President Muhammadu Buhari
- Country needs $15 billion to boost economy, reserves: Dangote
- Sale amid low crude prices may affect assets’ value: analyst
Nigeria’s possible sale of some of its oil and gas assets to raise
money and boost the contracting economy in Africa’s most populous
country could reduce the government’s influence over its biggest
industry.
President Muhammadu Buhari’s economic advisers are
working on a plan “to generate immediate large injection of funds into
the economy through asset sales, advance payment for license rounds,
infrastructure concessioning,” to help deal with the slump in oil
revenue, Budget Minister Udoma Udo Udoma said in a Sept. 24 statement.
The ministry of Petroleum Resources is examining what oil assets could
be sold, Udoma’s spokesman, James Akpandem, said last week.
Battered by low oil prices and a dearth of foreign investment, Nigeria’s economy will probably shrink
in 2016 for the first time in 25 years, according to the International
Monetary Fund, which forecasts a 1.8 percent contraction. A 15-month
currency peg, fuel and power shortages and a slump in crude production,
have cut output. The country’s foreign-exchange reserves have fallen by
more than a third since the end of September 2014 to $24.8 billion.
Selling
upstream assets “will most likely change the structure of the Nigerian
oil industry,” Chijioke Nwaozuzu, a professor at the Institute of
Petroleum Economics at the University of Port Harcourt, the country’s
oil hub, said by phone. A transfer of petroleum reserves to private
investors would diminish government influence in the sector, likely
resulting in improved efficiency and capacity utilization and “it could
also mean mortgaging future crude-oil exports,” he said.
Nigeria
has an average 55 percent stake in joint ventures run by Royal Dutch
Shell Plc, Exxon Mobil Corp., Chevron Corp., Total SA and Eni SpA. These
account for about 90 percent of Nigeria’s oil production, which
generates roughly two thirds of government revenue. The state also owns
49 percent of Nigeria LNG Ltd, a multibillion-dollar company which
operates Africa’s biggest liquefied natural gas plant.
The sale of
such stakes, augmented by offshore borrowing, would help the country
raise the $15 billion that is needed to revive the economy, Africa’s
richest man, Aliko Dangote, said in an interview with Bloomberg TV on Sept. 22.
Repurchase Clause
If
the authorities decide to proceed with the sale of energy assets “it
will ideally be to the existing partners who wish to increase their
share,” Udoma’s spokesman, Akpandem, said. Any such deal would include a
repurchase clause, he said.
“We’re
looking at this very feverishly because the other alternative is to go
mass borrowing,” State Minister for Petroleum Resources Emmanuel
Kachikwu said in an interview last month. “But there’s a limit to your
borrowing cap and we’re fairly close to that tipping point where you
really can’t borrow anymore otherwise you can’t sustain the borrowing.
The other thing to look at is your assets and rights that can be turned
into cash.”
Buhari approved a 6.1 trillion naira ($19.4 billion) budget for this year and said he expected the government to raise about $5 billion from the Eurobond market and multilateral lenders.
Higher
borrowing costs and the loss of almost half of the revenue projected
for this year could push Nigeria’s debt service-to-revenue ratio above
the projected 35 percent, according to documents from the budget and
national planning ministry.
Dangote
has recommended the state parts with some of its shares in NLNG,
jointly owned with Shell, Total and Eni. Senate President Bukola Saraki
has advocated for the sale of oil and gas interests and the
privatization of airports and refineries, while former central bank
governor Muhammadu Sanusi II said parting with assets could be done
without hurting the government’s strategic interests and would give
incentives to private investors.
Oil workers warned on Sept. 25 that they would go on strike if national assets were sold.
Unfavorable Timing
“Given
the economic situation and the challenges, the rationale is there,”
Rolake Akinkugbe, head of energy and natural resources at Lagos-based
FBN Quest, said by phone. Nigeria is likely to do away with those oil
fields where it has struggled to meet its share of capital
contributions, leaving it with arrears of about $6 billion, she said.
The
timing though, with oil prices at about half their 2014 levels and
insecurity in the Niger River delta where militants are sabotaging oil
and gas infrastructure, may not be right, according to Ayodeji Dawodu, a
research analyst at Lagos-based Investment One.
“If it is because
the economy is in an emergency, and you’re able to put in a buy-back
clause, then it may be justified,” he said by phone. “There has to be a
trade off and they should know what they’re trading off.”
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