Nigerians may soon be able to trade on the nation’s energy supply ecosystem and other derivatives, similar to the long-established trading on shares, bonds and other securities, on a regular exchange.
Nigeria’s apex capital market regulator, Securities and Exchange Commission (SEC), is coordinating preliminary efforts to establish an Energy Exchange as part of a national agenda to develop the vast commodities trading ecosystem.
The Lagos Commodities and Futures Exchange (LCFE) is approved by SEC to trade on several commodities and futures across agriculture, oil and gas, solid minerals and currency. Several investors are trading in gold at the LCFE. LCFE’s gold instrument known as Eko Gold was launched by Governor Babajide Sanwo-Olu in July 2022.
Director-General, SEC, Mr. Lamido Yuguda, said the Technical Committee on the Commodities Trading Ecosystem set up by the commission has engaged the Nigerian Bulk Electricity Trading Plc (NBET) on modalities to establish an Energy Exchange.
He said the proposal was part of an elaborate plan to open up the commodities ecosystem.
He said the Nigerian Agricultural Insurance Corporation (NAIC) has also been working with the commission to reduce risks in the agricultural value chain, noting that the Commodities Trading Ecosystem Implementation Committee (CTEIC) saw the acceptance of NAIC as a step to fostering greater collaboration and support for the ecosystem.
According to him, there have also been discussions with National Insurance Commission (NAICOM), the regulator of the insurance industry, by commodities exchanges on ways of deepening the commodities market by encouraging the involvement of insurance companies, expanding insurance coverage for the commodities trading value chain, and implementing other mechanisms for mitigating risks in the ecosystem.
Energy Exchange has developed over the decades as part of the energy business value chain. The European Energy Exchange (EEX), a leading energy exchange group, offers contracts on power, natural gas and emission allowances as well as freight and agricultural products. EEX also provides registry services as well as auctions for guarantees of origin, on behalf of the French State.
The Indian Energy Exchange is India’s premier energy marketplace, providing a nationwide automated trading platform for the physical delivery of electricity, renewables, and certificates. More recently, IEX pioneered cross border electricity trade expanding its power market beyond India in an endeavour to create an integrated South Asian power market.
According to official information, IEX has a robust ecosystem of 7,300+ participants located across 29 states and five union territories comprising of more than 55 distribution utilities, more than 600 conventional generators and more than 1,800 RE generators and obligated entities. It also has a strong base of more than 4600 commercial and industrial consumers representing industries such as such as metal, food processing, textile, cement, ceramic, chemicals, automobiles, information technology industries, institutional, housing, and real estate, and commercial entities. IEX is approved and regulated by the Central Electricity Regulatory Commission and has been operating since June 27, 2008 and is a publicly listed company with NSE and BSE since October 2017.
Yuguda, who spoke against the background of the recent meeting of the first quarter meeting of the Capital Market Committee (CMC), also said the capital market community would soon commence sensitisation and stakeholder engagement on the implementation of the National Savings Strategy (NSS).
To this end, an Implementation Committee would be established to ensure success of this initiative.
Yuguda explained the need to establish a National Savings Strategy as outlined in the Capital Market Master Plan as one of the key strategies to enhance capital formation by mobilising domestic funds for investment to drive growth.
“It envisaged the deliberate provision of risk capital as venture capital and private equity that are Naira-based and more committed to the long-term prosperity of Nigeria as well as create a buffer to the instability created by foreign investors. The CAMMIC commissioned a white paper on a National Savings Strategy and recommended to the Minister of Finance, Budget and National Planning the formation of a working group to explore the feasibility of the report findings,” Yuguda said.
He added that the initiative would aid the mobilisation of funds to boost the economy.