Being an Analyst Note issued by Proshare Research on January 25th 2023

Analysts Call for Other Stakeholders in the Committee to End Scarcity 

By assuming the current scarcity is a result of an arbitrary distribution model, the government intends to enforce sanity in the supply and distribution of petroleum products across the value chain. The Federal Government has approved the construction of a 14-man Steering Committee on Petroleum Products Supply and Distribution management to find lasting solutions to disruptions in the supply and distribution of petroleum products. 

The Steering Committee, chaired by President Buhari as Minister of Petroleum Resource and the Minister of State for Petroleum Resources as Alternate Chairman, include leadership of Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), Minister of Finance, Ministry of Petroleum Resources, and Department of State Services (DSS). Others include the National Economic Adviser to the President, the leadership of the Nigerian Customs Service (NCS), EFCC, NSCDC, CBN, and NNPC Ltd. In terms of committee composition, Analysts say the committee ought to engage the primary operators in the oil and gas value chain. Marketers’ associations would better understand industry issues and encourage buy-in to the committee’s recommendations. Analysts would better curate the challenges from a third-party view for objective recommendations.   

Meanwhile, the committee is expected to ensure national strategic stock management, visibility on the NNPC Limited refineries rehabilitation programme, and end-to-end tracking of petroleum products to establish daily national consumption and eliminate smuggling. These initiatives echo analysts’ positions. Nevertheless, the government needs to allow the market to run its course, albeit subject to regulatory guidance. 

CBN Tackles Inflation, Raises MPR to 17.5% 

For the fifth time, the Monetary Policy Committee of the Central Bank of Nigeria (CBN) raised Monetary Policy Rate (MPR) at its just concluded first meeting of 2023. The Committee decided to increase the policy rate by 100bps from 16.5% to 17.5% while holding all other policy parameters constant. The MPC considered that continued upward risk to price development characterized by the forthcoming 2023 general elections; perennial scarcity of PMS; continued rise in other energy prices; exchange rate pressure; and rising insecurity would keep inflation high and thus decided to sustain the current stance of policy to further rein in inflation. Analysts believe inflation will moderate further but the decision would also slow down growth in Q1 2023 with higher lending costs affecting private-sector productivity. The hike might also trigger selloffs in the equity and fixed income market as retail investors demand higher interest rates. The treasury bill yields have remained relatively low with a very wide negative real rate of return. 

Edo Modular Refinery Begins Operations Amid Concerns 

After a series of concerns raised by analysts on the lack of feedstock for new modular refineries in the country, the management of Edo Modular Refinery announced it has finally gotten its first feedstock of 10,000 barrels per day (b/d) from Decklar Resource Inc and Millennium Oil and gas Company Ltd. The Refinery also disclosed it has begun production at its 6,000 b/d plants in Ologbo to produce 500,00litres of diesel, 300,000litres of naphtha and 200,000litres of Low Pour Fuel Oil (LPFO). Analysts say the operation of the refinery and its sister refinery – Duport Refinery would feed a meaningful proportion of local consumption and support investment inflow in Edo State. Howbeit, the arbitrary pricing of petroleum products and upstream industry challenges could undermine the sustainability of production from modular refineries.  

Ecobank Transnational Incorporation (ETI) Issues Fresh Eurobonds at 11.84% yield 

Ecobank Transnational Incorporation (ETI) has issued a 2031 Eurobond with an indicative yield of 11.84% per annum and 8.75% coupon rate. The Eurobond has an indicative price of US$91.54 and a minimum investment amount of US$10,000. The coupons will be paid every June and December till the maturity of the Eurobond (June 2031). Analysts expect investors to rally towards the issuance, considering the elevated inflation and currency devaluation in the place of operation of the Pan-African group, investors will view it as an opportunity to evade inflation. Also, the attractive yield should stimulate investors as against the risk-free Eurobond yield, Nigeria’s 8-year Eurobond yield was at 10.64% as of January 20, 2023.  

Kelley School Undergraduates Launch US$4.2m Real Estate Private Equity Fund 

Students at Kelley School of Business raised US$4.2m in funding to launch Sample Gates Management Inc, a real estate private equity fund. The fund would be managed by current and future students who will invest in real estate transactions under the guidance of faculty and an experienced investment committee. This initiative bridges the gap between practical and theoretical learning and raises the question of the ease at which it can be replicated in Nigeria. Practical experience in academia needs to be more seamlessly integrated into university curricula. It should extend beyond summer internship programs. This development demonstrates the flexibility and creativity of education. Suggestions like this could be collated to update the Nigerian educational program so that schools produce more holistic professionals. 

Lawmakers to Use Crypto Tax to Fund EU Budget 

The lawmakers in the European Parliament have proposed taxes on crypto assets in a bid to beach up its finances and ensure that it can deliver on the key policy objectives of the European Union. The annual budget is approximately US$185bn. According to the budget committee, regulating and taxing crypto assets at the EU level is more efficient than at the national level given their high mobility and cross-border dimension. Analysts believe it is a step to protect the interest of crypto investors and traders as European tax on crypto assets would foster the emergence of a harmonized tax framework for crypto assets and could also be used to address environmental costs. It would be more interesting to see the adoption of tax standards at the global level.