Being an Analyst Note issued by Proshare Research on February 3rd 2023

Quick-Fix Refinery Repairs Might Undermine Nigeria’s Capacity Utilisation 

Quick-fix repair of Nigeria’s redundant refineries after about 15 years of last Turn Around Maintenance is like putting new wine in an old wineskin. The Nigerian National Petroleum Company Limited (NNPCL) and Daewoo Engineering Construction Nigeria Limited signed a maintenance service contract for the quick-fix repairs of the Kaduna Refining and Petrochemical Company Limited (KRPC). The Quick-Fix strategy to repair and re-stream the KRPC is expected to see it operate sustainably at a minimum capacity utilization of 60%. Although the country is desperately in need of domestic refining of petroleum products to ease its supply challenges, Analysts say a holistic overhaul of the refineries would increase its market value and ensure the sustainability of the refining capacities. Much more, only the full optimization of all the refineries in addition to the Dangote Refineries would increase revenue subject to subsidy removal, reduce FX demand, create jobs, and increase local resource utilization. 

Nigeria Gas Flaring Commercialisation May Become A Viable Business Model

One of the biggest undoings of Nigeria is continuous gas flaring while the global gas market opportunity is open, the country needs revenue, and it sits on a huge gas reserve. While analysts have recommended an upward review of the gas flaring penalty to deter flaring, the recent move of the upstream regulator to commercialize gas flaring might be a viable alternative if it follows due process. The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) said it has shortlisted 139 firms for “Request for Proposal (RFP)” following about 300 applications during the “Statement of Qualification (SOQ)” phase for the Nigerian Gas Flare Commercialisation Programme (NGFCP). The programme is expected to see the company buy and trade the usually flared gas from 48 oil production sites in the country. Successful commercialization of flare gas has economic and environmental benefits to host communities but analysts say the regulator should gazette gas-related regulations that would engender fiscal, legal, and regulatory clarity on gas flaring in line with the PIA 2021.  

Nigeria Creates a Confusing Black Market for Local Currency, as CBN’s Policy Wreaks Havoc 

The incessant naira shortage has sprung up a black market, where the new notes are being sold at a premium. The non-dispensing ATMs and the limited over-the-counter withdrawal have left Nigerians hunting for cash at any cost, some arbitrators have taken advantage of the situation and are comfortably charging above 10% on every withdrawal. The congestion for online banking has slowed down the effectiveness of mobile apps with many people complaining about failed transactions and rather opting for cash. The huge demand for new notes has given POS agents the power to influence the fees on withdrawals with low naira circulation. Transitioning to a cashless policy seems extremely difficult for Nigerians, but analysts expect the tension to ease soon. However, the scarcity of cash gives room for vote buying, given we have 23 days to the election. People will easily exchange anything for cash, which contradicts one of the objectives of the currency swap. 

Oil Prices Fall on Looming Economic Downturn as Global Interest Rates Go Up

Oil prices dropped more than 5% in the week, extending last week’s losses, as signs of strong Russian exports ease supply concerns and further interest rate hikes in major economies stoke looming global slumps. However, rising Middle East tension over a drone attack in Iran, hopes of higher Chinese demand, an OPEC+ decision to roll over an output cut, and a weaker dollar supported some buying interest in the week. Analysts maintained that oil prices would rebound in the coming week on prospects of more easing in China and uncertainties around Russian oil export. In the local market, analysts expect the queue for petrol to persist in some parts of the country with pricing irregularities on logistical issues around moving the fuel across the country.    

Nigerian Competitiors Shake as Starlink’s High-Speed Internet Service Commences

Starlink, a satellite internet service provider by SpaceX, has recently arrived in Nigeria, and it is already shaking up the competition in the country, with its high-speed internet service, Starlink has challenged traditional cable and fiber internet service providers in Nigeria to re-evaluate their offerings. Starlink hardware and shipping comes at a cost of N276,000 (US$600). The monthly subscription is pegged at N19,780 (US$43) making it the most expensive internet service in the country. But many Nigerians, especially entrepreneurs, and businesses may be driven more by the speed than the high cost. Starlink says Nigeria is the first African country where the service is going live. The impressive speed of Starlink is not just a selling point for the company, but it also provides a significant competitive advantage. Analysts believe that the impressive speed and low latency offered by Starlink are a significant improvement over traditional internet service providers in Nigeria and the company's satellite-based technology provides fast and reliable internet access to remote areas where other providers may not have coverage.

SEC Reinforces Investor Education to Address Illegal Fund Management

In pursuance of one of its key mandates, Nigeria’s Securities and Exchange Commission (SEC) is ramping up its efforts to educate and inform investors following a recent surge in illegal fund managers. The Commission is collaborating with other government agencies to minimize their activities. According to the Head of the Office of the Chief Economist at SEC, Dr. Okey Umeano, investor education is a key aspect of the Capital Market master plan. The SEC website can be used to verify the registration status of firms and the Commission is targeting illegal fund managers and Ponzi scheme operators through enforcement exercises and partnerships with agencies such as the Nigeria Financial Intelligence Unit and the Economic and Financial Crimes Commission. The Commission warns that recovering money from Ponzi schemes is difficult and returns that seem too good to be true are likely false. The Chief Economist also emphasizes the importance of investors doing their due diligence and thoroughly understanding the products they are investing in. To further educate investors, SEC is launching billboards across the country to raise awareness and encourage vigilance among Nigerians. Analysts believe that continued education from the governing body will boost investor confidence in the market and protect their interests.