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  • How high oil production cost impacts producers, firms

    Oil and gas firms are looking for ways to achieve operational and fiscal efficiency. With the era of high oil price gone, industry analysts warn that operators that fail to exit high production cost risk running out of business. Already, Nigeria, Africa’s biggest oil producer, is battling to bring down its cost per barrel production to remain relevant in the market. Assistant Editor EMEKA UGWUANYI examines the implications of high production cost for the oil and gas industry and the economy.

    The dynamics of the global oil and gas industry are changing. Oil-producing countries and oil companies are seeking production cost-reduction by all means possible. This became necessary for companies to remain afloat and make profit while producer-countries make huge earnings from their hydrocarbon resources.

    The drive for lower production cost is further heightened by the belief that the era of oil price at $100 per barrel is gone. Therefore, to remain competitive, the cost per barrel of  crude has to be cheap or attract the required investment in the case of an oil-producing country.

    However, Nigeria is still ranked among countries with one of the highest cost per barrel production. Available data on 13 oil producing nations, including United Kingdom (UK), Brazil, Nigeria, Venezuela, Canada, United States (US) shale, Norway, US non-shale, Indonesia, Russai, Iraq, Iran and Saudi Arabia, showed that in 2016, Nigeria was among the first on the list of countries with the highest production cost per barrel. She came after UK with $44.33 per barrel (bbl), Brazil -$34.99/bbl and Nigeria, $28.99/bbl. The last three countries on the list, Iraq, Iran and Saudi Arabia had the lowest production cost per barrel of $10.57, $9.08 and $8.98 respectively.

    From the data, Gulf countries have the cheapest barrel of oil and are among the countries with highest output. For instance, Saudi Arabia’s daily oil production is about 12.3 million barrels; Iraq–4.8 million barrels daily and Iran, 3.8 million barrels daily, while Russia has about 11.4 million barrels production daily. This development has put countries with high production cost at very difficult situation, especially Nigeria that does not only depend on oil proceeds for the sustenance of her economy, but on imported refined petroleum products to power her commercial and industrial activities.

     

    Challenging situation  

    Since the swing in oil price from end of 2014, the Federal Government has been emphasising the need for oil firms to consistently strive to drastically bring down their cost of production per barrel. The emphasis and anticipated action have become inevitable. Revenue due to the government from oil exports had significantly dropped due to low oil prices in the international market.

    Besides, the volume of oil in the market is more than demand, leading to significant number of unsold cargoes of different oil grades in the market. Oil traders’ reports often show different grades of Nigerian oil begging for buyers, a situation that signals an urgent need to think outside the box on how to steer away from undue dependence on oil revenues to drive the economy.

    The Minister of State for Petroleum Resources, Dr. Emmanuel Ibe Kachikwu, aptly put the disadvantaged state in which Nigeria is in the league of oil producing countries when he spoke at the inaugural Nigeria International Petroleum Summit (NIPS) in Abuja. He said considering that Nigeria’s over 50 years in oil business, it should be a model to other emerging oil producing countries in Africa.

    However, Africa’s biggest oil producer still battles with a couple of challenges, which has kept its oil production cost far higher than most of its contemporaries. He said: “We are the largest oil producing country in Africa and perhaps, the largest gas producing country in Africa and have been into oil and gas business for nearly 50 years. We have had our ups and downs and need to set good examples for other African countries looking up to us for leadership in this sector.

    “There are snapshots of what we need to achieve as an oil producing country to make our oil production efficient and profitableas well as be outstanding as we ought to be. The reality is that today if you cannot produce cheap cost oil, diversify the processing of your oil, look frankly into internalising and externalising the investments to your people and your foreign investors in the sector, capture the requisite technology skills that will help you operate efficiently, you are lost before you start.”

    The Minister noted that in another 15 years, export of crude oil will be a shameful habit for any country that is doing it. “If you look at the movement in the Gulf and United States that have exited, quite frankly, the high production cost of oil, the drive to cut your production cost becomes more glaring. Everybody is coming at it in a different angle, shale in the US and diversification in the Gulf,” he added.

    The clean energy focus, according to him, is beginning to make almost irrelevant the vast crude oil reserves that Nigeria has in the ground unless she can turn them into things that are clean.

    “So, the challenge for oil companies operating in the country and Nigerians, who are in this sector, has changed. Historically, our business was to find the oil, sell it to earn foreign exchange, but it has got to be better than that now. Oil has got to provide work for our people, the resource to power this country, provide the operational environment that is transparent enough for others to take Nigeria serious.

    “Oil has got to provide the technical and human skills set that are essential for us to export people out into other African countries and become major investors in other African countries, something the banking sector has tried to do over the last six to seven years,” Kachikwu noted.

    Degeconek Oil and Gas Limited Managing Director/Chief Executive Officer  and the immediate past president of the Nigerian Association of Petroleum Explorationists (NAPE), Mr. Abiodun Adesanya, however, disagreed  that Nigeria has one of the world’s highest production cost per barrel of oil. He said owing to the country’s matured basin, it should have one of the cheapest barrel production costs in the world.

    According to him, corruption and security issues, militancy in the Niger Delta region, among others, largely contributed to inflation of cost of oil production in Nigeria, but in the real sense of it, cost of producing a barrel is cheap in the country. He said: “1 wouldn’t agree that Nigeria’s cost per barrel production is among the highest in the world. A couple of factors outside oil substantially contribute to this. To be honest with you, I will say that cost per barrel is a function of cost of services. It is a function of wastages in the system (corruption, among others). But there is the actual cost per barrel. We don’t have any business in having a high cost per barrel given the matured and long history of exploration and production that we have had in Nigeria.

    “If we move to new areas and try to develop them that will be understandable, but, there is a lot of amortised infrastructure that have been built a long time ago and they have paid for themselves already and are just being utilised. But if you are going to a new area, for example, Aje field production, they need a lot of new infrastructure such as floating production, storage and offloading vessel (FPSO), among others. So, we have gone past that point. Our cost per barrel has no business being high.”

    Adesanya said because Nigeria had been in recession and the industry had been challenged by oil price, service cost has also come down. He said there were elements that had nothing to do with oil and gas on the technical side that were also exacerbating the cost per barrel. These include the non-technical cost, cost of joint taskforce (JTF), navy patrol vessel, cost of providing security and community issues.

    ‘’There is also the cost of repairing in a cyclical way the damaged infrastructure because all those costs are eventually shared and passed on to the cost per barrel. So, there is a technical cost that we know – cost of drilling, logging a well and seismics. There is cost of naval patrol vessel, gun-boat rental, repairing Trans Forcados multiple times, which can easily be avoided. By the time you add these on to the technical cost, you have this bogus cost per barrel. So, if we can try and address those issues and bring them down, I think we will be alright,” Adesanya reasoned.

     

    What Nigeria is doing

    Nigerian National Petroleum Corporation (NNPC), Group Managing Director Dr. Maikanti Baru, said the Corporation can produce crude oil at around $20 a barrel, but noted that there are plans to bring this lower to $15 a barrel. Baru in 2017 said the unit technical cost for producing oil has dropped from $70/barrel to $27/barrel in about two years, noting that this development was monitored from 2014-2016. He said with reduced cost of production, government’s share of economic revenue will improve, which means reduced budget deficit and that Nigeria will no longer import petroleum by 2019.

    The NNPC has driven down the cost of crude oil production from $78 dollars per barrel as at August 2015 to $23 per barrel, representing 70.5 per cent reduction.

    National Petroleum Investment Management Services (NAPIMS), Group General Manager, Mr. Dafe Sejebor, also confirmed the development. NAPIMS is an arm of NNPC

    Speaking at the inauguration of the Anti-Corruption Committee of NAPIMS, last year, Sejebor said the country had saved a minimum of $3billion per year as a result of production cost cut. He said NAPIMS arrived at the figure after looking at the difference between the $78 and $23, which represent the old and new cost of production in relation to the daily average production.

    “If you knock down your cost of production from $78 per barrel to $23, take the difference and multiply by the average daily production, you will discover that we are saving a minimum of $3billion in the upstream for both Production Sharing Contracts (PSCs) and Joint Ventures (JVs).” he said, adding that the target was to bring the cost of production to between $17 and $19 for onshore and offshore production.

    Also, Baru, this month, confirmed that the corporation was working to bring down production cost to $15 per barrel from $20 per barrel. He said: “The NNPC has been innovative and efficient in its various operations to drive down the cost of production of crude oil and gas. Science and technology are the bedrock of the oil and gas industry and the NNPC had succeeded in domesticating engineering, procurement, construction and most of the major activities of the oil and gas industry. We are working hand-in-hand with the Nigerian Content Development and Monitoring Board (NCDMB) to get Nigerians who are willing to invest and innovate  to propel this country going forward to go into the ventures of fabrication where we spend the big chunk of the money in the industry.

    “In other words, we have gone far to domesticate procurement and there were fabrications going on in the areas of valves, line pipes, and also fabrication of vessels. NNPC would continue to support all sorts of innovations in the upstream, midstream and downstream sector.”

    According to him, the more Nigeria brings down the cost, the more the money that comes to the Federal Government and into the pockets of state and local governments.

    Nigeria has pledged to keep its oil production at 1.8 million barrels daily after the Organisation of Petroleum Exporting Countries (OPEC) asked it to join the production cut deal between OPEC and non-OPEC . This was aimed at stemming global oil over-supply and shoring up crude price. The production tab, though commendable as it holds price at reasonable level, limits Nigeria’s production and export, especially the Niger Delta is calm and production rapidly ramping.

     

    Finding solution

    Total Exploration &Production Nigeria Limited Managing Director/Chief Executive Mr. Nicolas Terraz said crude oil producers should learn to operate with a lean budget, cut down the cost of producing a barrel of crude to effectively manage the impact of the downturn on the global oil industry. To him, operators can also achieve this through infrastructure and facilities sharing.

    He noted that his company had adopted measures, which allow it to optimise the barrels of crude it produced. Speaking on “Growth outlook and strategies for staying competitive after a global downturn,” at the maiden Nigeria International Petroleum Summit (NIPS) held in Abuja, Terraz said: “We need to work differently. We should have worked in a lean manner and kept looking at operational efficiency. We must always optimise lower cost per barrel. When you reduce cost, it means less expenditure, more profits. We can do more in terms of sharing amongst operators, that is, more synergies. But that also means you have to give up some of your autonomy.

    “Maintaining investment capacity is important for the industry. With the downturn, we had many companies not investing, but it’s not the case for Total. Oil firms should use technology to create value, up operational efficiency and profitability. Total invested in Smart Room, this is an investment that saves cost and gives us more operational efficiency.”

    He also said oil companies must continue to work on reducing cost as the future is not just about cost reduction, but about having a cost culture to remain cost-efficient, which includes renegotiating cost with contractors. “It does not mean we want to squeeze the contractors but rather, we want to pay the right price for goods and services. There is no reason why oil companies should pay a different price from other sectors for the same goods or services.Cost efficiency is also about reducing unnecessary waste or processes; this saves time and money, he added.

    Terraz added that there is need for operators to focus on doing just what they need to do. “In all of these cost reductions, Total did not lose its workers and they are our greatest assets. This is because we believe that the downturn is cycle and things will improve again. We spent a lot of time cutting cost. Now, we spend the same amount of time maintaining a cost-efficient culture,” he said.

    NNPC represents the Federal Government’s interests in upstream operations especially in exploration and production activities. It represents government interests in joint venture and other production arrangements. In the past two years, the oil firm has been working with international oil companies (IOCs) and local independent E&P firms operating in the country to cut cost.

    Kachikwu noted that firms may still be working and producing crude with the mindset of the days of oil price of $100 per barrel, but urged the oil firms to face the  realities and drastically cut costs.

    At a forum last year, he said: “At the present low price of crude oil, it makes economic sense to cut cost. Consequently, the cost, which the National Petroleum Policy put at $28.99 per barrel, would be reviewed downward with the IOCs to arrive at an acceptable cost. The nation needs to review the current high cost of producing oil. It does not make sense to produce oil at such high cost, especially now that crude oil price has dropped from over $100 to $50 per barrel. It will not make sense to produce at high cost anymore. We will sit with the IOCs to look at the cost elements in order to take a better decision. It is in the best interest of everyone to bring down the high cost of producing oil in Nigeria.”

    Continuing, he said the National Petroleum Policy gave a breakdown of the production cost as follows: $8.81, $13.19, $4.11 and $2.95 as production costs, capital spending, gross taxes and administrative/transport per barrel.

    The policy, which identified Nigeria as one of the most expensive oil provinces in the world, added that oil price has been very unstable in recent times. There has also been extreme volatility of oil and gas prices since around 2005, at levels not seen since the 1860s. Prices went down dramatically as US shale production took off.

    As Kachikwu said: “Two clear messages for Nigeria are that it has to broaden the economy towards a gas based industrial economy; and within the oil sector, Nigeria has to move downstream into the value added sectors of refining and petrochemicals.”

    Kachikwu also noted that the high cost of oil production at $32 per barrel makes the cost of Foreign Direct Investment (FDI) very expensive, adding that the Federal Government was making efforts to bring down the cost per barrel to $15 per barrel to significantly bring down the cost of FDI.

    FDI flows are at high cost. An example is the high cost of production of oil at about $32 per barrel. But initiative to reduce the cost of crude oil production to $15 per barrel are ongoing.

    ‘’Initial consultations have been held with stakeholders and cost drivers have been identified.The outcome of this initiative will be a win-win for investors and the nation.”

    He said the Federal Government has tackled the insecurity and funding gap in the Joint Ventures and in refinery rehabilitation and take-off of new refinery projects.

     

  • Firms in last-minute rush to meet annual reports deadline

    With tomorrow’s deadline for quoted companies to submit their audited reports and accounts for the 2017 business year, several companies are making last-minute efforts to meet the target. This is  to avoid the poor corporate governance tag and sanction of the Nigerian Stock Exchange (NSE).

    Post-listing rules at the NSE require quoted companies to submit their earnings’ reports not later than three months or 90 calendar days after the expiration of the period. Most quoted companies including banks, major manufacturers, oil and gas companies, breweries and cement companies use the 12-month Gregorian calendar year as their business year. The business year thus terminates on December 31.

    NSE’s regulatory filing calendar indicates that the deadline for submission of annual report for companies with Gregorian calendar business year ended December 31, 2017 is March 31, 2018. However, Thursday March 29, 2018 is the last working day for the period, thus effectively the deadline for submission of the reports, in line with the traditional practice at the Exchange.

    A spokesman for a healthcare company said the firm has concluded preparations and secured necessary approvals for the submission of its audited report not later than tomorrow.

    Many board meetings were scheduled for yesterday for final review and approval of the annual report and financial statement ahead of the filing with the NSE. Lafarge Africa Plc Board of Directors, which had scheduled to meet on March 23, 2018, rescheduled its meeting to March 27, 2018. Also, the board of Studio Press Nigeria Plc, which could not meet due to lack of quorum on  March 22, 2018, rescheduled its meeting to Tuesday, March 27, 20L8.

    Market sources said several companies were finalising arrangements to submit their reports before the close of work tomorrow to beat the close-of-business deadline.

    Notwithstanding the expected rush tomorrow, there are indications that some 35 companies may miss the deadline. Not less than 28 companies were sanctioned for failure to meet the deadline for the submission of the 2016 annual reports.

    However, the NSE can grant waiver and extension to companies due to special consideration such as companies awaiting regulatory approval. Already, many companies have sought for extension of the deadline due to various operational and regulatory issues.

    Oando has indicated that its annual report may be delayed till the second week in May 2018 due to review of the oil and gas company’s report by the Financial Reporting Council of Nigeria (FRCN). “We envisage that the FRCN’s review might take longer than originally anticipated. Therefore, the company may not be able to file the accounts until the second week in May, the exact date of filing will be dependent on the turnaround time at the FRCN,” Oando had stated.

    Royal Exchange has also indicated that its report may be submitted on or before April 28, 2018 due to operational challenges as a holding company. “The company did not anticipate this as we had expected to conclude and submit our 2017 financial statements on or before 31st March 2018. However, as a holding company with five different subsidiaries, the audit exercise for the group is yet to be consolidated and concluded. The reason for the delay is that some of our subsidiaries are yet to submit their accounts to their various regulators for approval,” Royal Exchange stated.

    NSE tags and applies fines on companies that fail to meet earnings reports’ deadline. Under its rules, late submission under the first instance of 90 days could attract N9 million, additional period of 90 days will attract N18 million while delay beyond the first 180 days to another 180 days could attract as much as N72 million, thus bringing fines payable by a defaulting firm within a year to N99 million.

     

  • Firms to raise N600b new capital

    ABOUT 10 companies have launched pre-issuance processes to raise new capital from the capital market over the next nine months.

    Investment banking sources at the weekend said improving macro-economic performance and increasing investors’ appetite for Nigerian equities may spur new issues in the months ahead.

    Extant rules preclude issuers or capital raising companies, investment bankers and other parties to the issues from disclosing price-sensitive information such as new capital raising and earnings without prior approval by the regulatory authorities.

    Sources in the know said not less than 10 companies plan to raise funds from the primary market over the next months. While the instrument, amount, timing and other details of the new issues are still sketchy. Most analysts expected companies to tilt towards debt capital raising and rights issue of equity.

    Companies that were said to be considering raising new capital included May&Baker Nigeria, Fidson Healthcare, Red Star Express, Medview Airlines, Wema Bank, Jaiz Bank and Diamond Bank, among others. Already, MTN Nigeria, Dangote Cement and Africa Export and Import Bank (Afrexim) have confirmed plans to raise new capital.

    Many second tier banks are also expected to raise new capital to improve on their capital adequacy level, said Sewa Wusu, Economist and Head, Investment Advisory at SCM Capital Markets.

    MTN plans to reignite the primary market with an initial public offering (IPO) of some N153 billion. The much-awaited IPO will be the market’s first major IPO in a decade, after the 2008 capital market recession.

    Sources close to the MTN issuance said the mobile telecommunication company may build in oversubscription clause into its offer, which will allow it to absorb more funds and issue above the IPO target in the event of oversubscription.

    MTN Nigeria had in 2016 appointed the advisory team and set out a roadmap towards listing on the Nigerian Stock Exchange (NSE). MTN Nigeria board had announced the appointment of Stanbic IBTC Capital Limited and its affiliates, Standard Bank of South Africa Limited and Standard Advisory London Limited and Citigroup Global Markets Limited as the joint transaction advisors and joint global co-ordinators for the proposed listing  on the NSE.

    Red Star Express plans to raise new funds to finance its growth plan as the logistics company seeks to expand its businesses. Also, May & Baker Nigeria has stepped up preparations for its long-awaited new issue. Both Red Star Express and May & Baker Nigeria are expected to float rights issue. It should be recalled that shareholders had in 2014 empowered the board of May & Baker Nigeria to raise N3.2 billion new equity capital.

    Dangote Cement has outlined plan to raise some N255 billion or $833 million in a multi-tranche debt issuance, that is likely to start this year. Dangote Cement-Nigeria’s largest quoted company, will issue a Naira-denominated bond to support its capital investments.

    Afrexim plans to raise more than N61 billion from the Nigerian capital market and other two markets. Med-View Airlines and Jaiz Bank were said to be considering timing for their initial public offerings (IPO) as the two recently listed companies seek new equity funds to expand their operations.

    GTI Capital Chief Operating Officer,  Mr. Kehinde Hassan, said there could be more capital raising over the next months given the positive macro-economic condition.

    He, however, noted that companies may opt for debt issue and rights issue than public offering, because of fear of under subscription.

    Wusu said the improvement in macro-economic position and investors’ willingness to take up offers may spur companies to issue more shares, citing the funding gaps being experienced by many companies.

    Total issuances at the Nigerian capital market stood at N1.55 trillion by the end of third quarter ended September 2017. Equities accounted for 12 per cent or about N186 billion.

    “As the market is a barometer that gauges economic mood, we expect that stable economic output in 2018 will attract more companies to access funds from the market for capital injection. This will increase the market absorptive capacity,” Chief Executive Officer, Sofunix Investment and Communications, Mr. Sola Oni had told The Nation.

    Managing Director, APT Securities & Funds Limited, Mallam Kasimu Kurfi, said the outlook for the primary market looks more promising this year as more companies may want to take advantage of current higher valuations at the secondary market.

    “I foresee more companies raising funds from the capital market this year once the economy continues to grow,” Kurfi said.

     

  • Firms fret over capital market’s VAIDS’ tax audit

    Quoted companies and capital market operators are anxious about the modus operandi and implications of the compliance tax audit for the Voluntary Assets and Income Declaration Scheme (VAIDS) by the Securities and Exchange Commission (SEC).

    SEC had in a circular indicated that it would audit public limited liability companies (Plcs) and capital market operators to ascertain their level of compliance with relevant tax laws.

    In the circular, the regulator stated that all public limited liability companies and capital market operators shall be required to show evidence of compliance with the VAIDS or a clean tax status as part of their mandatory submissions to the Commission from March 31.

    The Commission stated that failure to comply with relevant tax laws and the VAIDS “shall result in appropriate sanctions in accordance with the law”.

    Two weeks to the deadline, The Nation’s check at the weekend indicated that quoted companies, major shareholders, directors and market operators, who all fall within the regulation of the apex capital market regulator were anxious that the SEC’s VAIDS tax audit may have disruptive effect on the capital market.

    A capital market operator, who spoke under anonymity, noted that such tax audit may lead to “lifting the veil” on several ownership structures, special purpose vehicles and nominees transactions and could place additional burden of disclosures and compliance on companies.

    Another operator pointed out that several capital market operators are owned largely by individuals who brought many other directors on board to create a sense of diversified ownership, noting that such audit may scare such directors away or place the responsibility of ensuring compliance on the company.

    Many stakeholders also raised concerns about the capacity of the apex capital market regulator to conduct such tax audit, noting that such tax audit could lead to unnecessary delay in approvals and further stretch the resources of the Commission.

    “SEC lacks the required resources to undertake such compliance audit. The absence of any follow-up guidelines to the circular has left most of us working only on good faith and best efforts since we don’t know what else SEC will be looking for beyond the disclosures to the relevant tax authorities,” a chief executive of an investment firm stated.

    A major capital market operator however said the VAIDS may not apply as much to the capital market, noting that research has shown that quoted companies have the highest compliance in tax payment.

    “Most quoted companies pay tax and I don’t think they would have any hassle in showing compliance. As for capital market operators, I can speak for myself that we do pay tax and I think others do too. So, VAIDS is for those who don’t pay tax and capital market firms may not come under this category,” the operator said.

    A non-executive director in a healthcare company described the VAIDS’ circular by SEC as unnecessary grandstanding, noting that tax audit is not part of SEC’s functions.

    “That is not SEC business; there is an agency of government that is saddled with that, that is the Federal Inland Revenue Service (FIRS). Companies annually make provisions and pay taxes and their audited accounts are publicly available. If there is any infraction, the FIRS knows what to do, what has SEC gotten to do with that. There should be a separation of duties and functions,” the director stated.

    SEC has however not responded to media enquiry seeking clarifications on the circular and the VAIDS audit.

    The Federal Government had on June 29, 2017 signed Executive Order No. 004 “Voluntary Assets and Income Declaration Scheme” (VAIDS), which provides for an opportunity for taxpayers who are in default on their tax obligations under all relevant Federal and State tax laws, to regularise their tax status relating to previous tax periods and to fully and honestly declare their assets and income from sources within and outside Nigeria, and pay the taxes due on them within a period of nine months, commencing from the July 1, 2017 to the March 31, 2018.

    SEC had in its circular cautioned all public companies and capital market operators that while the statute of limitations for a tax investigation for honest returns is limited to six years, there is no limit where a fraudulent return has been submitted for assessment,” SEC had stated.

    “Consequently, all capital market operators and public limited liability companies who are in default or contemplated within the Executive Order, are expected to take advantage of the nine months grace period to rectify their tax status in compliance with the order,” SEC had stated.

     

  • Govt uncovers 130,000 high net worth persons, firms underpaying tax

    Govt uncovers 130,000 high net worth persons, firms underpaying tax

    The Federal Government’s data mining efforts have identified a new batch of over 130,000 high networth individuals and companies with potential tax underpayments.

    The Minister of Finance, Mrs. Kemi Adeosun, broke the news yesterday while appearing on “Good Morning Nigeria”, a Nigerian Television Authority (NTA) programme.

    The minister said the data was being compiled by Project Lighthouse in preparation for the closure of the ongoing Voluntary Assets and Income Declaration Scheme (VAIDS) on March 31.

    Project Lighthouse is a unique project of the Federal Ministry of Finance that combines data from federal and state agencies and overseas countries.

    According to Mrs. Adeosun, “data have been received from a number of sources, including land registries of the governments of Lagos, Kaduna, Kano and Ogun states as well as the Federal Capital Territory”.

    “In addition, Nigeria has been able to request data from a number of nations, including traditional tax havens. The data have been received from a number of foreign jurisdictions under the exchange of information protocols.

    “Under the exchange of information protocols, this information relates to bank records and financial filings for tax purposes and is obtained from tax havens who are signatories to the information sharing agreements such as British Virgin Islands and Mauritius.”

    The data received from overseas countries will be used for taxation purposes only in line with the protocols governing the exchange of information

    “The sole interest of the Federal and State Governments in the use of the data is in raising tax revenues. There is absolutely no hidden agenda on the use of the data,” she added.

    Adeosun was however happy at what she called “the unprecedented level of cooperation between the Federal and State Governments”, which she said was a marked change from the past when the various arms of Government did not align their efforts.

    She  identified the common violations by non-compliant tax payers to include under-declaration of and non-declaration of income earned including income from Government contracts and overseas trading;  collection of Value Added Tax (VAT) which is not duly  remitted to Federal Inland Revenue Services (FIRS); charging of non-allowable personal expenses to company accounts particularly with reference to overseas school fees; inconsistency between income declared for tax purposes and the value of assets owned.

    She advised non-compliant tax payers to seek professional advice and to also consult relevant literature available from the tax authorities on tax rules.

    She underscored the Federal Government’s commitment to raising tax revenues which are considered essential to grow the economy and create jobs for Nigerians.

    She cited the fact that just N1 million could feed over 14,200 primary school children under the Homegrown School Feeding programme as well as creating many jobs in the agricultural sector.

    Once again, the finance minister ruled out any possibility of extending the VAIDS programme arguing that sufficient grace period had been given to tax payers to voluntarily and truthfully declare their assets and income which had not been declared previously.

    On the economy, she assured that the country was on the path of growth, noting that Nigeria exited recession in the second quarter of 2017, recording a growth of 0.72 per cent, further consolidating its recovery in the third and fourth quarters of last year, with growths of 1.40 per cent and 1.92 per cent, respectively.

    She said: “The Administration of President Muhammadu Buhari has laid the foundation for the repositioning of the economy by a series of reforms which are being sequenced to ensure maximum impact and benefits to Nigeria and the citizens.

    “These include huge investments in infrastructure and social welfare across the country, improved revenue mobilisation, rebuilding of foreign reserves and stabilisation of exchange rate.”

    She further noted that revenue mobilisation was potentially the master key to unlocking Nigeria’s huge growth potentials and funding the infrastructure programmes.

    In addition, the minister said the Federal Government would continue to create more fiscal space for reforms to enhance productivity and opportunity in the non-oil sector.

  • Firms not quitting State, says commissioner

    Firms not quitting State, says commissioner

    Rivers State Commissioner for Information and Communications Chief Emma Okah has stated that there is no failure of governance in the state.

    He insisted in a telephone interview yesterday evening that people, companies and businesses were not leaving Rivers State, as alleged by the Director-General of the Nigeria Maritime Administration and Safety Agency (NIMASA), Dr. Dakuku Peterside.

    Okah said: “Peterside is not correct. Part of the problems we have in Rivers State is lack of adequate infrastructure, caused by the Federal Government. The Port Harcourt International Airport has been described as the worst in the world. The two seaports in Rivers State (at Onne and Port Harcourt) are not functioning, due to the deliberate policy of the Federal Government to kill the Rivers ports.

    “On insecurity in Rivers State, Peterside is indirectly blaming the Federal Government that has the constitutional duty to secure lives and property. The focused administration of Governor Nyesom Wike has been providing logistics to support all the security agencies in Rivers State.

    “Posting of heads of security agencies is the duty of the Federal Government. Peterside and his cohorts are always influencing the posting of heads of the security agencies. They are politicising security in Rivers State and are not allowing the security agents to do their jobs professionally.

    “Peterside and other APC leaders in Rivers State are planning to use the security agencies to rig the 2019 elections. Any head of the security agencies that does not allow APC leaders to rig elections will not last in Rivers State. They are continuously destroying the security architecture of Rivers State, but investors are trooping into Rivers State on a daily basis.”

  • Showcasing leading insurance firms

    Showcasing leading insurance firms

    There is poor perception of the insurance sector by the public. Despite efforts made by practitioners to change the image of the industry, most Nigerians still don’t have confidence in the sector. Many people do not know the benefits of insurance or where the closest insurance company is located. In this Special Publication on the insurance sector, The Nation showcases some insurance firms that can be trusted based on their financial results, prompt claims payment, good customer service and tailor-made products suitable for corporate organisations, households and individuals. Omobola Tolu-Kusimo reports.

    Many Nigerians do not have confidence in insurance policies and the reason is not far-fetched. Once upon a time, insurers either failed to pay claims promptly or renege on their contract with their clients.

    For the corporate entities, aside from the issue of trust, the sector didn’t have enough skills and capacity to carry their risks. Hence, some resorted to seeking insurance cover outside the country, while others did not bother to insure their businesses or assets.

    True, the sector was faced with issues of trust among the populace. It also had the problems of low level of appreciation of insurance and infiltration by quacks. This led to apathy towards insurance. Out of the population of 180 million, only 1.5 million Nigerians have one form of insurance or the other. Of the few users of insurance, some still have the highest level of dissatisfaction with the providers of financial services. The overall result of low patronage is the sector’s low contribution to the Gross Domestic Product (GDP) at less than 0.48 per cent.

    But the story has changed as insurance practitioners have been working hard to redeem the image of the sector. They now take claims payment serious, simplify the claims process for insured and pay promptly. They have also worked to improve their services and offer tailor-made products.

    Amid the hardship of recession in 2016, insurers helped restore businesses and protect families of insured Nigerians through payment of claims for losses worth N119.5 billion.

    This was shown in a report by the Nigeria Insurers Association (NIA) made available to reporters in Lagos.

    The amount was paid by 58 insurance companies that are members of the association. They comprise 15 specialist life insurance companies, 29 non-life insurance companies, 15 composite insurance companies and two reinsurance companies.

    A breakdown of the report shows that the 29 insurance companies offering non-life business paid N57.7 billion claims in the year under review, while the life business companies paid N61.87 billion.It also showed that the claims paid by the non-life companies increased from N54.65 billion in 2015 to N57.7 billion in 2016, representing an increase of 5.69 per cent while the claims for life companies increased from 50.5 per cent in 2015 to N61.8 billion in 2016, representing an increase of 15.84 per cent.

    Meanwhile, the non-life and life companies recorded about N315.97 billion insurance premium income in 2016.

    NIA Chairman, Eddie Efekoha stated in the report that the economy was confirmed to have slipped into recession for the first time in over two decades.

    According to him, this reflected economic shocks, inconsistent economic policies, and worsening security problems across the country, particularly the Northeast and renewed attacks on oil installations in the Niger Delta regions.

    The year, he said, was very challenging for the sector as it battled with low patronage, fragmented payment from major schemes, including government, as the slide in crude oil price resulted in downturn in earnings.

    He said other factors that the sector contended with include high inflation rate culminating in increased expenses, unfavourable foreign exchange spell leading to high reinsurance premium paid and claims settled on relevant portfolios.

    The regulatory body, the National Insurance Commission (NAICOM), in another report, said the sector lost N90 billion worth of insurance policies between 2016 and third quarter of last year as a result of recession, but the insurers still paid claims to insured Nigerians.

    According to NAICOM, the sector recorded a Gross Written Premium of N325 billion in 2016, but the figure declined to N235 billion by the third quarter of last year.

    Commissioner for Insurance, Mohammed Kari said the sector’s contribution to Gross Domestic Product (GDP), which defines insurance penetration level, stands at 0.48 per cent.

     

     The leading insurance firms

    In a Summary Report on Insurance Companies 2016 Financial Result, NAICOM said the performance of insurance companies was analysed based on various indices to determine the ones that made impressive outing in the year under review.

    The Nation brings to you some of the companies with good performance, prompt claims payment, good customer service and tailor-made products suitable for corporate organisations, households and individuals.

    Leadway Assurance Co. Limited, AIICO Insurance Plc, NEM Insurance Plc, FBN Life Insurance Limited, Consolidated Hallmark Insurance Plc (CHI), Wapic Insurance Plc, Law Union and Rock Insurance Plc, and Anchor Insurance Plc, impressed in their performance.

    In the report, the Life Business Statistics shows that the sector’s total Gross Premium Income (GPI) was N124.56 billion while gross claims paid stood at N67.2 billion.

    Leadway Assurance Company Limited led the pack with N31.58 billion, a GPI representing 25 per cent market share followed by AIICO Insurance with N22.17 billion representing 17.75 per cent.

    FBN Life also came in the top-performing companies with a N9.91 billion, representing 7.95 per cent.

    The statistics further shows that the Life companies paid huge claims. AIICO led the subsector with payment of N11.47 billion, FBN Life paid N2.06 billion and Wapic N0.66 billion

    The General Business Statistics shows that the GPI for the same period under review was N201.55 billion. Leadway Assurance had N21.54 billion, representing 10.69 per cent, NEM Insurance N10.62, representing 5.27 per cent, AIICO got N7.33 billion, representing 3.64 per cent, CHI had N5.71 billion, representing 2.83 per cent, Wapic had N5.21 billion, representing 2.59 per cent, Law Union had N3.96 representing 1.96 per cent and Anchor N1.96 billion, representing 0.97 per cent.

    The Non-Life companies also paid claims. Leadway paid N13.56 billion, AIICO Insurance N4.44 billion, NEM N4.13 billion, Consolidated Hallmark paid N1.76 billion, Law Union paid N1.45 billion and Wapic 0.07 billion.

     

    ‘Insured Nigerians should demand claims from insurers’

    The Executive Director, Leadway Assurance Co. Limited, Ms. Adetola Adegbayi, has urged insured Nigerians to demand their  claims from their insurers whenever an insured risk occurs.

    Adegbayi, who stated this during a chat,  noted that most Nigerians who purchased insurance policies were ignorant on when and how to make claims, adding that instead of going to their insurers to make claims, they bear the financial burden themselves.

    She said as a result of the fact that some insured don’t make claims, some overambitious  operators have cashed on this loopholes to rate-cut policies to unreasonable price, with the assumption that the insured will not demand for compensation.

    Because of the low rate they demand on their policies, she said, they, in most cases, outbid their competitors for businesses because their rates are lower and consumers always want to go for policies with lower rates.

    In the event of claims, she said, these overzealous underwriters do default, since the premium charged is not the actual value of the products.

    To this end, Adegbayi stressed that rate-cutting could be fought by Nigerians, if they begin to request for claims on their insurance policies, adding that when this happens, underwriters would sit up and charge the normal rates that could sustain them when claims arise.

    Explaining that an insurance company would be heavily sanctioned, if it defaulted in claims obligations, she charged Nigerians to report defaulting underwriting firms to law-enforcement agents, promising that necessary steps would be taken to pay claims to the aggrieved insured.

    She said policy prizing was becoming lower and the lower the policy, the riskier the business becomes, adding: “But for the mass market products, as the volume increases, the price reduces.’’

     

    Recipients of large insurance claims

    Insurance is an arrangement for protecting a person or entity from loss or risk. The aim is to restore the insured to his or her previous state only, not for profit or gain. The insurance contract should always be a contract of indemnity only and nothing more.

    According to the NIA 2016 Digest report, various insured organisations and individuals suffered losses in life and businesses, but were restored to their previous state.

    For instance, under the category of Motor Claims, AIICO Insurance paid Unity Bank/Ekiti Kete Mass Transit N17.72 million for five accidents, Dangote Cement Works-Ibese N4.15million for accident, Total Nigeria Plc N5.73million for Accident and Third Party Vehicle.

    AIICO also paid one Mr Asuquo N3.59 million for a Fire Incident, Animashaun Integrated Services N3.64 million for Accident, Christy Ndidiamaka N6.07 million for Theft, Rem-Bam Nigeria Limited N41.99 million for Accident and Theft.

    Julius Berger Nigeria Plc had an accidental damage and was paid N12.22 million by Law Union and Rock Insurance Plc. In addition, NEM Insurance Plc paid N21.80 million to Lanre Shittu Motors Nigeria Limited for Accident.

    Besides, NEM Insurance paid MP Infrastructure Limited N7.8 million for Accident, A.Y. Hussaini & Sons N6.17 million for Accident, Valentina Abuta N6.64 million for Theft, Isigwe Uzoagu N6.16 million for Accident and Ehido Nigeria Limited N5.23 million for Accident

    Under the individual life claims, FBN Life paid a family N18 million benefit for the death of one Mr. Mohammed.

    For the Group Life, FBN Life now FBNInsurance paid Prime Services FZE N4.16 million for death claims, Honeywell Flour Mills N11.43 million, Friesland Campina Wampco N10.51 million, Seplat Petroluem N4.034 million, Petroleum Technology Development Fund and Seplat Petroluem N4.27 million.

    Also under Fire Claims category, Law Union & Rock paid N4.04 million for Explosion, Harrow Park Mini Golf Course N4.5 million for Flood and Livesstock Feeds N4.84 million for Fire Incident.

     

  • ‘Firms to deliver 43,000 new aircraft in 20 years’

    • To cost $4.2tr in financing

    Avolon, an international aircraft leasing company, has released its World Fleet Forecast projecting growth and changes in commercial jet fleet over the next 20 years for global airlines.

    About 43,000 new aircraft are expected to be delivered to global airlines, a forecast that world jet airliner fleet will double to over 51,800 aircraft.

    The forecast include the number of aircraft deliveries, retirements, funding requirements and passenger-to-freighter conversion.

    Avolon is the world’s third largest aircraft leasing business with ownership and management of over 915 aircraft by last year.

    According to the firm’s Head, Communication and Branding, Sean Pattwell, the World Fleet Forecast covers all Western-built passenger and cargo jets in airline service, plus the main Russian and Chinese types. Aircraft deliveries, retirements and passenger-to-freighter conversions were also projected over a 20-year period.

    According to him, the resulting annual forecast of the in-service fleet is modified by an estimate of the number of aircraft expected to be in storage.

     

     

  • Firms sue Hyundai over ‘defective automobile’

    Firms sue Hyundai over ‘defective automobile’

    Two companies, Media Seal Limited (formerly Starcom Media Services Limited) and Bytesize Limited, have sued Hyundai Motors Nigeria Limited at the Lagos High Court  in Ikeja for allegedly selling defective automobile to them.

    Along with Mr. Ayo Oluwatosin, they are seeking a declaration that a Hyundai Grand Santa Fe GLS 3.3L, with Chassis number: KMHSN81EDFU097184 and Engine No: G6DFEA34538 sold to them by Hyundai Motors is not fit for the purpose for which it was bought.

    They are also praying the court for an order that Hyundai Motors refunds N15,595,000 being the amount paid for the car.

    The claimants are also praying for an order that they be paid N50million for alleged breach of contract, and another N100million as general damages.

    The claimants sough an order compelling the defendant to pay 15 per cent interest to the sums from the day the suit was filed till judgment is given, and 25 per cent interest from the day judgment is given till the sum is liquidated.

    In their statement of claim filed by their counsel, Wale Ogunade, the claimants said they bought four vehicles from Hyundai on June 1, 2016. The defective car, they said, was bought on October 5, 2016.

    The claimants said the cars were delivered to them on October 6 and June 2, 2016.

    According to them, when the vehicle was driven between October 21 and 26, 2016, they discovered that it had a brake problem, which they brought to Hyundai Motors’ attention.

    Oluwatosin said he met with the company’s representatives, where Hyundai Motors allegedly demanded N4million to replace the defective car.

    Hyundai Motors denied culpability in the transaction. It claimed that it conducted extensive pre-delivery test on every component parts of the vehicles.

    The defendant said all the vehicles were found to be in perfect condition before they were handed over to customers.

  • Firms not paying workers’ gratuities, says ASSBIFI

    Firms not paying workers’ gratuities, says ASSBIFI

    Many organisations are not paying workers’’ gratuities, the Associa-tion of Senior Staff of Banks, Insurance and Financial Institutions (ASSBIFI) has alleged.

    Speaking with The Nation, its President, Comrade Oyinkan Olasanoye, said: “We realised that the management of organisations are not paying our members at the end of their service. What belongs to workers, which is the gratuity, the majority of organisations are no longer paying it.”

    Ms Olasanoye said this was what informed ASSBIFE’s proposal on “Loss of job insurance” for members.

    She said the association realised that when its members were asked to go, nothing was given to them.

    She, however, said the union would continue to advise members on the need to allow it to be more involved in decisions concerning their welfare and to properly brief them on such matters. She added t the management  should not sack without resource to due process.

    On the sack of workers in financial institutions, she said the law was clear on it. Olasanoye said under the law, when an organisation wishes to lay off a worker, the union should be called in for negotiation.

    She said: “The law didn’t say you can’t lay people off, but there are ways of doing it. We have been appealing to our members that they should not wait until they are laid off. The moment they hear the rumour that they are about to be laid off, they should write their management to that effect and brief us on who to discuss with.”

    Ms Olasanoye, however, said the union would continue to appeal to its members and management of their companies and employers that the  meltdown is one that needs everyone’s hands to be on deck.

    “We also want to appeal to them that they should let us work together because our sector is a very sensitive and with the meltdown, we can’t afford to have issues that will affect the public trust on the sector that is already affected by various policies that are not acceptable to the people. We will appeal to the management to let us discuss and go through due process,” she added.