port Harcourt DISCO, $25.514 million; Benin DISCO, $24.314 million; Jos DISCO, $22.755 million and Yola DISCO, $13.133 million.

    What they met on ground, however, has made them to restrategise. Before their takeover of PHCN assets, the investors had an agreement with labour groups in the power sector to retain the workers of the former state-run power firm for six months. But, when the investors took over, they discovered that the wage bill was “too huge” for them to bear and as such they disengaged some workers. The workforce is still large. To get the right size, they decided to further reduce the staff.

    The investors, it was learnt, have concluded their staff auditing and, penciled down for sack former PHCN workers deemed to lack the requisite skills. It was also learnt that some of them hired KPMG and PricewaterhouseCoopers (PwC) for the auditing to ensure transparency and professionalism. The workers may be asked to go by the end of this month.

    An official of one of the DISCOs, who spoke to The Nation in confidence, said: “We have concluded our staff auditing. You are aware that the six months agreement will expire by the end of this month. Some of us have engaged reputable auditing firms, such as KPMG and PwC, to carry out the exercise. The essence is to ensure transparency and professionalism in carrying out the exercise and the truth is that the era of family connection as a criterion to secure job in the power sector is over.

    “We have decided to sieve the workforce, keep those that have the required skills, prepare those who have the motivation to move the company to the next level, and have the operational excellence to give power to the man on the street, and disengage those without the required skills. In fact, the auditing was both scientific and professional.”

    The GENCos and DISCOs have new investment plans following a facility inventory showing areas requiring attention. For instance, the management of West Power and Gas Limited, owners of Eko Electricity Distribution Company (EKEDC), said it has drawn a N42 billion investment plan for the acquisition of transformers, feeders and other equipment to strengthen its network and reinforce electricity supply within five years.

    Its Chairman, Charles Momoh, and a Director, Dr Tunji Olowolafe, said the company is being repositioned to serve customers better. They added that because of poor power supply from the national grid, the company is exploring possible off-grid supply.

    The Chairman, Sahara Energy Group, owners of Ikeja Electricity Distribution Company and Egbin Power Generation Company, Mr. Kola Adesina, said he could not give the amount the group would invest because of what it plans to achieve. He, however, noted that a substantial investment is being planned to improve supply and customer service in both companies.

     

    Gas supply challenge

    The Group Executive Director, Gas and Power, Nigerian National Petroleum Corporation (NNPC), Dr David Ige, confirmed that the corporation has gas supply challenge. He said the complaints of the investors are genuine.

    Ige said: “There is truth in their complaints. Over the last two to three years, we have seen a big growth in our gas supply development. “We have maximised our efforts in infrastructure; every day we are building new pipeline infrastructure. Gas supply has grown from 500 million standard cubic feet per day (MMscf/d) three years ago to 1.5 billion standard cubic feet per day (Bscf/d). But we are having serious short time challenge and there are two things responsible for that.

    “The first arises mostly from vandalism. So, at every point in time, we are repairing one pipeline or the other. Last year, Escravos-Lagos Pipeline System (ELPS) was down for seven months. Now ELPS is back, Trans Forcados is down. At every point in time, we have been experiencing one major outage or the other. And the way our system works is that the pipeline artery connects major gas supply assets. Trans Forcados pipeline is connected to Oben, Sapele and Pan Ocean gas plants, so when it is down, we lose three plants at once.

    “When ELPS is down, we lose Escravos, so we are truly struggling with these outages and because it happens repeatedly and there is almost no time one of them is not down, all the efforts that we have made in terms of bringing supply up, the consumers never have been able to see the full benefits. This is because there is always one problem or the other.”

    The other problem, Ige said, is that of supply shortfall. He said facilities working normally need regular maintenance but this is made difficult by the high rate of vandalism and the few facilities available. This, he said could cause serious disruption in the system.

    Ige continued: “By not taking them out on maintenance, they are also turning over more than expected. So, we are suffering a little bit of short term challenge. We expect that through the course of this year, they (power investors) would have had more gas supply.

    “Really, the problem now is a short term stabilisation problem. I agree we haven’t built supply to the full capacity of demand for gas but we have always known the gap would be there until next couple of months. We are going up in gas supply and they (power suppliers) are going up. There is a gap but we are closing the gap over the next couple of months. That has always been in our plan but our biggest challenge is that the supply we have brought to bear is like at any point in time we are struggling with unplanned outages.

    “I think the power sector investors are jittery right now. There is no doubt about it but the (gas supply) challenge is a short term challenge because the fundamentals are there, the gas pipelines are being built. We have never put as many pipelines as we are putting right now and the supply is being developed as well.

    “Hopefully, we will get to a point where we will overcome this very short term issue and people would see the benefits. A lot is going on in the background that will make that happen.”

    On whether the Joint Task Force (JTF) is not doing its job of policing the pipeline as vandalism is getting worse, he said: “Everybody is doing his job but it is a very difficult problem to deal with and, ultimately, you need a social re-engineering. “These pipelines are hundreds of kilometres long and it is impossible to man every kilometre 24/7. We really need to get to the people who are doing this to change their attitude.

    “Social re-engineering will contribute significantly to solving the problem because people need to know that there cannot be a sustainable solution in their attacking a national infrastructure; it doesn’t solve their problem. There has to be a better way of agitation. For those who break crude oil pipeline, we really have to reorientate them because we can put as much security but we have got over 5,000 kilometres of pipeline. So, how many security people are we going to put on every kilometre?”

     

    Finding solution

    The investors are facing the challenges of meeting customers’ power supply needs and recouping their investments. But, with the state of power supply, it is clear that they need alternatives to remain in business. Currently, some of the DISCOs cannot pay for their supplies from the Nigerian Bulk Electricity Trading Plc (NBET) from the national grid.

    Lagos, Eko and Ikeja DISCOs are contemplating sourcing power from captive power generators and other embedded generators (generation outside the grid) to be able to meet the power demands of customers. Adesina said grid supply has become insignificant, adding that the management of Ikeja DISCO is sourcing about 230 megawatts (MW) from off-grid supply.

    Mr Yeom Gyoo Chull, Managing Director, Korea Electric Power Nigeria Limited, Sahara Group’s technical partner, said management has been discussing the transformation of Egbin plant. He said the power firm is to restore Egbin to its full capacity of 1,320MW this year and build more turbines that will provide additional 1,350MW.

    He added that the construction of the 1,350MW additional capacity will begin within three years, promising that on completion, it will bring the combined output of Egbin to 2,670MW. He noted that the target is to achieve a total capacity of over 10,000MW in the next decade if the demand permits.

    He said: “We intend to collaborate with our partners in Nigeria to initially restore Egbin to its fully built capacity of 1,320MW within the year and provide additional projected capacity of 1,350MW commencing within the next three years, thus at completion, we’ll have 2,670MW, with the aim of achieving a total capacity of over 10,000MW in the next decade if the demand permits.”

    The Managing Director, Egbin Electric Power Plc, Mike Uzoigwe, said only one turbine of the six-turbine power plant is not working. The six turbines generate 220MW each but the plant generates far below what it is supposed to generate. He said Egbin can generate 1080MW but gas supply constraint has limited output to just over 600MW.

    The Chief Executive Officer, Eko DISCO, Dr Oladele Amoda, told The Nation that the management was exploring other options of getting power outside the grid for distribution to customers because of gas supply challenge.

    Amoda said: “We want to get power from embedded generation. The main purpose of this initiative is that we will not continue to rely on the power that we get from the grid because it is not constant; it fluctuates. Besides, in the past five months, we have not been able to get more than between 250 and 260 megawatts (MW) and even sometimes less than 100MW while we have the capacity to take 700MW, which is the demand. You can see the difference between an average of 200MW and 700MW daily.

    “The consequence of this huge supply gap is rationing of available power and massive load-shedding going on now. The power supply gap, according to the GENCOs, is due to inadequate gas to run the power stations following pipeline vandalism and sabotage. “So, that is where we are now. But going forward, we are looking at about 400MW from embedded generation that will be under our control and will not be subject to grid supply. This will enable us to offer our customers a measure of stable power supply. “The initiative will enable us plan maintenance of our facilities when necessary by having a regulated load-shedding programme that everybody will know but currently, we cannot do any reasonable load-shedding programme.

    “We hope to roll out the first PPA Power Purchase Agreement) and actual embedded generation into our system between July and August this year. Currently, we are also discussing with companies that have excess captive power such as Flour Mills and Honeywell as well as other companies in Apapa and Agbara that are generating more than they need. That one will come on very quickly. We have Island Power where we get 1.5MW. The Island Power arrangement is ready but we get the 1.5MW during off-peak period (10pm to 6am daily), so we target some companies that will take the power. The Island Power deal will come into operation by the end of this month.”

  • Revealing all in sustainability reporting

    Revealing all in sustainability reporting

    There is a global standard for corporate bodies to report their social investments. But in Nigeria, many companies shy away from following this standard because it appears they have something to hide. Stakeholders are advising such companies to change their ways and adopt the global standard in preparing their sustainability report. ADEDEJI ADEMIGBUJI reports.

    Most corporate organisations in Nigeria are yet to understand how to draft their sustainability reporting, a new buzzword in corporate social responsibility (CSR) practice. Over the years, they have continued to publish their social investment report without following the globally acceptable framework despite the domestication of the international standard on CSR called, NIS: ISO 26000 last year.

    The NIS: ISO 26000 was domesticated after many adoption processes sponsored by Etisalat Nigeria; Nigeria Breweries Plc; First Bank of Nigeria Plc; Federal Inland Revenue Service (FIRS) and Standards Organisation of Nigeria (SON). The NIS: ISO was adopted for ensuring that charity and philanthropic activities of many corporate organisations are well documented in their social reporting in line with global sustainability reporting standard.

    Many indigenous business concerns are yet to understand what sustainability reporting is except the use of CSR to sustain their relationship with the communities where they operate. However, most of the experts championing the cause of sustainability reporting and CSR have always made efforts to enlighten business concerns on the need to ensure that social investments in their operating environments follow certain framework in other to enhance result.

    According to experts, sustainability report of an organisation gives information about its economic, environmental, social and governance performance and not just report collected data, but rather a method to internalise and improve an organisation’s commitment to sustainable development in a way that can be demonstrated to both internal and external stakeholders.

    Meanwhile, corporate sustainability reporting has a long history going back to environmental reporting. The first environmental reports were published in the late 1980s by companies in the chemical industry, which had serious image problems. They were followed by another group of committed small and medium-sized businesses with very advanced environmental management systems.

    Non-financial reporting, such as sustainability and CSR reporting, is a fairly recent trend, which has spanned the last 20 years. Many companies produce yearly sustainability report and there are many standards and ratings organisations. There are various reasons why companies choose to produce these reports, but primarily, the reports are intended to be “vessels of transparency and accountability.” Often, they are intended to improve internal processes, engage stakeholders and persuade investors.

    Organisations can improve their sustainability performance by measuring, monitoring and reporting on it; helping them to have a positive impact on the society, economy, and a sustainable future. The key drivers of quality sustainability reports are the guidelines of the Global Reporting Initiative (GRI), Association of Chartered Certified Accountants (ACCA) award schemes or rankings. The GRI sustainability reporting guidelines enable all organisations worldwide assess their sustainability performance and disclose the results in a similar way to financial reporting. The largest database of corporate sustainability reports can be found on the website of the United Nations (UN) Global Compact initiative.

    However, in the light of these, stakeholders have said Nigeria accounts for insignificant two per cent in compliance to standard reporting of their sustainability practice, a situation industry experts regarded as dismal. “Nigeria accounts for a significant two per cent of GRI-based reports with South Africa leading with about 96 per cent and the other two per cent scattered around the rest of the continent. GRI Focal Point South Africa was launched in South Africa on February 26, last year. Though based in South Africa, the focus of its outreach and engagement is the broader Southern Africa region and key priority target markets on the continent namely: Ghana, Nigeria, Kenya and Mauritius,” Head, Focal Point, Douglas Kativu said.

    The Lead Consultant/ Chief Executive Officer (CEO), Thistle Praxis Consulting, Ini Onuk, said while the standard reporting is germane to any sector of the economy, it is disheartening to see the country score low despite its huge potential. She noted that social sustainability reporting plays a tripartite role in institutionalising.

    Onuk affirmed that the global reporting community takes sustainability reporting serious. “ThistlePraxis has been engaging GRI for about three years now. At the same time, we have watched the increase albeit slow, in the number of organisations who signed on to the GRI framework. While we engaged GRI often; locally, we advocated constantly for not just the GRI framework but main-streaming sustainable development and non-financial reporting.”

    The Coordinator, GRI, Tendai Matika also noted that while Nigeria is critical to African economies, the country needs to embrace reporting standard using the new GRI yardstick, G4, which is an improvement on G3 to measure the impact of its social investment as well as enhance ethical corporate behaviour in the operating environment.

    “The visit afforded GRI the opportunity to also present sustainability reporting as a tool for the private sector to assess environmental, social, economic and governance impacts and performances to enhance competitiveness, raise awareness and promote better understanding of the GRI (G4) Sustainability Reporting Guidelines. It is also to meet and engage organisations in Nigeria currently signed up to the GRI reporting framework in order to promote GRI support services and operational sustainability (OS) membership program,” he noted.

    While urging businesses to adopt G4 approach to CSR management, the new standard urged businesses to disclose grey areas in any category of their businesses in a financial year coded as DMA (Disclosure on Management Approach) in the G4 reporting standard information.

    “There are 44 aspects proposed for G4, including procurement practices in the economic category, equal remuneration for women and men in the labour category, and two aspects: screening and assessment, and remediation, in four categories (Environment, Labour, Human Rights and Society),” Matika said.

    Although adopting the global guidelines might not appear as easy as it sounds, issues of compliance have continued to prompt discussion among sustainability managers.

    Absence of regulation hampers sustainability and CSR development

    With slow adoption of global framework, Onuk said the absence of regulatory frameworks hampers the growth and development of sustainability and social reporting as key elements of business accountability. She stressed that compliance serves as a key driver to adopting accountability frameworks, which spurs organisations to become committed and demonstrate leadership in order to stay competitive.

    “Compliance is key, yet, integrity and actual integration of sustainability; no matter how unfavourable, is the Holy Grail,” she said. Onuk explained: ‘ThistlePraxis has been engaging GRI for about three years. At the same time, we have watched the increase albeit slow, in the number of organisations which signed on to the GRI framework. While we engaged GRI often; locally, we advocated constantly for not just the GRI framework, but main-streaming sustainable development and non-financial reporting,” she said.

    While the road to this milestone may be far and seemingly unwinding, GRI’s organisational stakeholders have been encouraged to demonstrate leadership through competitiveness, leverage on supply chain and impacts from best practices in order to encourage other organisations. According to her, G4 aligns with other recognised frameworks, such as UN Global Compact, ISO 26000, among others, to ensure that business sustainability is the goal and not just compliance.

    Using regulatory big-stick to enforce compliance

    The urgent need to regulate sustainability reporting in Nigeria was recommended by various experts. This call was made at a sustainability reporting dialogue organised by Global Reporting Initiative (GRI) Africa Focal Point office, South Africa. Meanwhile, Access Bank representative at the dialogue, Mr. Temitayo Ade-Peters, observed that the absence of regulations on sustainability would not foster level playing-grounds, hence making measuring commitment hazardous. However, the Lead, ICE, Shell Petroleum Development Company, Nigeria, Dr. Uwem Ite, described the use of regulatory agencies to drive the sustainability compliance as counteraction. He said using stakeholders to drive it would be a better option than “mandatory stick of government through regulations”.

    In the same vein, the Managing Director, Quadrant Company, Mr. Bolaji Okusaga, also argued that the “implementation of sustainability principles should be through voluntary commitment and not enforcement by government regulations.”

    The Advisor, Learning and Development, Chevron, Nigeria, Prof Yomi Fawehinmi, maintained that “if companies comply with writing the reports demanded by the different sectoral regulators in their industry, producing the sustainability report would be difficult”.

    Fawehinmi, however, noted that “organisations may not need to leapfrog to G4 immediately”.

    “With constant reporting annually, a sustainability report will align with global frameworks and standards in 3-4 years,” he added.

  • Can indigenous operators cope after foreigners’ exit?

    Can indigenous operators cope after foreigners’ exit?

    The divestment of foreign companies from the oil industry is raising question about the capacity of indigenous operators to take their place. Asst. Editor Chikodi Okereocha examines the implication of the International Oil Companies (IOCs) divestment

    The Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mr. Andrew Yakubu, came across as an incurable optimist when he addressed participants at the Nigeria Oil & Gas Conference tagged “NOG 2014.” Waxing patriotic, he spoke of an oil & gas industry where indigenous operators, having acquired enough capacity, are in the position to run things following the divestment of some International Oil Companies (IOCs).

    Yakubu said when the Petroleum Industry Bill (PIB) takes off, the level of participation and investments by local oil firms would increase.

    He told participants at the premier annual oil and gas gathering in sub-Saharan Africa, held in Abuja, that with the Local Content Law, Nigeria would become the most viable investment destination, galvanised by indigenous capacity.

    While Yakubu’s optimism sounds good to local firms, which have been operating in their foreign counterparts’ shadow, many experts and stakeholders are not convinced. Some of them say Yakubu and others may be putting up a bold face to the fact that local operators don’t have the capacity, expertise and financial muscle to drive the industry.

    An oil and gas expert, Oliver Mordi, insisted that lack of capacity remains the bane of local content development in the industry. He argued that though the divestments of the IOCs should be a shot in the arm for indigenous operators, they are yet to acquire the capacity to stand on their own. He noted that local operators do not have the competence to handle highly technical aspects of oil & gas operations, saying that at the moment, most of the technical aspects are handled by expatriates. Only a few Nigerians, he said, are into oil & gas exploration.

    IOCs have since been reviewing and reducing their commitment to onshore and shallow assets in the country. The development, which is gradually changing the oil & gas landscape, started around 2010 when Shell Petroleum Development Company (SPDC) divested some of its assets from Nigeria. The Anglo-Dutch oil company and its partners, French oil group Total and Agip Oil, sold 45 per cent interest in the onshore block, oil mining lease (OML) 40 to Elcrest Nigeria Limited. The company also sold its 30 per cent interest in OML 30 with share production of 11,000 barrels per day (bpd) to Shoreline Natural Resources Limited.

    After operating in Nigeria for 46 years, United States (U.S.) oil giant, Conoco Phillips, offered its entire business interest in Nigeria to Oando Plc, an indigenous oil producing company in a deal valued at about $1.75 billion. Brazilian oil company Petrobras has also indicated plans to auction eight per cent stake of its Agbami oil block and 20 per cent of its offshore Akpo project for about N175 billion. In November 2012, Total divested its 20 per cent offshore stake in the Usan Field to Sinopec, a Chinese petroleum and chemical company, for $2.5 billion. Chevron is also in the process of selling three onshore oil blocks.

    An estimated $6.5 billion worth of assets have so far been sold by IOCs. The figure is projected to rise in the coming months, as more assets are said to have been lined up for auction, a development, sources linked to the operational and security difficulties in the Niger Delta and the uncertainties caused by the non-passage of the PIB. For instance, the incessant crises between the host communities and the oil companies are said to have prompted the divestment for deep water prospect where there are fewer crises and less financial expenses on conflict resolution.

    But the companies are offering a different explanation. Mutiu Sunmonu, Managing Director of SPDC, said the divestment of his company’s assets was a deliberate measure to encourage indigenous participation in the upstream oil and gas industry.

    His words: “We want to create a new set of indigenous players in Nigeria’s oil and gas industry within the next 10 to 20 years from now, while the IOCs concentrate on more difficult issues and also allow us focus on material oil and gas fields.”

    The divestments are seen by some industry watchers as representing the single largest opportunity for Nigerian operators with the requisite expertise and capital to emerge as major upstream players. Already, local oil companies own more than 100 blocks across Nigeria’s oil-producing regions, and the figures are expected to double over the next few years, indicating perhaps, that the future is bright for indigenous operators.

    But Mordi thinks otherwise. He said lack of capacity by local operators might throw spanner in the works. Although he aligned with the position that divestment by IOCs is capable of encouraging indigenous participation, he noted that at the moment Nigerians lack the capacity and expertise to leverage the opportunity created by the exit of the IOCs. He however, attributed the development to “the political economy of the operating environment, which is no longer conducive for IOCs.”

    Mr Obiora Akabogu, a Lagos based lawyer, describes oil business as “capital intensive,” saying: “Nigerian operators do not have the resources and the manpower to run it efficiently considering the fact that local banks are not in the position to advance long-term loans without going into alliance with foreign banks. Besides, the prevailing high interest rate by banks poses serious hurdle for local operators particularly those without access to offshore fund.”

    Akabogu added: “Local content in the oil industry is supposed to be a long term thing; it is supposed to be implemented in a gradual manner because the enabling environment is not there. The ideal thing would have been to retain the IOCs by addressing the issues that necessitated their divestment.” He said the IOCs were merely shifting their risks to the local operators who would now deal with issues of oil bunkering and theft.

    The Executive Secretary of the Nigerian Content Development and Monitoring Board (NCDMB), Mr. Ernest Nwapa, drove the point home when he disclosed that Nigeria has lost an estimated $380 billion to foreign companies and contractors because of lack of capacity in manufacturing, fabrication and engineering design of production platforms, marine vessels, drilling rigs and other equipment used in the oil and gas industry.

    Mr. Nwapa said virtually all categories of contracts in the oil and gas sector were executed by foreign firms before the coming of the Nigerian Content Act in 2010. He said for instance, Nigeria is still chasing the original builders of the four refineries to come and assist in rehabilitating them because the country lacks capacity to do the job. He said before the Nigerian Content Act was enacted the engineering designs of production platforms were neither done in Nigeria nor manufactured locally.

    Between 2010 when the law came into being and now, experts say that it is doubtful if local operators have acquired enough capacity to run the industry. For instance, the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), called to question the capacity of local operators by raising the alarm that the take over of the industry by local operators would lead to massive job losses. According to the National Public Relations Officer (PRO) of PENGASSAN, Mr. Seyi Gambo, over 20, 000 local jobs in the oil and gas industry are under threat following the rapid divestments of upstream assets by IOCs. He said since the IOCs began the exercise, many of its members have been laid off.

    Akabogu says there is sufficient reason for PENGASSAN and indeed, other labour unions in the industry to fret. He said: “Their fears are justified because in a capitalist system, he who pays the piper dictates the tune. The driving principle in capitalism is profit maximisation, and one of the strategies to achieve that is downsizing or rightsizing of workers.” The legal practitioner wondered why countries like Ghana and Sao Tome & Principe could provide enabling environment for their oil industry to thrive whereas Nigeria could not.

    To renowned environmental expert and coordinator of Oil Watch International, Mr. Nnimmo Bassey, the development is hardly surprising. According to him, divestment is a business strategy by the IOCs to cut losses and maximize profits. “You will notice that they are divesting mostly from onshore and swamp fields that intersect with communities that they have massively polluted and abused. Their aged facilities in those locations will certainly bring on more resource ownership and social conflicts. So, if local companies are happy to step in and take the flak that means ‘good’ business for the IOCs,” he observed incomplete sentence.

    Bassey also said that on the other hand, the IOCs mostly divested to the extent of their equity holdings in such fields and production also activities. “They still own the pipelines and related facilities. What that means is that they are renovating their image, collecting rents from their facilities and generally smiling to the bank while the local companies will eventually take the beating for the pollutions, conflicts and other social disruptions. We see the divestment as a business strategy that benefits the IOCs and leaves the oil field communities and the environment at risk,” he told The Nation.

    Dismissing the divestment as a veiled threat to the Federal Government against erection of policies that dig into the incredible profits the IOCs have been making in the country, the environmental expert alleged that: “The IOCs do not want Nigeria to have a properly regulated oil and gas sector. They do not want a strong PIB. The spate of divestment can be seen as a statement in this direction.”

    The Nigeria Union of Petroleum and Natural Gas Workers, NUPENG, thinks so, too. Its President, Comrade Igwe Achese accused the IOCs of stalling the passage of the PIB.

    “We call for the quick passage of the PIB that is before the National Assembly, as it would go a long way to reforming and ensuring transparency in the oil and gas sector. The multi-nationals are running helter-skelter to halt the passage but this must be rebuffed by the National Assembly because the multinationals are doing it for their selfish interests,” Achese said.

    The National Assembly, through the Chairman, Senate Committee on Gas Resources, Senator Nkechi Nwaogu, and Chairman, House of Representatives Committee on Petroleum Upstream, Hon. Muriana Ajibola, raised hopes when they announced at ‘NOG 2014’ that the PIB would be passed later this year.

    Senator Nwaogu said the bill, which consists of 16 legislations, was brought together to promote efficiency. She said the bill, which establishes the legal and regulatory framework, institutions and regulatory authorities for the Nigerian petroleum industry while also stipulating guidelines for operations in the upstream and downstream sectors, has just passed the second reading and at present, is at the technical stage.

    But some stakeholders including Bassey are not impressed. Bassey noted, for instance, that although the PIB is a good first step, the document as packaged, is not as strong as it ought to be. According to him, the PIB does not have stringent pro-people and pro-environment provisions, as the country, despite the PIB, will still be having illegal routine gas flaring. He blamed the delay in passing the bill on what he described as ‘toxic politics’ and pressure from the IOCs who have openly said they would not accept laws that curb their excessive profits as well as wrong perception by some legislators that provision of funds for communities mean more money to the oil-bearing states.

    Indeed, the 10 per cent additional revenue sought for the oil-producing communities is one of the contentious provisions in the PIB that divided legislators in both chambers of the National Assembly. While legislators from the South support the provision, those from the North argue that the Niger Delta already has enough money coming to it from the Niger Delta Development Commission (NDDC), Niger Delta Ministry, and the 13 per cent derivation.

    Nnimmo argued that although, the PIB makes the offer of money to oil-bearing communities on one hand, it takes it away on the other. “The PIB criminalises communities when it says that if oil facilities are tampered with then the communities, local government areas, and states would pay. Communities are not the policemen of oil facilities. The PIB speaks the old language of subsisting laws that free IOCs of responsibility where facilities are interfered with by third parties. That has made the claim of sabotage the favourite refrain of the oil companies even before incidents are investigated. The PIB fell into the same anti-people trap,” he explained.

    The non-passage of the PIB is blamed for creating an air of uncertainty in the industry, forcing IOCs to either divest or hold back on their investments. Because of the high-wire politicking that has characterised the PIB in the past 10 years, investors are said to be wary of putting their money in the industry. Senator Nworgu acknowledged this much at the conference when she said “Nigeria is currently on a standstill because investment in oil and gas has been delayed due to the delay in the passage of the bill.” She added that when passed into law by the seventh Senate, the bill would open up doors for investments and improve Nigeria’s revenue generation.

    Indeed, many IOCs in Nigeria are holding back on investment. For instance, a whopping $109 billion, about N16.8 trillion proposed investments are said to have been put on hold by oil majors who said planned projects were no longer economical due to the fiscal terms of the PIB. Some of the IOCs are also reportedly diverting their investments to other countries where oil has been found and where a transparent system is in place for the benefit of all stakeholders.

    The Nation reliably gathered that Shell alone had planned an investment of $30 billion in two offshore deepwater projects, but because of the current investment climate in the country, “SPDC would rather wait for stable and right conditions before committing finances,” Sunmonu said. The situation, which is not peculiar to Shell, but applies to all the IOCs perhaps, explains why there has been widespread apprehension and fear by stakeholders over the implications of the exit of the IOCs on investment especially at a time the Federal Government said it is encouraging more investment inflow into the industry.

    However, Bassey does not see the need for fresh investment in the oil industry. “When government seeks more investment in the sector, the expectation is that this would bring in more revenue and positively impact the economy, but up to 90 per cent of the expenditure in oil and gas production efforts are made abroad and not in Nigeria. The equipment is manufactured abroad and is merely assembled here. The sector is not a massive employer of labour and many locals working in the sector are mere contract staff,” he explained.

    Bassey insisted that what Nigeria needs to do right now is to “massively increase oil revenues by halting oil theft. We are not talking about poor villagers scooping crude oil in buckets and jerry cans. Those also need to be stopped. We are talking about the industrial-scale oil theft going on in the oil sector. The official figure bandied by the Ministry of Finance as well as the National Assembly is that 400,000 barrels of crude oil are stolen everyday,” he said

    As for local operators, Bassey and other experts and stakeholders said the ability of local operators to hold their own would depend, to a very large extent, on better collaboration, better host community management, proper valuation and raising smart financing. They also require huge investment in knowledge, research and development (R&D).

     

     

  • Bumpy road to Nigeria’s agric dream

    Bumpy road to Nigeria’s agric dream

    Nigeria’s dream is to become a regional hub for agro exports. But the road seems not too smooth. Reason: producers and agro-allied companies seeking export markets have to contend with stiff regulations and standards, lengthy certification processes and other barriers, such as limited transport infrastructure. DANIEL ESSIET points the way forward.

    Under the Agricultural Transformation Agenda (ATA), Nigeria aims to become an export hub for agricultural goods in Africa. In the thinking of experts, that may hold the key to diversifying the economy. It is also capable of creating new jobs and generating economic activities in diverse areas.

    At the moment, Nigeria’s soybeans, cotton, sesame seeds, cashew nuts, mangoes, green beans, melons, vegetable tropical products are in high demand in the international market.

    The Minister of Agriculture and Rural Development, Dr Akinwumi Adesina, recognised that much when he said there is huge potential in agriculture, particularly in agro exports.

    The minister is right. Already, some agri-entrepreneurs have seen the new vista of opportunities in agro export and are ready to grow, process, package and export fruit and vegetables. One of such entrepreneurs, who have seen the opportunity in agro export is Sunday Anjorin, Chief Executive, Anjorin & Atanda Investment Limited, Lagos. He has since carved a niche in the business where he exports cashew nuts, ginger, sesame seeds, moringa, pepper and vegetables to Europe, Asia, and the United States. He is looking at selling more produce overseas, having learnt export processes, from field preparation to clearing produce.

    President, National Cashew Association of Nigeria (NCAN), Tola Faseru has also keyed into agro export business. Today, he is large cashew exporter. He relies on a national network to get supplies. He has agents across villagers, who search for nuts. During the harvest season, which starts in January, agents and traders looking for supplies for processors and exporters, go to the villages. During the peak months of April and May, the farms literarily become a theatres of war for exporters scrambling for farmers’ loyalty.

    For Faseru, cashew makes a substantial economic contribution. The major importers are the developed countries. Although, the kernels are used in food preparation and confectionery and are important in Asian cuisine, the principal outlet is the snack food market, and this sector is growing rapidly in markets in the developed countries. Foreign buyers, according to him, prefer kernels without defects or blemishes for confectionery, biscuits and bakery products, and other prepared foods.

    Faseru and other agro experts say that a lot is happening around the cashew sector, as growers of cashew are buoyed by demand from India and China as well as resurgent consumption in Europe and North America. Demand for cashew has grown about seven per cent a year over the past decade on the back of healthy snacking habits.

    However, as Faseru, Anjorin, and others agri-entrepreneurs, are striving to key into the agro export business, they are met with stiff challenges. For instance, Anjorin lamented that export of agricultural products, especially those meant for human consumption, is often fraught with various impediments part of which is the rigid and cumbersome sanitary testing procedures by most importing countries. This, he said, is quite challenging, particularly, for a relatively new entrant in the agro export business.

    On his part, Faseru lamented that entrepreneurs are losing a lot because most cashew output is exported in raw nut form. According to the Programme Coordinator, Farmers Development Union (FADU), Mr. Victor Olowe, agricultural products and processed foods shipped from Nigeria have been rejected by foreign buyers. The rejections, complaints and restrictions, he said, were from Vietnam and India. In addition, many countries have imposed restrictions on peanuts, rice, poultry products, curry leaves, okra, groundnuts, and cassia seeds for different reasons. Also, some countries imposed temporary bans on various products. The European Union (EU) maintains such data online on its website.

    Indeed, experts say that Nigeria could have achieved far higher growth in the export of agro products if it had come up with a suitable policy providing, among other things, the facilitation of the movement of export cargo within the country, bulk storage at the airports, and space for carrying the export merchandise by the national carrier, where applicable. Besides, it has been found that short shelf-life is a major constraining factor and this has yet to be addressed through intensive and extensive laboratory research.

    Some of these issues are believed to be responsible for why many agro-based consignments from Nigeria frequently face confiscation and rejection at destinations. This not only causes economic loss to the exporters, but also puts a question mark on the credibility of Nigeria as an exporter of quality produce. About 264 Nigerian agro-commodity products were rejected at the international trade market between 2004 and 2012, according to the Deputy Director Export and Port Inspectorate Directorate National Agency for Food and Drug Administration and Control (NAFDAC). Sylvia Ajoku. This was made known at a stakeholders’ forum on export proceeds recovery through cargo defence fund held last week in Lagos.

    She explained that one of the problems that led to trade rejects was substandard packaging, adding that the specified nylon and other buyers’ specifications were not strictly adhered to in most cases by the exporters.

    Continuing, Ajoku said: “The nutrition analysis, batch number, expiring date and the manufacturing date as well as moisture content should be evaluated and printed on the specified nylon as these were some of the causes revealed by investigation.”

    She maintained that some exported products were rejected on the grounds of being preserved with prohibited chemicals, advising exporters to attend training organised by NAFDAC. She urged exporters to get approval for every product to be exported, adding that getting a certificate was necessary to avoid subsequent rejection on export. She said that export certificate and laboratory analysis for exportable products are issued free by NAFDAC.

    Ajoku advised agro exporters to imbibe the culture of sending their exportable products to the quarantine department to be certified and fumigated with the proper chemicals.

    President, Federation of Nigerian Shippers Association (FONSA), Ayobami Omotoso urged exporters to adopt a secured means of payment to reduce the risks of loses. He said a bank account was the least secured method of payment to the exporter but most attractive to the importer, adding that it is only recommended when an exporter is sure that payment would be received.

    Omotoso said some exporters do not comply with the key terms of the contract relating to documentary requirements such as quality and quantity, noting that the practice could result in issuance of Non-Negotiable Certificate of Inspection by the inspecting agencies which often leads to litigations and delay of payment.

    Nigeria’s aging transportation infrastructure has also been a pain on the neck of agro exporters, as most of them are unable to move produce from farms to the ports. Inadequate infrastructure is seen as one of the major challenges to doing business in Nigeria, a situation that puts the country at a competitive disadvantage when compared to its neighbours.

    Besides, as the global trading environment becomes ever more competitive, the fragmentation and geographical separation of commodity value chains compound traditional challenges faced by exporters. Today, it is no longer enough to meet quality and packaging standards, have storage facilities, possess the appropriate skills, and have access to technology; participation in value chains requires superior infrastructure and transport as well as swift crossing of borders.

    Anjorin said that entrepreneurs must have a deep understanding of the export markets by keeping abreast of changing consumption trends; for example, the move towards organic products in some segments and the reality that more consumers wish to know where their food comes from. For instance, traceability and certification standards are of growing importance to agri-entrepreneurs. He said he has taken note of these because he is planning to go into fresh produce export, which requires a facilitated pack house, refrigerated trucks and cold storage.

    Ordinarily, the Export Expansion Grant (EEG) is supposed to take care of some of the challenges facing agro exporters and by implication, help achieve Nigeria’s dream of becoming a regional hub for agro exports, but the scheme has been allegedly abuse. The EEG is supposed to be a critical incentive stimulation package to drive the non-oil export sector. It is a Federal Government’s initiative aimed at encouraging exporters of non-oil products, including agro-commodities, through the reduction of high cost of production occasioned by inhospitable business climate at home.

    EEG beneficiaries in various categories mainly – manufacturing/ processed to finished products; and merchandise exporters/exporters of primary products (including commodities and Solid minerals) – whose products are evaluated based on local value added, local content, employment of Nigerians, priority sector, export growth and capital investment; gain between 10 and 30 per cent EEG (financial assistance). To be eligible to enjoy the benefit, an exporter must be registered with the Nigerian Export Promotion Council (NEPC); shall be a manufacturer, producer or merchant of made-in- Nigeria products for the export market; must have a minimum annual export turnover of N5 million and evidence of repatriation of proceeds of exports; and shall submit baseline data like audited financial statement and information on operational capacity to the NEPC.

    Violators of the guidelines are supposed to be dealt with by the Presidential Committee on Trade Malpractices (PCTM) and the Economic and Financial Crimes Commission (EFCC) in conjunction with members of the EEG Implementation Committee. However, the EEG has been grossly abused. Crooks and cronies of top government officials allegedly claim the grant. Cases of over-invoicing and fraudulently claiming the entitlement of manufactured products when raw commodities are exported also abound. Reports say Nigeria lost about N27.8 billion it would have earned as Customs duties and other charges in the first half of the year to the corrupt and inept implementation of the EEG, while about N74 billion was lost between 2003 and 2007.

    The calculated loss for the first half of 2009 was put at N12.5 billion. Customs authorities allege the huge fraud was perpetrated through the use of Negotiable Duty Credit Certificates (NDCCs) to cover import and excise duties that would have been paid by fraudulent beneficiaries of the EEG. The matter was made worse by reckless compromise in the issuance of duty waivers and concessions on the orders of the Presidency, especially in 2007.

    Bad as the situation is for agro exporters, experts say the situation can be salvaged if the government could frame appropriate policies in consultation with stakeholders aimed at boosting agro exports. Apart from ensuring access to mainstream markets, there is need for technical support in the areas of product promotion and product diversification and adaptation to suit the choices and preferences of consumers abroad. Also, there is the need to continue to educate farmers on the technical requirements of selling to certain markets. For example, exporters of agricultural products to the US must comply with the rules set by the US Food and Drug Administration. Other nations have similar regulatory organisations.

    At the level of policy, experts say the government could at the possibility of establishing Agri Export Zones to boost agri exports. Their argument is that since Nigeria is a producer of a range of commodities, such as coconut, mango, banana, , cashew nuts, pulses, ginger, turmeric and black pepper, there is need to leverage the production capability in these range of commodities for economic gains and to be self sufficient to meet the domestic consumption by setting up agri export zones. To promote agriculture and get returns to the farming communities, the Agri Export Zones (AEZs) should be considered.

    The AEZ focuses on the cluster approach of identifying the potential products, the geographical region in which these products are grown and adopting an end-to-end approach of integrating the entire process right from the stage of production till it reaches the market. There would also be a need to identify problems encountered at each stage. These difficulties could be procedural in nature or may relate to a particular quality standard.

    AEZs can yield benefits such as strengthening backward linkages with a market oriented approach; product acceptability and its competitiveness abroad as well as in the domestic market; value addition to basic agricultural produce; bring down cost of production through economy of scale; better price for agricultural produce; improvement in product quality and packaging; promote trade-related research and development; and increase employment opportunities.

    That is not all. Experts also canvass the establishment of centres of perishable cargoes. The thinking is that as exporters work to increase agricultural exports, some players are seeking more perishable centres to boost agro exports, a Centre for Perishable Cargo (CPC) at airports would boost, perishable cargo volumes. Such facilities improve the nation’s position in the global cargo industry by attracting global players and international freighter aircraft.

    The centre will also encourage farming for export in the area through production agreements with exporters, as well as a proliferation of sorting and packing centres. Also, plant quarantine centres at such facilities would ensure export quality is maintained. The centres should have facilities for temperature and humidity control, and cold stores.

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    impediments. This is largely attributed to the rigid, at times cumbersome sanitary and phytosanitary testing procedures followed by most importing countries. Facing this challenge, he explained, it is no mean achievement for a relatively new entrant in the field.

    To stay on top of the situation, he said entrepreneurs must form a deep understanding of their export markets. This means keeping abreast of changing consumption trends, for example, the move towards organic products in some segments, and the reality that more consumers wish to know where their food comes from. For instance, traceability and certification standards are of growing importance to agri-entrepreneurs.

    He has taken note of these because he is planning to go into fresh produce export, which requires a facilitated pack house, refrigerated trucks and cold storage.

    As a requirement also, he is expected to train his people through Partners in Protection (PIP) in Hazard Analysis and Critical Control Point (HACCP) food safety programmes, integrated pest management, safe use of pesticides and traceability.

    For farmers and buying agents, arable land has become scarce.

    There are ongoing challenges like rising input costs and climate change, with hot seasons sapping soil moisture. A lot is happening around the cashew sector.

    Growers of cashew, are buoyed by demand from India and China as well as resurgent consumption in Europe and North America.

    Worldwide demand for cashew has grown about seven per cent a year over the past decade on the back of healthy snacking habits.

    Tola Faseru, President, National Cashew Association of Nigeria (NCAN) is a big time cashew exporter. This has kept him in business. He relies on a national network to get supplies.

    Because of this, he has agents across the farming villages, who go in search for supplies of harvested nuts.

    During the harvest season, which starts in January, agents and traders looking for supplies for processors and exporters descend to the village. During the peak months of April and May, the farms are scenes of scramble for farmer loyalty.

    For Faseru, cashew makes a substantial economic contribution. The major importers are the developed countries. Although the kernels are used in food preparation and confectionery and are important in Asian cuisine, the principal outlet is the snack food market, and this sector is growing rapidly in most developed country markets.

    He explained that foreign buyers want kernels without defects or blemishes for confectionery, biscuits and bakery products, and other prepared foods.

    This requires him making efforts to control the entire ‘chain’ – covering production, packaging, processing and marketing. To solve this problem, he dedicated a team to the task of integrating these four critical elements.

    While origin is of the produce is no importance at the retail level in Nigeria, it is not so with buyers from Vietnam and India who purchase raw nuts from a range of suppliers and the origin is required.

    Larger nuts achieve a premium, smaller nuts and the scorched grades trade at a discount. He said entrepreneurs are losing a lot because most cashew output is exported in raw nut form.

    Speaking with The Nation, the Programme Coordinator, Farmers Development Union (FADU), Mr Victor Olowe said agricultural products and processed foods shipped from Nigeria have been rejected by foreign buyers. The rejections, complaints and restrictions were received from Vietnam and India. In addition, many countries have imposed restrictions on peanuts, rice, poultry products, curry leaves, okra, groundnuts and cassia seeds for different reasons. Further, some countries have also imposed temporary bans on various products as well. The European Union maintains such data online its website.

    For experts, Nigeria could have leaped into far higher growth in the export of agro products if the government could come up with a suitable policy, providing, among other things, for facilitation of the movement of export cargo within the country, bulk storage at the airports, space for carrying the export merchandise by the national carrier, where applicable.

    Besides, it has been found that short shelf-life, believed to be a major constraining factor in case of these products, is yet to be addressed through intensive and extensive laboratory research.

     

    Challenges

    Many agro-based consignments, frequently face confiscation and rejection at destinations, which not only causes economic loss to the exporters but at the same time puts a question mark on the credibility of Nigeria as an exporter of quality produce.

    The sanitary and phytosanitary (SPS) measures are an agreement on how the governments can apply food safety and animal and plant health measures set out in the WTO.

    Director, Nigeria Quarantine Service (NQIS), Dr Mike Nwaneri said the service is helping exports meet these requirements and that several of export consignments are of quality and SPS compliance.

    Meeting the SPS requirements became essential since the introduction of the WTO regime in 1995, but without proper attention paid to this important sector, agricultural exports were affected.

    The aging transportation infrastructure has as well proved to be a hindrance, making it difficult to move produce from farms to the ports. Inadequate infrastructure” is seen as one of the leading challenges to doing business in Nigeria, putting the country “at a competitive disadvantage as compared to its neighbours.

    Many exporters complain about having to deal with different rules of origin. This could be solved with a multilateral trading system based on most favoured nation status, but also with a well-designed trade agreement.

    As the global trading environment becomes ever more competitive, the fragmentation and geographical separation of commodity value chains compound traditional challenges faced by exporters. No longer is it enough to meet quality and packaging standards, have storage facilities, possess the appropriate skills, and have access to technology; participation in value chains requires superior infrastructure and transport as well as swift crossing of borders.

    Consistency: Delivery of ‘the same quality over time’ as most cashews is used by roasters for blends that are meticulously formulated. A buyer might not even be interested in the best quality cashew if it does not fit their blending formula.

    Traceability: Detailed tracking at all stages of production, harvest, processing, transportation, storage, shipping, etc. Importers and roasters need to know where responsibility rests if problems arise. Roasters and retailers have to answer questions raised by end-consumers and civil society groups, for example questions related to labour conditions and environmental impact.

    Large quantity: For economy of scale reasons, most importers, roasters and retail chains are asking for larger and larger quantities. With around 80 per cent of the world’s commodities being produced by smallholders, making large quantities available presents a challenge for many – even as members of large cooperatives.

     

    Abuse of Export Expansion Grant

    The EEG scheme is supposed to be a critical incentive stimulation package to drive the non-oil export sector. It is an FG initiative aimed at encouraging exporters of nonoil products, including agro-commodities, through the reduction of high cost of production occasioned by inhospitable business climate at home. Beneficiaries in various categories mainly – manufacturing/ processed to finished products; and merchandise exporters/exporters of primary products (including commodities and Solid minerals) – whose products are evaluated based on local value added, local content, employment of Nigerians, priority sector, export growth and capital investment; gain between 10 and 30 per cent EEG (financial assistance). To be eligible to enjoy the benefit, an exporter must be registered with the Nigerian Export Promotion Council (NEPC); shall be a manufacturer, producer or merchant of made-in- Nigeria products for the export market; must have a minimum annual export turnover of N5 million and evidence of repatriation of proceeds of exports; and shall submit baseline data like audited financial statement and information on operational capacity to the NEPC. Violators of the guidelines are supposed to be dealt with by the Presidential Committee on Trade Malpractices (PCTM) and the Economic and Financial Crimes Commission (EFCC) in conjunction with members of the EEG Implementation Committee.

    Trailing the EEG, however, are several complaints of abuse, like crooks and cronies with no exports claiming the grant; over-invoicing and fraudulently claiming the entitlement of manufactured products when raw commodities are exported; for example. Reports said the country lost about N27.8 billion it would have earned as Customs duties and other charges in the first half of this year to the corrupt and inept implementation of the EEG; while about N74 billion was lost between 2003 and 2007. The calculated loss for the first half of 2009 was put at N12.5 billion.

     

    Export Expansion Grant Fund Scheme (EEGF)

    The objective is to provide cash inducement to manufacturing companies to encourage them to produce for export rather than for domestic consumption. The implementing agency is the Nigerian Export Promotion Council (NEPC). This provides cash inducement for exporters that the have exported a minimum of N50,000 worth of semi-manufactured products. To cash incentive is to enable such exporters to increase the volume and value of export and diversify their export products and market coverage. Since 1997, government approved a uniform rate of 4% of repatriated foreign exchange as basis for calculation of the export expansion grant. In addition, the autonomous exchange rate is applied in computing the value of the export expansion grant paid to beneficiary exporters. This fund is only available to exporters who have repatriated full proceeds from their export transaction. The repatriation must be certified by the CBN to be eligible.

    Tax Relief on Interests Earned by Banks on Export Credit:

    Introduced in 1986 to encourage banks to finance exports; the Federal Board of Inland Revenue (FBIR). (Now Federal Inland Revenue Services (FIRS) reduced their taxable income.

     

    Export Development Fund (EDF)

    The EDF is a special fund set up by the government to provide financial assistance to private sector exporting companies to cover a part of their initial expenses in respect of the following export promotion activities.

     

    Recommendations

    Experts stressed that it was critically important that the government framed an appropriate policy in consultation with the stakeholders aimed at boosting agro exports manifold and ensuring their access to mainstream markets. There is also the need for technical support in the areas of product promotion and product diversification and adaptation to suit the choices and preferences of consumers abroad.

    Finally, efforts need to continue to educate farmers on the technical requirements of selling to certain markets. For example, exporters of agricultural products to the US must comply with the rules set out by the US Food and Drug Government, and other nations have similar regulatory organisations.

     

    Agri Export Zones to boost agri exports

    Experts said Nigeria is a producer across a range of commodities, such as coconut, mango, banana, cashew nuts, pulses, ginger, turmeric and black pepper. They said Nigeria needs to leverage the production capability for economic gains and being self sufficient to meet the domestic consumption.

    With a view to promoting agriculture in the country and to fetch remunerative returns to the farming community in a sustained manner, the concept of the Agri Export Zones (AEZs) need to be floated. AEZs are to be identified by the State Governments evolving a comprehensive package of services provided by all state Government agencies, state agriculture universities and all institutions and agencies of the Union Government for intensive delivery in these Zones. Corporate sector with proven credentials are encouraged to sponsor new zone or to takeover already notified AEZs or part of such zones for boosting agri-exports.

    Services would be managed and coordinated by State Government/corporate sector and would include provision of pre/post harvest treatment and operations, plant protection, processing, packaging, storage and related research & development etc.

    The entire effort of AEZ focuses on the cluster approach of identifying the potential products, the geographical region in which these products are grown and adopting an end-to-end approach of integrating the entire process right from the stage of production till it reaches the market. There would also be a need to identify/enlist difficulties/ problems encountered at each stage. These difficulties could be procedural in nature or may relate to a particular quality standard. Agri Export Zones can yield benefits like strengthening of backward linkages with a market oriented approach; product acceptability and its competitiveness abroad as well as in the domestic market; value addition to basic agricultural produce; bring down cost of production through economy of scale; better price for agricultural produce; improvement in product quality & packaging; promote trade-related research and development; and increase employment opportunities.

     

    Centres of Perishable Cargoes

    As exporters work to increase agricultural exports, some players are seeking for more perishable centres to boost agro exports

    Centre for Perishable Cargo (CPC) at airports would boost perishable cargo volumes. Such facilities would improve the nation’s world standing in the cargo industry by attracting global players and international freighter aircraft.

    Such facilities will encourage farming for export in the surrounding area through production agreements with exporters, as well as a proliferation of sorting and packing centres.

    Plant quarantine centers at such centres will ensure export quality is maintained. The centres should have facilities for temperature and humidity control, and cold stores.

     

  • Bumpy road to Nigeria’s agric dream

    Nigeria’s dream is to become a regional hub for agro exports. But the road seems not too smooth. Reason: producers and agro-allied companies seeking export markets have to contend with stiff regulations and standards, lengthy certification processes and other barriers, such as limited transport infrastructure. DANIEL ESSIET points the way forward.

    Under the Agricultural Transformation Agenda (ATA), Nigeria aims to become an export hub for agricultural goods in Africa. In the thinking of experts, that may hold the key to diversifying the economy. It is also capable of creating new jobs and generating economic activities in diverse areas.

    At the moment, Nigeria’s soybeans, cotton, sesame seeds, cashew nuts, mangoes, green beans, melons, vegetable tropical products are in high demand in the international market.

    The Minister of Agriculture and Rural Development, Dr Akinwumi Adesina, recognised that much when he said there is huge potential in agriculture, particularly in agro exports.

    The minister is right. Already, some agri-entrepreneurs have seen the new vista of opportunities in agro export and are ready to grow, process, package and export fruit and vegetables. One of such entrepreneurs, who have seen the opportunity in agro export is Sunday Anjorin, Chief Executive, Anjorin & Atanda Investment Limited, Lagos. He has since carved a niche in the business where he exports cashew nuts, ginger, sesame seeds, moringa, pepper and vegetables to Europe, Asia, and the United States. He is looking at selling more produce overseas, having learnt export processes, from field preparation to clearing produce.

    President, National Cashew Association of Nigeria (NCAN), Tola Faseru has also keyed into agro export business. Today, he is large cashew exporter. He relies on a national network to get supplies. He has agents across villagers, who search for nuts. During the harvest season, which starts in January, agents and traders looking for supplies for processors and exporters, go to the villages. During the peak months of April and May, the farms literarily become a theatres of war for exporters scrambling for farmers’ loyalty.

    For Faseru, cashew makes a substantial economic contribution. The major importers are the developed countries. Although, the kernels are used in food preparation and confectionery and are important in Asian cuisine, the principal outlet is the snack food market, and this sector is growing rapidly in markets in the developed countries. Foreign buyers, according to him, prefer kernels without defects or blemishes for confectionery, biscuits and bakery products, and other prepared foods.

    Faseru and other agro experts say that a lot is happening around the cashew sector, as growers of cashew are buoyed by demand from India and China as well as resurgent consumption in Europe and North America. Demand for cashew has grown about seven per cent a year over the past decade on the back of healthy snacking habits.

    However, as Faseru, Anjorin, and others agri-entrepreneurs, are striving to key into the agro export business, they are met with stiff challenges. For instance, Anjorin lamented that export of agricultural products, especially those meant for human consumption, is often fraught with various impediments part of which is the rigid and cumbersome sanitary testing procedures by most importing countries. This, he said, is quite challenging, particularly, for a relatively new entrant in the agro export business.

    On his part, Faseru lamented that entrepreneurs are losing a lot because most cashew output is exported in raw nut form. According to the Programme Coordinator, Farmers Development Union (FADU), Mr. Victor Olowe, agricultural products and processed foods shipped from Nigeria have been rejected by foreign buyers. The rejections, complaints and restrictions, he said, were from Vietnam and India. In addition, many countries have imposed restrictions on peanuts, rice, poultry products, curry leaves, okra, groundnuts, and cassia seeds for different reasons. Also, some countries imposed temporary bans on various products. The European Union (EU) maintains such data online on its website.

    Indeed, experts say that Nigeria could have achieved far higher growth in the export of agro products if it had come up with a suitable policy providing, among other things, the facilitation of the movement of export cargo within the country, bulk storage at the airports, and space for carrying the export merchandise by the national carrier, where applicable. Besides, it has been found that short shelf-life is a major constraining factor and this has yet to be addressed through intensive and extensive laboratory research.

    Some of these issues are believed to be responsible for why many agro-based consignments from Nigeria frequently face confiscation and rejection at destinations. This not only causes economic loss to the exporters, but also puts a question mark on the credibility of Nigeria as an exporter of quality produce. About 264 Nigerian agro-commodity products were rejected at the international trade market between 2004 and 2012, according to the Deputy Director Export and Port Inspectorate Directorate National Agency for Food and Drug Administration and Control (NAFDAC). Sylvia Ajoku. This was made known at a stakeholders’ forum on export proceeds recovery through cargo defence fund held last week in Lagos.

    She explained that one of the problems that led to trade rejects was substandard packaging, adding that the specified nylon and other buyers’ specifications were not strictly adhered to in most cases by the exporters.

    Continuing, Ajoku said: “The nutrition analysis, batch number, expiring date and the manufacturing date as well as moisture content should be evaluated and printed on the specified nylon as these were some of the causes revealed by investigation.”

    She maintained that some exported products were rejected on the grounds of being preserved with prohibited chemicals, advising exporters to attend training organised by NAFDAC. She urged exporters to get approval for every product to be exported, adding that getting a certificate was necessary to avoid subsequent rejection on export. She said that export certificate and laboratory analysis for exportable products are issued free by NAFDAC.

    Ajoku advised agro exporters to imbibe the culture of sending their exportable products to the quarantine department to be certified and fumigated with the proper chemicals.

    President, Federation of Nigerian Shippers Association (FONSA), Ayobami Omotoso urged exporters to adopt a secured means of payment to reduce the risks of loses. He said a bank account was the least secured method of payment to the exporter but most attractive to the importer, adding that it is only recommended when an exporter is sure that payment would be received.

    Omotoso said some exporters do not comply with the key terms of the contract relating to documentary requirements such as quality and quantity, noting that the practice could result in issuance of Non-Negotiable Certificate of Inspection by the inspecting agencies which often leads to litigations and delay of payment.

    Nigeria’s aging transportation infrastructure has also been a pain on the neck of agro exporters, as most of them are unable to move produce from farms to the ports. Inadequate infrastructure is seen as one of the major challenges to doing business in Nigeria, a situation that puts the country at a competitive disadvantage when compared to its neighbours.

    Besides, as the global trading environment becomes ever more competitive, the fragmentation and geographical separation of commodity value chains compound traditional challenges faced by exporters. Today, it is no longer enough to meet quality and packaging standards, have storage facilities, possess the appropriate skills, and have access to technology; participation in value chains requires superior infrastructure and transport as well as swift crossing of borders.

    Anjorin said that entrepreneurs must have a deep understanding of the export markets by keeping abreast of changing consumption trends; for example, the move towards organic products in some segments and the reality that more consumers wish to know where their food comes from. For instance, traceability and certification standards are of growing importance to agri-entrepreneurs. He said he has taken note of these because he is planning to go into fresh produce export, which requires a facilitated pack house, refrigerated trucks and cold storage.

    Ordinarily, the Export Expansion Grant (EEG) is supposed to take care of some of the challenges facing agro exporters and by implication, help achieve Nigeria’s dream of becoming a regional hub for agro exports, but the scheme has been allegedly abuse. The EEG is supposed to be a critical incentive stimulation package to drive the non-oil export sector. It is a Federal Government’s initiative aimed at encouraging exporters of non-oil products, including agro-commodities, through the reduction of high cost of production occasioned by inhospitable business climate at home.

    EEG beneficiaries in various categories mainly – manufacturing/ processed to finished products; and merchandise exporters/exporters of primary products (including commodities and Solid minerals) – whose products are evaluated based on local value added, local content, employment of Nigerians, priority sector, export growth and capital investment; gain between 10 and 30 per cent EEG (financial assistance). To be eligible to enjoy the benefit, an exporter must be registered with the Nigerian Export Promotion Council (NEPC); shall be a manufacturer, producer or merchant of made-in- Nigeria products for the export market; must have a minimum annual export turnover of N5 million and evidence of repatriation of proceeds of exports; and shall submit baseline data like audited financial statement and information on operational capacity to the NEPC.

    Violators of the guidelines are supposed to be dealt with by the Presidential Committee on Trade Malpractices (PCTM) and the Economic and Financial Crimes Commission (EFCC) in conjunction with members of the EEG Implementation Committee. However, the EEG has been grossly abused. Crooks and cronies of top government officials allegedly claim the grant. Cases of over-invoicing and fraudulently claiming the entitlement of manufactured products when raw commodities are exported also abound. Reports say Nigeria lost about N27.8 billion it would have earned as Customs duties and other charges in the first half of the year to the corrupt and inept implementation of the EEG, while about N74 billion was lost between 2003 and 2007.

    The calculated loss for the first half of 2009 was put at N12.5 billion. Customs authorities allege the huge fraud was perpetrated through the use of Negotiable Duty Credit Certificates (NDCCs) to cover import and excise duties that would have been paid by fraudulent beneficiaries of the EEG. The matter was made worse by reckless compromise in the issuance of duty waivers and concessions on the orders of the Presidency, especially in 2007.

    Bad as the situation is for agro exporters, experts say the situation can be salvaged if the government could frame appropriate policies in consultation with stakeholders aimed at boosting agro exports. Apart from ensuring access to mainstream markets, there is need for technical support in the areas of product promotion and product diversification and adaptation to suit the choices and preferences of consumers abroad. Also, there is the need to continue to educate farmers on the technical requirements of selling to certain markets. For example, exporters of agricultural products to the US must comply with the rules set by the US Food and Drug Administration. Other nations have similar regulatory organisations.

    At the level of policy, experts say the government could at the possibility of establishing Agri Export Zones to boost agri exports. Their argument is that since Nigeria is a producer of a range of commodities, such as coconut, mango, banana, , cashew nuts, pulses, ginger, turmeric and black pepper, there is need to leverage the production capability in these range of commodities for economic gains and to be self sufficient to meet the domestic consumption by setting up agri export zones. To promote agriculture and get returns to the farming communities, the Agri Export Zones (AEZs) should be considered.

    The AEZ focuses on the cluster approach of identifying the potential products, the geographical region in which these products are grown and adopting an end-to-end approach of integrating the entire process right from the stage of production till it reaches the market. There would also be a need to identify problems encountered at each stage. These difficulties could be procedural in nature or may relate to a particular quality standard.

    AEZs can yield benefits such as strengthening backward linkages with a market oriented approach; product acceptability and its competitiveness abroad as well as in the domestic market; value addition to basic agricultural produce; bring down cost of production through economy of scale; better price for agricultural produce; improvement in product quality and packaging; promote trade-related research and development; and increase employment opportunities.

    That is not all. Experts also canvass the establishment of centres of perishable cargoes. The thinking is that as exporters work to increase agricultural exports, some players are seeking more perishable centres to boost agro exports, a Centre for Perishable Cargo (CPC) at airports would boost, perishable cargo volumes. Such facilities improve the nation’s position in the global cargo industry by attracting global players and international freighter aircraft.

    The centre will also encourage farming for export in the area through production agreements with exporters, as well as a proliferation of sorting and packing centres. Also, plant quarantine centres at such facilities would ensure export quality is maintained. The centres should have facilities for temperature and humidity control, and cold stores.

  • Many nations, one market

    Many nations, one market

    Countries in West Africa are integrating their capital markets to create a region-wide marketplace in one of the most ambitious projects since the creation of the Economic Community of West African States (ECOWAS). Ahead of next month’s take-off of the first phase of the integration, Capital Market Editor, Taofik Salako, examines the issues at stake.

    From the comfort of their offices in Lagos, in Accra (Ghana), Port Novo (Benin), Freetown (Sierra Leone), Abidjan (Cote D’Ivoire) Ouagadougou (Burkina Faso) and Lome (Togo) and other commercial centres in West Africa, stockbrokers and investors will now be able to trade on any of the stock exchanges in West Africa. Next month’s take-off of the integration of the capital markets in West Africa is a momentous dateline that promises to reshape the economies and investment activities within the region and beyond.

    The West African Capital Market Integration (WACMI) programme seeks to integrate the existing Nigerian Stock Exchange; Ghana Stock Exchange (GSE), Sierra Leone Stock Exchange and the bloc of eight francophone countries under the Bourse Regionale des Valuers Mobilieres (BRVM). Countries under BRVM include Benin, Burkina Faso, Cote d’Ivoire, Guinea, Mali, Niger, Senegal and Togo. WACMI entails integration of listing, trading and settlement rules in a way that allows capital market operators and investors to trade across the markets. Any company with primary listing in any of the country will also be able to raise capital across the markets. The WACMI programme is part of the regional integration programme of Economic Community of West African States (Ecowas) and fits into other initiatives under the West African Monetary Institute (WAMI).

    While there are four subsisting Exchanges in the region, the integration is designed for the entire countries in the region as investors in countries without Exchanges can access the fully integrated market through the qualified licensed brokers in countries that have exchanges. Without any geographical, trading or regulatory barriers, Nigeria-based brokers can trade on Tullow Oil Plc- the oil exploration company listed on the GSE or BICC on the BRVM while brokers from Ghana and Senegal and other BRVM countries can trade from their home locations on Nestle Nigeria and other listed companies on the NSE. The three-phased integration will gradually begin with formal indirect access and climax with full direct access and integration of the entire market structures within the region.

     

    Many stages of integration

     

    The first phase of the integration, known as the sponsored access phase, is expected to take off in next month, through which brokers within the member countries will be able to trade and settle securities in other markets through local brokers. Under this phase, brokers within the member countries can trade securities and settle in markets other than theirs, through local brokers in the other member jurisdictions. The interrelationship between the brokers will be guided by memoranda of understanding (MOU), which is duly recognised by each regulator in each WACMI member jurisdiction.

    Chairman, West African Capital Markets Integration Council (WACMIC), Mr. Oscar Onyema, said the bottom-up approach is intended to ensure seamless integration with the regulators and operators using a preceding stage as a stepping stone to the next one. Under the first phase, regulators across the region will sign on to common protocols and trading practices. “The rules spell out the framework, how the relationship is going to work and how the regulation of the broker will work and that is why all the securities regulators in West Africa are also involved. If a broker in Ghana commits an infraction while trading in Nigeria and we put a fine, the securities regulator in Ghana will make sure the broker in Ghana pays the fine. This has to do with having common protocols under which trading will occur across borders,” Onyema said. Under sponsored access, orders will not pass through the sponsoring member’s order management system prior to reaching the Exchange’s trading system but the order must touch the sponsoring member’s risk management system, thus providing for enhanced efficiency and transparency.

    The second phase will lead to the emergence of direct access to brokers from any of the participating countries to trade on any of the markets directly. This stage, which will lead to the issuance of a somewhat general trading licence to be known as “Common Passport” to brokers across the region, will see the integration of the membership privileges, rules and other practices across the Exchanges in the region. The “Common passport” is the legal and regulatory framework approved and adopted by WACMIC to allow capital market operators to operate outside their jurisdictions. A “Common Passport” empowers market regulators to mutually recognise an operator registered outside their market and extend them the same rights, privileges and obligations as one of their own. From Lagos to Accra to Abidjan and Freetown, brokers will have direct access to trade on the stock exchanges; enjoying all the privileges except ownership stake. Brokers who qualify for and receive the “Common Passport” will be designated as qualified West African brokers (QWAB). According to the preliminary guidelines for the issuance of “Common Passport”, the regional trading licence will be issued to highly-rated stockbrokers with adequate capital base and robust risk management framework. Market operators will have to apply to the regulatory authorities in their home country, who will assess their compliance records, net liquid capital base, risk management framework, infrastructure among others. To be qualified for the “Common Passport”, brokers/dealers must have minimum capital base of $500,000 while issuing houses must have minimum capital of $1 million. However, WACMIC reserves the right to suspend or cancel “Common Passport” issued to any operator in the case of any breach of terms of issuance. Under the implementation timetable, the second phase is expected to kick off in the second half of 2014.

    Subsequently, the exchanges will progress to the third phase, which will see the integration of all the exchanges into a virtual West African Securities Market (WASM). With this, the qualified West African brokers will have access to listed securities and related market information to enable them execute transactions. sUnder WASM, securities will continue to be listed on local Exchanges but will also be accessible on the WASM, which serve as the linkage for all the Exchanges. QWABs from the various jurisdictions will have access to securities and related market information that will enable them execute transactions through the WASM.

     

    The vast new market

     

    The integration of the capital markets of West African countries would open up immense opportunities for corporate and national developments and enhance the capabilities of capital market operators within the region.

    Chairman, Securities and Exchange Commission (SEC), Dr. Suleyman Ndanusa, said the sub-regional markets would be able to better optimise their potentials and competitiveness through the integration.

    According to him, the integration will clearly broaden the capital raising space for listed companies with positive impact on industrial development.

    “I believe that access to a wider market which integration provides could encourage more companies to embrace the capital market for funds and listing and further deepen the regional markets. Integration could also bring increased visibility to listed companies and market operators as their activities get to be known and publicized across the region which, hopefully, would impact on their operations,” Ndanusa said.

    Emerging markets strategist, Standard Bank Plc, Samir Gadio, said the integration is a positive and innovative step forward for the West African markets.

    According to him, the integration will help to diversify and deepen investors’ portfolios and create opportunities for investors to balance risks and returns from one market with that of another market. The virility in a market can also mirror similar development in other markets.

    “In reality the NSE is substantially more liquid than the GSE, a ratio of up to 100 to 1, which combined with restrictions on pension fund investments offshore, expensive valuations in Ghana as well as the cedi weakness, will probably limit the Nigerian demand for Ghanaian equities. Yet even some modest Nigerian bid for Ghanaian stocks could support the GSE because of its low trading volumes. On the other hand, Ghanaian investors may seek refuge in Nigerian stocks considering the likely appreciation of the naira against the cedi, but this will probably have a marginal effect on the fortunes of the NSE given the relative size of the two markets,” Gadio said.

    He added that the integration will also create a framework enabling domestic companies to list in the other market(s) at some point, with such cross-listings providing an extra pool of investor liquidity.

    Onyema said the size of the market will create opportunities for all the participants as the integration of the NSE, GSE and BRVM, will provide investors, issuers and operators access to a market in excess of $120 billion with some 300 listed companies.

    According to him, the integration would leverage on the region’s strategic geographic footprint in Africa with large and diverse population of over 290 million, simultaneously creating deeper pool of funds and assets for companies and investors.

    He noted that successful integration will provide more choices of financial products to regional and foreign investors and increase the sub-regions integration with the global economy.

    President, Ecowas Commission, Kadre Ouedraogo, noted that the integration brings together some 300 million potential investors and a more efficient and deeper market that would benefit the regional economy and the citizenry.

    He said the integration was in line with Article 2 of the Ecowas Treaty and urged national authorities, regulators and other stakeholders to fast-track efforts to complete the integration.

     

    Bridging the barriers

     

    One of the major challenges facing the integration is the divergent regulatory frameworks and trading rules and practices. This is also related with the level of development of each market and professional practice. There are issues of technological advancement of each market and the preparedness and availability of the fund to pursue much-needed technological changes that will be necessary for the integration. Many far-reaching legal changes, such as enforcement of sanctions across the jurisdictions and settlement and payment systems as well as provision of infrastructure and supportive funding, require both political will and professional competence. These may differ from country to country. Even within each country, the interrelationship among the various financial services and allied regulatory bodies will have impact on the smooth operation of the integrated market.

    “Undoubtedly, greater integration of markets introduces new challenges with regard to the strengthening of market infrastructure to ensure the effective interconnection of trading, clearing, settlement, and payment systems across the region and to the wider financial markets,” Ndanusa pointed out.

    Managing Director, GTI Securities Limited, Mr. Tunde Oyekunle, said the challenges might be many, though the sturdy approach and resolve of the WACMIC reinforce confidence in the ability of the integrated market to surmount such challenges.

    “Certainly, there will be some currency risk. Though they said that trading will be done in local currency, there will still be risks in the area of repatriation and dividend payment. I think that is something we need to work on. Also, settlement is another area. We need to have a very robust region-wide information technology to drive that. I believe the issue of operational risk management is also a major concern but with a very robust risk management system, all these challenges will be sorted out,” Oyekunle said.

    But Ouedraogo said Ecowas is ready to provide complementary financial projects and regulations to support the integration.

    According to him, Ecowaswill intensify efforts to realise other complementary financial projects, including settlement and payment systems and investment bank.

    Also, Chairman, Senate Committee on Capital Market, Senator Ayo Adeseun, assured that the Nigerian legislature and ECOWAS parliament will support the integration with appropriate legislations to ensure the seamless legal and regulatory frameworks.

    Onyema said much effort has gone into addressing the challenges. Technical committees have worked from Côte d’Ivoire to Ghana and Nigeria to develop the required technical framework for the trading and settlement infrastructure, as well as the legal framework necessary for seamless integration.

    According to him, all the key elements necessary for successful market integration including harmonisation of trading, clearing, depository and settlement frameworks, integration of trading platforms, harmonisation of listing and regulatory requirements and uniformity of professional standards have already been exhaustively dealt with.

    “The challenges of integration have been identified, however we have also identified risk mitigating factors to ensure a balanced process,” Onyema assured.

    He outlined that while there could be risks of regulatory arbitrage, market dominance and other concerns raised by stakeholders, the WACMIC would mitigate the risks by ensuring deeper harmonisation of national prudential and market regulatory frameworks using global standards, closer and effective coordination between relevant authorities, information exchange under bilateral MoUs and pursuit of appropriate institutional framework for liberalising financial services trade.

    Already, ahead of the April take-off of the first phase, the three major stock exchanges in the region have developed harmonised trading rules and practices, which all participating exchanges are expected to sign on to by the end of March 2013. The harmonised rules will ensure seamless trading among brokers within the region. Under the harmonised rules, trading hour will now be between 9.00am and 3.00 pm while the daily price change on the exchanges will be 10 per cent. NSE currently trades between 9.00am and 2.30 pm while GSE already operates on the harmonised trading period of between 9.00am and 3.00pm. Prices of stocks on the GSE can move up or down every day by 15 per cent while BRVM operates 7.5 per cent daily price change limit. NSE runs on 10 per cent limit. The clearing cycle for the Exchanges will now be T+3 for equities and T+2 for bonds. Also, lot sizes will be harmonised across the region to one unit of share. While the harmonisation will allow for flexibility in some areas where local Exchange can maintain its rule, the framework will drive adoption of advanced practices in some Exchanges by others. These include practices such as market making, margin trading, securities lending and short selling, which are already in operation in the Nigerian market.

    Besides, member countries are expected to harmonise their listing standards in such a way that any issuer seeking a primary or secondary listing on the boards of participating Exchanges must meet the minimum criteria. This harmonisation will take into consideration financial and capital requirements, qualitative measures, corporate governance and disclosure standards.

    Onyema said all market regulators are expected to approve all necessary documents by March 31, paving the way for the take-off of the first phase.

    In the area of professional practice and standards of operators, Nigeria, which has the most advanced professional and largest practice, is already working with other operators to bridge the gap and create the enabling environment for the “Common Passport” and uniformity of professional standards. President, Chartered Institute of Stockbrokers (CIS), Mr. Ariyo Olushekun, said ongoing collaboration with GSE and BRVM will lead to enhanced uniform standards across the region.

    “We are working with other countries to raise the standards of their market operators to the international level that our members already have. The collaboration we are having with the GSE and the BRVM is such that will assist them to certify their operators, assist them to set up their institutes and also assist them to get membership of the international bodies we belong to,” Olushekun told The Nation.

    He added that besides continuous and regular retraining of Nigerian stockbrokers on newest instruments and up-to-date knowledge on emerging trends in the international market, the CIS is making conscious effort to ensure Nigerian operators are well prepared for the integration.

    “In preparation for the integration, we are also talking to Alliance Francaise for a French course that will allow operators in Nigeria to speak passable French such that it will be easy to communicate with their proposed clients, investors and partners in Francophone countries,” Olushekun said.

    He expressed optimism that ongoing collaboration could lead to a unified qualification examination for operators across the region in the nearest future. “It is not out of place, it can happen, but we will start with working with each of them individually first. When they have all been raised to our level, then we can talk among ourselves, we can explore the possibilities of having a unified examination because by then, market would have become one, it will be a matter of everyone coming together. We can work through WACMIC and we can have the kind of arrangement you have with West African Examinations Council (WAEC). There are several possibilities but we will take them one by one,” Olushekun said.

     

    Global experience and

    innovation

     

    Many operators believe that the emergence of private trading floor will facilitate market integration. GTI Securities Limited, a member of the NSE, recently completed Nigeria and Sub-Saharan Africa’s first private trading floor. Located on Tinubu Street in the Marina axis of Lagos’s main Central Business District is a 150-seat multi-purpose trading floor. This implies that at full installed capacity, some 150 brokers and dealers can trade on all securities listed on any of the domestic and international securities exchanges including NSE, London Stock Exchange (LSE) and New York Stock Exchange (NYSE). For GTI, we already have our own private trading floor in preparation for something like this. With its state-of-the-art technologies and trading infrastructure-FIX, a broker can trade on any global exchange from the GTI’s floor. “We are considering the integration and making arrangement to be able to participate fully by providing access to other stockbroking firms within the WACMI community. We have already started having discussions with some of these participants,” Oyekunle said.

    Besides, WACMI will share experience of similar integration around the world. Such examples are the European Union’s (EU) Markets in Financial Instruments Directive (MiFID) and the Association of Southeast Asian Nations’ (ASEAN) ASEAN Trading Link. The MiFID provides harmonised regulation for investment services across the 31 member states of the European Economic Area with a view to improving competitiveness of EU financial markets. MiFID has successfully eliminated national exchange monopolies and introduced competition into the equity markets, with attendant significant reduction in transaction costs. Also, ASEAN Trading Link, which has created a virtual market of over 2,200 listed companies with a market capitalisation of US$ 1.4 trillion, serves as a gateway for securities brokers to connect securities markets of the ASEAN Exchanges. This has made it possible for investors in member countries of ASEAN to trade in other ASEAN capital markets just like their own domestic market.

    No doubt, the integration offers momentous opportunity for the growth and competitiveness of the West African markets and economies, but the success of this project, as rightly noted by many, depends on active participation of all national authorities, regulators, operators and other stakeholders within the sub-region.

     

  • Concerns over lopsided bilateral air services agreements

    Concerns over lopsided bilateral air services agreements

    Bilateral air services agreements ought to correct balance of trade and generate sufficient national income for the countries involved. In Nigeria, the earnings from the over 78 air services agreements it signed with many countries is as good as the paper on which they were written because of non-utilisation of some of the agreements and inadequate reciprocity. Experts in the sector are seeking a review of the agreements to enhance the lot of domestic airlines, Aviation Correspondent KELVIN OSA OKUNBOR writes.

    If what value is the 78 bilateral air services agreements Nigeria signed with many countries, if only 21 of the agreements are utilised?

    With only five of the agreements reciprocated, what better reasons will experts not advance as sufficient for the review of such skewed agreements? The need for answers to these questions explains why experts in the aviation sector are calling for a review of bilateral services and other multi-lateral agreements Nigeria signed with some countries.

    Under the agreements, about 27 foreign carriers operate in the country. Currently, only Arik Air and Aero Airlines fly into other countries. While Aero flies into West African coast, Arik Air operates in the West, Central and South African routes in addition to its intercontinental routes, including London Heathrow and New York in the United States. Arik is yet to secure traffic rights to many of the intercontinental routes it has been designated by the Federal Government.

    But many foreign airlines fly into Nigeria with some enjoying multiple entry points into the country as covered in the bilateral services agreement the countries signed with the Federal Government.

    This ugly development is shortchanging indigenous carriers as well as the country with foreign airlines remitting over $5 billion out of Nigeria on ticket sales yearly. Apart from multiple entry points into Nigeria, some foreign carriers have two daily flights out of the Lagos Airport. Emirates Airline, for instance, operate two daily flights out of the Lagos Airport to Dubai. Ethiopian Airlines operates into three Nigerian cities, including Lagos, Abuja and Enugu, amid plans to expand into Kano very soon. Yet, no Nigerian carrier has traffic rights to fly into Ethiopia. Turkish Airlines operate into Lagos and Kano; British Airways operate into Lagos and Abuja airports enjoying multiple entry rights into Nigeria. No Nigerian carrier flies into two points in the United Kingdom. Air France and Lufthansa Airlines fly into Lagos and Port Harcourt airports. No Nigerian carrier has traffic rights into France and Germany. While British Airways and Virgin Atlantic Airways operate into Nigeria, only Arik Air operates flights into the United Kingdom, thereby raising fresh concerns over the policy of dual designation covered in the air agreements between the two countries.

    The failure of Nigerian carriers to reciprocate some of the bilateral air services agreements is due largely to lack of capacity, as indigenous carriers cannot match any of the foreign carriers on routes when the agreements are either utilised or reciprocated .

    The President of Sabre Travel Network, Mr Gbenga Olowo said foreign airlines remit over $5,556 billion out of Nigeria yearly from ticket sales on account of lopsided bilateral air services agreements, which confers competitive advantage on foreign airlines. He said until the Federal Government designate at least three domestic airlines as flag carriers, foreign airlines will continue to remit more money to their respective countries. He faulted the air services agreements the government signed with others, which grant them unrestricted access into the country’s market without sufficient reciprocity by indigenous carriers.

    Olowo explained that Nigeria entered into three layers of air services agreements, which include bilateral, multi lateral and open skies’agreement, which creates a window for foreign carriers to come into Nigeria from multiple points. Such multiple points entry by foreign carriers has further helped to erode the operational capacity of the domestic airlines. He said the objective of the balance of trade had not been achieved.

    He said out of the 48,433 seats available in international weekly flights out of four airports in Lagos, Abuja, Port Harcourt and Kano, Arik Air controls a mere 3889. He said the influence of the 27 foreign airlines flying into Nigeria has to be checkmated as they remit over $ 5.556 billion yearly from ticket sales.

    He said: “Nigeria has not been able to reciprocate traffic rights to most of the partnering countries. This has resulted in huge negative balance of trade against Nigeria. This has also brought about capital flight. It has also put strong pressure on the naira by further weakening the exchange rate. This aids unemployment as Nigerian airlines growth remains stunted.”

    He further asked: “Should the foreign airlines strictly operate frequencies as stipulated on the BASA?”

    The answer, he said, is negative because Nigerian airlines have no capacity to reciprocate. “Should the extra frequencies be removed through seasonal schedule changes? The answer is negative due to demand and political factors. Should the government continue to earn the so called royalties on bilateral agreements? The answer is negative. One might be tempted looking at some previous earnings which I will like to describe as pot of porridge in exchange for the birthright. Commercial agreement negotiation is airlines call and not that of government,” he added.

    Olowo said all hope was not lost if the government would do what is right. He said: “The government should immediately establish at least three scheduled flag carriers with capacity to reciprocate all BASA routes.

    “The three airlines to be designated must be given National Carrier Status. They must participate in BASA negotiations and Commercial agreements. This will give birth to quality service delivery and healthy collaboration and competition. Each of the three flag carriers operating an Air Operators ‘ Certificate ( AOC) .The airlines should increase its aircraft fleet within three years to 50 starting with a minimum of 30 and increasing by 10 yearly. All the about five- aircraft scheduled airlines should be encouraged to join the pool either as lessors. This will bring about harmonisation of resources, minimise competition, boost ample down time for maintenance without disrupting schedule and improved safety.”

    He added: “Single point entry of choice in Nigeria will be mandatory with immediate effect. This will stimulate domestic traffic and hub creation.

    “The Fly the Flag act must be established, where all travels on government funds must be made on a flag carrier.

    “This will be an indirect way of market protection for Nigerian flag carriers and subsequently retain the wealth at home.”

    “Rather than royalty earnings, Nigerian Flag Carrier(s) must conclude blocked seat agreement (BSA) and (Code Share Agreement CSA) with reciprocal airlines to whose destination they cannot fly immediately. This will give better earnings than royalty and grow the airline.

    “Deliberate effort by the government on airline cost is a task that must be done for their competitive advantage. The way out is for the government to give guarantees on insurance and or aircraft lease, reduce landing and parking fees, remove multiple taxes, delete value added tax on domestic travel.

    “There should be single digit cost of funds and cut on fuel price.

    “Direct sales from foreign airlines offices should be outlawed. All sales must be routed through IATA licensed Travel Agents who are in the down stream sector of aviation industry.”

    Sequel to the lopsidedness of bilateral air services agreements, the House of Representatives last November canvassed a review of treaties and agreements, which it observed are skewed against the interest of Nigeria.

    Chairman, House Committee on Treaties and Agreements, Hon. Yacoob Bush-Alebiosu, said the House has called on the Ministry of Aviation and its parastatals to audit all BASAs between Nigeria and other countries. The audit, according to the law maker, is to streamline and domesticate the agreements where necessary, in collaboration with the Committee on Treaties and Agreement.

    The House of Representatives has mandated the Committees on Treaties and Agreements, and Aviation, to review and appraise all BASAs. The committees are expected to find out the benefits of these agreements to Nigeria.

    Bush-Alebiosu said: “BASA is a bilateral agreement signed between two nations to allow international commercial air transport services between their territories.He explained that BASA ought to be founded on the principle of reciprocity.

    “It is a deal that enabled a country’s airlines to enjoy equal leverage in terms of flight operations in countries with which their home country has an air agreement. “The BASA seem to have been more of a curse to the growth of our aviation sector. The concept of reciprocity and mutual benefits as enshrined in a working BASA is not the case with Nigeria. “The profile of Nigeria’s aviation sector has continued to nose-dive in the midst of these arrays of BASA agreements.”

    He expressed concern that the underlying tenet and principle behind agreement of this magnitude was equality of flights and accruable benefits between airlines of signatory countries.

    Meanwhile, some indigenous airlines, including Arik Air and Medview Airlines designated on intercontinental routes are working hard to reciprocate the bilateral air services agreement Nigeria signed with others.

    While, Arik Air flies into London, Heathrow Airport, New York, Johannesburg, South Africa, it is working hard to secure traffic rights into São Paulo in Brazil, Addis Ababa, in Ethiopia, Jeddah , Dubai , and other routes which are covered in the agreement. Medview Airlines is planning to resume flights into Jeddah, Dubai, Accra and Singapore covered in the agreements.

    Also, the President of Aviation Round Table, Captain Dele Ore, said until the agreements were reviewed, Nigeria remains short-changed in the deal.

    On the BASA deals, Ore, who is a former Director of Operations of Nigeria Airways, submitted that Nigeria has been at the losing end since its inception. His words: “As far as BASA is concerned, we’ve been running fully at a deficit. This deficit as enshrined in the negotiations ensure we receive some kind of royalty, especially where Nigeria Airways couldn’t fly to.

    “It is pertinent to state here that the losses are enormous when you sign a BASA deal and you do not reciprocate it. Reciprocity is something you must strive to live up to. Worst case scenario, you could get another carrier that can operate that route on your behalf and spell out how the proceeds will be shared. If not, you’ll lose all round. These, I must say we have lost over the years. And we also allow some countries to claim what we call grandfathers’ right over us as being our colonial masters.”

    Ore, however, disclosed that recently, the issue of BASA came up with the United Kingdom and Nigerian government for renegotiation, and that as far as he was concerned, “the negotiation is long overdue because you can see that the terms of the original BASA was not being adhered to”.

    He added: “With that lopsided arrangement and disrespect to agreements, it became, instead of single airline, a multiple designation. We are having multiple entry, no longer my own capital to your own main gate.

    “Foreign airlines are coming in to Port-Harcourt, Abuja, Lagos and all that. So, for this to be properly addressed, it requires renegotiation and it also requires very knowledgeable people to be on the government delegation, so that we are not short-changed. ”

    An aviation analyst, Mr Chris Aligbe, said: “The BASA, as the name implies, is the agreement and the legal basis for the establishment and operation of air transportation services between any two countries.

    “It regulates the operations of scheduled air services of the designated carriers between and beyond either territory. Nigeria has over 60 BASAs.

    “The main denominator in BASA discussions is reciprocity. Before it is signed, the contracting countries are convinced that the deal is done with every sense of equity such that no party feels cheated out of the deal.

    “In the event where one party cannot reciprocate, it collects royalties from its ‘performing’ partner and when the other party indicates interest to reciprocate, it is expected it gets equal treatment from its partner.

    “That is why countries signing BASA deals assemble a crack team of aviation experts with vast experience in route designation/evaluation, market analysis, aviation politics/law, at the negotiating table. BASA deals clearly stipulate the type of aircraft to be used for the service, the frequencies, and, of course, the destination. ”

    He noted that in spite of the Bilateral Air Services Agreement (BASA) which gave various countries equal right to entertain same flight frequencies, Nigeria inadvisedly signed the Open Skies Agreement with the United States ,creating room for multiple entries and dual designations which the foreign airlines are taking advantage of.

    Also speaking, an Aviation Consultant and Chief Executive Officer of PDT Consulting, Mr Taiwo Adenekan, explained that countries should try as much as possible to protect their domestic carriers from bigger foreign airlines who easily capitalize on various air treaties to prey on them.

    He expressed disappointment at the government’s generosity in granting both extra frequencies and entry points to foreign airlines at the detriment of domestic carriers.

    ‘We have multiple entries in this country. Ticket sales alone last year ran into billions of Naira .

    We have BASA with some countries and now they have what is called commercial agreement, which is worse off. British Airways for example comes into this country 14 times in a week (from Lagos and Abuja). The country is losing because the airlines are not investing in this country in terms of offices, in terms of staff or anything. All the airlines are doing is they cart away those money back to their countries. ”

    So multiple entries gives more money to the foreign airlines at the detriment of the domestic airlines.

    However, with multiple entries becoming the order of the day, domestic operators have lost that juicy market to the European carriers that become stronger while Nigeria registered airlines become weaker.

    Aviation analysts have argued that the country is worse off if she does not protect her market.”

    According to Olumide Ohunayo of Zenith Travels, aside the huge capital flight, the foreign airlines are no longer too keen on interlining with Nigerian carriers because the attraction is usually the feeding and de-feeding mechanism whereby the local airlines feed the international airlines with passenger from a hub like MMIA and also help them distribute the passengers the fly in from overseas in Nigeria.

    But in our own case, we don’t have it because we have opened all the entries and the airlines are coming in. ”

    Also speaking, the spokesman of aviation agencies, Mr Yakubu Dati said government has begun steps to address the lopsidedness in the bilateral services agreement with other countries with its proposed national carrier.

    Dati said the emergence of a national carrier would help Nigeria to reciprocate its air services agreements .

    He said :” The rationale for a national carrier are compelling in itself. Bilateral air transportation agreements including several BASA and ‘Open Skies’ policy agreement inspired by the US government favours national carriers and offers countries with well developed and efficiently managed international airlines, including a national carrier a lucrative source of revenue.

    The absence of a Nigerian national carrier since 2007 has resulted in the designation of one or two privately-owned Nigerian airlines as ‘national carriers’ for the purpose of taking advantage of BASA and other international aviation agreements and policies.

    Experience has shown however that, the existing airline despite their spirited efforts have not been able to meet the yearnings of Nigerians .

    Some of the easily noticeable shortfalls of these airlines include arbitrary increases in ticket fares, arbitrary cancellation of scheduled flights, poor in-flight service quality, inefficiency, lack of funds, old aircraft requiring more periodic maintenance; dearth of technical expertise and cash flow problems, lack of regular maintenance of aircraft; labour issues, and management problems.

    That is not to say that these problems are peculiar to private airlines. But aviation is a capital-intensive business and also a strategic sector of great national importance.

    If for any reason, a private airline which was serving as a national carrier goes under the Federal government would lose a lot of revenue from operating its lucrative international routes which are covered by various bilateral agreements.

    When such happens the government would be left with two choices either pump in money to the private airline to resuscitate it, or set up its own airline to fill the vacuum. It is mainly for these reasons, various national governments have been involved in aviation for decades.”

     

  • Waiting for remodelled airports

    Waiting for remodelled airports

    Last year, Aviation Minister, Princess Stella Oduah launched the airports’ remodelling project designed to upgrade all airports in the country. But after the pomp and celebration that greeted the launch, the questions are: When will the project be completed? What is the cost? KELVIN OSA-OKUNBOR writes.

    The euphoria that greeted the airport remodelling project of the Minister of Aviation, Princess Stella Oduah, is gradualling giving way to skepticism. This is because not much has been seen or heard about the projects contrary to the high expectations raised when it was launched amid pomp and celebration.

    At the inception, she stressed the need to give the nation’s airports a face-lift being the first point of contact with the country by foreign visitors.

    Some of the questions raised by stakeholders are: Will the Federal Government complete the remodelling of the 22 airports on schedule? Have the projects met the prescribed international standards? and, is the quality of work done at some of the terminals commensurate with the amount spent?

    These and other questions continue to agitate stakeholders who are watching the progress of the ambitious airport remodelling project embarked upon by the Federal Government.

    While opinions remain divided over the necessity, or otherwise of the project, some stakeholders argue that remodelling the 22 airports is good for the industry.

    Their position is predicated on the many years of neglect, decay and abandonment of the airport infrastructure spanning over 30 years.

    But the concern remains that contract details of the airports remodelling project are shrouded in secrecy. They argue that the refusal by the supervising Ministry to come clean with the total project cost is suspicious.

    The former Assistant Scribe of Airline Operators of Nigeria (AON), Alhaji Mohammed Tukur, said all the noise about remodelling airports across the country is a ruse, saying that given the level of work done so far, it is difficult to ascertain that the best has been given in terms of quality.

    “The renovation of airports is naturally a good initiative, but the work is not properly done. The poor quality of work done is the reason the whole thing is becoming an issue. The contractors must be called to order. The Senate must take steps to probe the airport projects across the country.

    “Their oversight function should include checking the projects done and the amount of money given to ascertain if the projects are commensurate with the billions of naira released so far. The Senate must also investigate how much money was collected for a particular airport and the level of work done, because so much has been given for the projects and yet one of the remodelled airports is already leaking after rains.”

    President, Aviation Round Table (ART) Capt. Dele Ore, dismised the noise about remodelling as a charade.

    Ore said:”For two years, I will summarise that we have only had confusion. But in the middle of the confusion, some people are clapping and praising the minister.

    “Painting of airport does not bring development to it when you don’t have passengers who are flying or aircraft to fly into them.”

    Also, a Civil Society Network Against Corruption (CSNAC), a coalition of anti- corruption organisations, has filed a Freedom of Information (FOI) request with the Minister of Aviation, Stella Oduah, asking her to supply information about the cost of the reconstruction of 22 airports in the country.

    The group said: “We are convinced that enormous amount of money must have been spent on the completed remodeling and ongoing reconstruction.”

    Head of Strategy at Zenith Travels, Mr Olumide Ohunayo, said there is more to fixing the industry than the official window-dressing in the garb of mere remodelling.

    He said: “I quite agree that there is rot in the terminals being transformed, there are others waiting. But, what is really the cost of fixing these airports and who are the contractors?”

    Another aviation stakeholder, Mr. Nick Fadugba, declared that the minister has performed well in infrastructure, refurbishment and modernisation of some airport terminals.

    He said: “You know, this is difficult, there are so many challenges that need to be addressed and I think what she has done is to prioritise them and address those that needed urgent attention. For instance, even if we have good airlines in Nigeria and there is no good airport infrastructure, the airlines will have nowhere to fly into and so, we won’t be able to utilise the aircraft efficiently.”

    A former president of Air Transport Services Senior Staff Association of Nigeria (ATSSSAN), Comrade Solomon Ohioma, has, however, raised concerns over the cost of airport remodelling.

    He said: “The amount of money which has been expended in these projects is what is of major concern to industry players.

    “After the ministry has completed the remodelling of these airports with the huge costs spent on it, it is strange that the same Ministry of Aviation is sending a proposal to the Federal Government that these airports, which have been remodelled, are to be reconstructed.

    “The question is: Why is the government in a hurry after the remodelling to consider rebuilding additional airport terminals?”

    Former Commandant of the Murtala Muhammed International Airport, Lagos and Chief Executive Officer Centurion Securities, Group Captain John Ojikutu (retd), admitted there were improvements in the revamping of airport infrastructure, but said he was concerned more about the human capital development in the sector.

    He argued that no matter how modern the technology or the quality of new infrastructure, the facilities cannot work on their own, but would remain pieces of equipment “except they are operated by skilled and professionally inclined human beings.”

    The project started last year in some airports nationwide.

    Airports in Lagos, Abuja, Yola, Enugu, Benin, Owerri, Kano , Kaduna , Jos , Sokoto, Ilorin, Port Harcourt, Makurdi, Akure, Ibadan and Maiduguri have been remodelled while brand new terminals have been completed and inaugurated in Lagos, Abuja, Yola, Enugu, Owerri, Kano, terminals in Sokoto, Jos, Ibadan, Ilorin, Kaduna, Akure have reached advanced stages.

    Oduah said the first and second phases of the remodelling would be completed and inaugurated before the second quarter of the year.

    She said so far, the remodelling had brought about the delivery of new terminals at the local wing of the Murtala Muhammed Airport, Lagos.

    The new terminal cost the government about N648 million. She explained that the moderate cost for remodelling the new domestic terminal of the Lagos Airport was achieved due to prudent management of funds.

    Apart from the new terminal at the Lagos Airport, a new wing has been completed at the same airport, which will be opened soon for domestic airlines that will operate from the terminal.

    Under the remodelling train, additional departure and arrival fingers have been completed and opened at the international wing of the Lagos Airport.

    However, the minister did not give details on the cost of completing that segment of the remodelling.

    At the Nnamdi Azikiwe Airport, Abuja, a new general aviation terminal has been constructed and opened for private and charter operators.

    Oduah said all ongoing airports remodelling would be completed this year.

    She said: “What we are doing goes beyond remodelling of the airports. We are actually doing restructuring and reconstructing of the airports. We are just starting to go round the airport. We are doubling the sizes of those terminals and changing all the facilities and utilities within the airport.

    “So, you can’t call that remodelling. It is restructuring and reconstructing. That is what we are doing to ensure that passengers have safe model of transportation and we want to ensure that passengers have value for their money. Most importantly, we want every Nigerian and stakeholders to be proud of our airport environments. It’s a total transformation of the aviation sector.”

    Last year, the House of Representatives Committee Chairman on Anti-Corruption, National Ethics and Values, Hon. Abiodun Adeleke, alleged a breach in contract award processes by the minister in the airport remodelling project.

    Reacting to the House Committee’s remarks, a former director with the Federal Airports Authority of Nigeria (FAAN), Captain Usman Balarabe, said it was shocking for any Nigerian who has utilised the airport in the past 30 years and had noticed the rot in infrastructure to voice any protest, given the magnitude of the rehabilitation that has so far been undertaken in just over two years.

    The Association of Young Aviators also expressed support for the project. “All that Nigerians want is functional airport with modern facilities and not to biker over due process as it has not yet proven that funds budgeted for the remodelling projects were diverted,” the group said in a statement.

    Oduah assured that the airport terminal in Lagos would be opened before the end of the first quarter of the year.

    She said: “We want to be able to start the usage of all these facilities by the first quarter of next year. What is very key is that passengers’ travelling experiences will be very, very different. It will be the way it should be; it means you have the comfort, you have the safety and you have the security and most importantly as you’ve seen, we’ve increased the capacity which means you have ample space to really do what you are supposed to do, as a passenger.”

    She reiterated that the remodelling would include all the Federal Government’s airports in the country, adding that infrastructural decay would be a thing of the past when the programme is completed. She said the government is embarking on expansion of airport facilities to promote safety and security as well as improve the travel experience of passengers. She listed the airports where the projects have been completed and are awaiting unveiling to include Sokoto, Yola, Owerri, and others.

    She also explained that the expanded facility at the upper part of the airport terminal include airport lounges, transit hotels because of the government’s plan to reposition the Lagos Airport as a regional hub.

    According to the minister, “So far, seven terminals have been completely remodelled and work is in top gear in the remaining 15 terminals.”

    Last month, she toured the Lagos Airport for an on-the-spot assessment.

    Some of the facilities she inspected included the extended Departure and Arrival Halls, new in-bound baggage reclaim carousels, on-going construction work on Fingers as well as transit facilities.

    The extended Departure Halls featured five new state-of-the-art screening machines and two new Body Scanners at each of the wings in addition to 30 new immigration counters. A distinguishing feature of the new screening machines is the ability to detect explosive materials and potential threat items in real time with the lowest rate of false alarm.

    The introduction of 30 new immigration counters as against the previous nine also promises to take the face of facilitation in MMA to another level. Also inspected were the newly installed in-bound baggage to reclaim carousels at each of the Arrival Halls.The high-speed carousels are smoother, easier to maintain and more resistant to luggage jams than their decades-old predecessors.

    This should translate into accelerated baggage retrieval, reduced waiting-time and improved travel experience.

    The highlight of the minister’s visit was the inspection of the on-going construction of two new additional Fingers, as well as the new Transit Facilities. On top of the existing fingers were added another floor where departing passengers would pass through to the bridges in order not to mix with arriving passengers, a cardinal factor in the safety regulation of the International Civil Aviation Organisation (ICAO).

    The Managing Director of FAAN, Mr George Uriesi, has described the development of airport infrastructure as not just an economic necessity but essential to the economy.

    He said: “Achieving these goals will not only help our domestic airlines, but also foreign carriers to develop the confidence required to enhance our image and economic interests.

    “FAAN is about half way through a programme to remodel the country’s 22 federal airports, by 2015, by which time total domestic and international passenger numbers are expected to have grown to 16 million per year compared to 14.3 million in 2012.

    “Remodelling projects at Nigeria’s main airports has been largely completed at the first 11 airports, including Benin City Airport, Kano International Airport, Lagos Murtala Muhammed International Airport, Owerri Airport and Yola Airport.

    Former Minister of Aviation, Babatunde Omotoba, has urged the Federal Government not to succumb to political pressure that would end the ongoing remodelling of airport facilities and the building of new terminals in four major airports in the country.

    He said it took a long time before the government started the rehabilitation of these airports, which had been neglected for over 30 years, expressing the fear that if the programme is stopped due to political pressures, the projects might be abandoned for a long time.

    The ex-minister, who noted that the Lagos airport is too old, said for its facilities to be effectively maintained, they have to be concessioned, so that the FAAN would regulate them and the government would now divert the funds budgeted for aviation to other critical sectors.

    Chief Executive Officer, Westlink Airlines, Captain Ibrahim Mshelia, described the airports upgrade as part of the strategy by the government to reposition the sector as a huge revenue spinner.

    He said this could not have come at a better time, after many years of abandonment.

    He said the pace at which the airports were being fixed was enough testimony of the commitment of the government to position the sector for national development, using air transportation as a catalyst.

     

  • Jonathan vs Sanusi: Stakeholders urge caution

    Jonathan vs Sanusi: Stakeholders urge caution

    The letter from the Central Bank Governor (CBN), Sanusi Lamido Sanusi alleging that $49.8 billion was not remitted by Nigerian National Petroleum Corporation (NNPC) to the Federation Account raised dust last week. President Goodluck Jonathan’s advice that Sanusi should resign for allegedly leaking the document to former President Olusegun Obasanjo, has met with varied reactions, with stakeholders calling for truce, reports COLLINS NWEZE.

    Unprecedented. That was the simple interpretation a senior banker gave to President Goodluck Jonathan’s advice to the Governor of the Central Bank of Nigeria, Sanusi Lamido Sanusi to resign.

    Jonathan had accused Sanusi of leaking a letter on the supposed non-remittance of $49.8 billion by the Nigerian National Petroleum Corporation (NNPC) to the Federation Account to former President Olusegun Obasanjo. This formed part of the kernel of a scathing letter Obasanjo wrote to Jonathan.

    While denying the allegation, Sanusi was quoted to have rejected the President’s advice, arguing, quite rightly, that it would take the Senate’s two-thirds to sack him. Expectedly, the development has elicited varied reactions from across the divide.

    Many who spoke on the issue have called for caution on the part of the President in the interest of the economy. They said it was left for Sanusi to either take the advice or leave it, adding that the President lacks the power to kick him out.

    They referred to Section 11 Sub-section (2) (f) of the CBN Act of 2007, which stipulates that the CBN Governor cannot be removed by mere pronouncement of a president. The section gave the conditions under which the Governor can be removed, such as the Governor being convicted by a court; where he is declared bankrupt, or by the President after securing the backing of two-thirds majority of the Senate. “A person shall not remain a Governor, Deputy Governor or Director of the Bank if he is removed by the President: Provided that the removal of the Governor shall be supported by two-thirds majority of the Senate praying that he be so removed.”

    Chukwuemeka Eze, Lead Counsel, Eze & Associates, said President Jonathan is aware that Sanusi cannot be removed by mere advice. “The President cannot remove him and he knows. That is why he advised him to resign, and mind you, resignation is a voluntary act. The Governor can take the advice or decline. If the Governor says he is not leaving, there is no law that can remove him. Legally speaking, Sanusi’s tenure is sealed till June 2.”

    Eze said the best bet is to allow him serve out his tenure because the heat that will be generated by a continued debate on the matter would be more injurious to the economy than forcing him to go.

    However, Eze said based on the sensitive nature of his position in the economy, Sanusi should have, firstly, written the NNPC to reconcile the figures. If the NNPC failed to give him the needed response, then, he could notify the President.

    Ekene Odum, Senior Lecturer, Labour Law at the Lagos State University (LASU), said the CBN Governor was appointed by the President, and this takes effect after the Senate confirmation. “The President cannot just wake up and say Sanusi should go. The President can suspend him. He can be disciplined, but can’t be removed without the concur of the Senate,” he said.

    He admitted that as the Chief Economist of the Federation, the leaked letter was a major embarrassment, adding that the Governor was too hasty to write the President. “Such writing has the capacity to cause confusion in both the local and international markets. Still, it would have made Sanusi a hero were the figures gotten totally right. But he made a statement only the brave could make,” he said.

    He continued: “If it is confirmed that the President asked him to go, it will be an unfortunate scenario that could heat up the polity and economy. Remember that $49.8 billion is different from $10 billion. Still, $10 billion is a huge amount of money.”

    He said despite the stalemate, the President should allow him to do his job and not push him out of office, having performed creditably at the CBN.

    “It is human to err, but that should not take away his glory. Until he leaves, he still has the right to advise the President on economic matters, but whether such advice will be taken or not remains a different matter entirely. The President has technocrats that can advise him on economic matters, but to stampede or disgrace him out of office is not right,” he explained.

    Odum insisted that it was only during the military era that a sitting CBN Governor could be forced out of office, adding that there has never been any such precedence in constitutional democracy. “During the military era, yes, he could be forced out. But in the era of constitutional democracy, it has never happened,” he said.

    However, Dr. Austin Nweze, Senior Lecturer, Lagos Business School, said even though some people are lauding Sanusi for a job well done, he has caused a lot of problems for the economy, saying the President’s order that he quits is in order and should be respected.

    He said Sanusi should have confirmed the right figures on NNPC remittances before writing the President, adding that such attribute is unbecoming of the Central Bank Governor, the fallout of which will be a minus for the economy. “It is definitely going to affect the economy negatively,” he said.

    He said the Governor discouraged banks from taking business risks, which has affected the lenders’ drive for businesses. “He is long-overdue. The President should have sacked him three years ago. There is urgent need to rectify the damages he has done to the economy. If he leaves now, he will be the first CBN Governor to be sacked. What the President has told him is that he does not have confidence in him,” he said.

    Bismarck Rewane, Managing Director, Financial Derivatives Company Limited, said the President may not have told Sanusi to resign. According to him, Sanusi’s position remains strategic to the economy and if the President wanted to advise him to resign, it won’t be on the pages of a newspaper. “I don’t think that the government can say so. Until I am convinced, I won’t comment on the matter. I doubt the authenticity of the letter. I need to observe before commenting,” he said.

    Ademola Areago, a Constitutional lawyer based in Lagos, said if Sanusi must go, such act will lead to all kinds of signals. Firstly, such act will create feelings of political and economic instability in the country. “The CBN is banker to the Federal Government and the CBN Governor is also the Economic Adviser to the President. Now, if he bothers to give advice at all, what type will he be giving?,” he asked.

    Sanusi has the key to the strong room and vault of the country and the way he leaves is important. “The whole world is watching because it has not happened in any country before. The way the information was handled was wrong. It raises the issue of confidence and investors both local and international are watching,” he said.

    He argued that the fact that the President made his intention to remove him public is enough damage to the economy. That, he said, means that he is working against the President’s will.

    “This type of situation is unprecedented. He is not asking him to go because of inefficiency. For now, Sanusi is hanging on to the law. It will not be easy at all because the statement will be sending all sorts of signals,” he said.

     

    Chairman, Nigeria Bar Association (NBA), Ikeja Branch, Monday Ubani, said the face-off portends great danger for the economy.

    He said Sanusi is in charge of the CBN’s vault and any altercation between him and the president is not healthy for the economy.

    Ubani said there is a breakdown of communication between President Jonathan and Sanusi, an indication that the apex bank’s helmsman may be frustrated about certain economic issues. “Sanusi does not want to be held accountable when something sinister happens to the economy. But President Jonathan must handle it with superior wisdom,” he said.

    The NBA boss agreed with Eze that Sanusi has the right not to resign because his position is tenured and must be allowed to run out. “Even if it is $1 billion that was found to be missing, there should be a ceasefire. President Jonathan should swallow his pride and allow the man to exhaust his tenure,” he said.

     

    The genesis of the problem

    The crisis started when Sanusi wrote the president alleging that $49.8 billion oil remittance that was supposed to have been paid by the Nigeria National Petroleum Corporation (NNPC) to the Federation Account was missing.

    This letter, it was alleged, drew the ire of the President Jonathan who directed Sanusi to resign for allegedly leaking his letter on the “missing $49.8billion” to ex-President Olusegun Obasanjo based on which the former president wrote a damning letter to him.

    The CBN governor allegedly denied any wrong doing, insisting that he would not be stampeded out of office. He insisted that it is only the Senate that could remove him and not a presidential fiat.

    It is believed that a statement by the CBN spokesman that the governor had told the workers that he would no longer proceed on a pre-retirement leave is a direct confirmation of Sanusi’s preparedness to stand on the point he made when he allegedly spoke with the president on phone. Presidency officials could not be reached for comments at the time of going to press.

     

    CBN reacts

    CBN spokesman Mr. Ugo Okoroafor has confirmed that Sanusi said he would no longer proceed on terminal leave at a “family meeting” with the bank’s staff. He spoke to reporters in Abuja on Sanusi’s tenure after a news conference on the execution of the bank’s Payment System Vision 2020 (PSV 2020) strategy.

     

     

    Implications for economy

    The implication of Sanusi’s forced resignation, analysts say, would be quite negative. First, a lot of foreign management partners will lose confidence in the management of the economy while the independence of the institutions that are part of the Central Bank and participating in economic management will equally be negatively affected.

    According to the Managing Director, SP&S Consulting, Debo Adebayo, reducing the power and independence of the CBN would send a signal of retrogression at a time others central banks are moving towards greater autonomy to enable them handle intricate financial crises.

    He said a strong economy anywhere is tied to the effectiveness of the conduct of its monetary policy. “You see, the monetary policy is a serious business; it could be very, very terrible to have a country where the monetary policy direction is doubtful. When a government subjects the conduct of monetary policy to political influence, you are not going to have a strong economy,” he explained.

    According to him, such development could hamper the effectiveness of monetary policy and the management of the macro-economic framework of the country. “The survival of the CBN is at the heart of the survival of the economy,”he warned.

     

    Swimming in controversial waters

    Appointed in the midst of 2009 debt crisis, Sanusi, 51, fired the chief executives of eight lenders within four months of taking office after an audit found evidence of mismanagement and reckless lending.

    His push for stability in the currency has helped bring inflation down to below eight per cent.

    But Sanusi’s actions have never strayed from controversy. He never stopped antagonising lawmakers by criticising their spending and courting controversy for his outspoken views, most recently on China’s role in Africa.

    In December 2010, lawmakers demanded his apology for saying a quarter of the government’s spending on overheads went to parliament and that was damaging for the economy. He refused, saying his estimates were correct.

    Again, two years ago, lawmakers attempted to whittle down the bank’s powers by proposing an amendment to CBN Act, hoping to strip him of his position as chairman of the bank’s board. They also pushed to include more external members on the board and have the National Assembly approve the bank’s budget.

    More recently, he criticised China’s role in Africa, saying it contributed to the “deindustrialisation and underdevelopment” in the world’s poorest continent. Africa must shake off its “romantic view of China” and see it as a competitor that’s “capable of the same forms of exploitation as the west,” Sanusi warned.

     

    CBN’s constitutional roles

    The CBN is empowered to maintain price stability and ensure a non-inflationary growth. It also has the responsibility to ensure a sound and stable financial system in addition to other developmental functions. These mandates and functions are peculiar to central banks across the world and no other institution plays such roles.

    These special responsibilities are enormous and have continued to pose increasing challenges to central banks largely because developments in the domestic and international economies create challenges in the financial systems and the art of central banking.

    Globalisation exemplified by economic and monetary unions has equally increased the challenges to central banking.

    Analysts insist that the effective discharge of these responsibilities requires that central banks be totally independent and shielded from political interferences.

     

    Sanusi’s successor

    According to Sanusi, whoever will be picked by President Jonathan to take over at the apex bank must be able to develop the market. “Central banking has changed. I think the market has developed. To be honest, if any Central Bank Governor misbehaves, the market punishes the economy immediately. So, the market is a major factor. Even as a governor, by the time your capital market crashes, and your currency goes down, you will know that it is either you restore stability, or you are out of the job. That’s important,” he said at a media conference held last month in Lagos.

    Analysts have tipped some of the CBN deputy governors among Sanusi’s likely successor. Deputy Governor, Operations, Tunde Lemo; Deputy Governor, Economic Policy, Sarah Alade; and Deputy Governor, Financial System Stability, Kingsley Moghalu have been mentioned. Also linked with the job are: Managing Director, Asset Management Corporation of Nigeria (AMCON), Mustafa Chike-Obi; Managing Director, FirstBank of Nigeria, Bisi Onasanya and Managing Director, Access Bank, Aigboje Aig-Imoukuede and recently, Minister of Trade and Investment, Olusegun Aganga.

    Analysts insist the next governor will probably have a different outlook or perspective, but one thing that is sure, remains that the fallout of the altercations between the President Jonathan and Sanusi may have just begun.