BusinessDay
Nigeria's leading finance and market intelligence news report.

The Week Ahead

NERC set to enforce compensation to electricity consumers for power under-supply

The Nigerian Electricity Regulatory Commission (NERC) has moved to enforce compensation to electricity consumers for the under-supply of power to their homes and businesses with effect from Tuesday, 1st June, 2021. It can be recalled that in October 2020, NERC warned power distribution companies (DISCOs) that they will compensate affected consumers for defaulting in service delivery if they fail to supply the required quantum of electricity under the new service reflective tariff regime as the commission had deployed a mechanism to monitor the Discos.

The commission said that it is expected to start monitoring the DISCOs on a monthly basis to ensure compliance by the power firms in terms of meeting the agreement.

This policy however follows several complaints by energy consumers that the Service-Based Tariff (SBT), which has led to a huge increase in electricity bills paid by customers, only places obligations on them without appropriate sanctions for Distribution Companies (DISCOs) that under-supply. This was made known by the Deputy General Manager, Markets Competition and Rates, NERC, Mr Abba Terab, at the 58th Session of the Power Dialogue organized by the Electricity Hub, who said that for now, compensation will be based on a 60-day cycle.

Under the policy, customers are to pay for electricity in correlation with the level of service they get and how long they receive power daily. Therefore, it will be based on a minimum average hour of power supply and other metrics.

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Consumers are divided into five bands A–E, where band A is for customers who get 20 hours of power and above daily; B is for customers who get power for 16 hours daily and C covers customers who enjoy power for 12 hours and above a day. Also, D is for those that enjoy power for 8 hours and above, while band E is for customers who only get four hours and above but below 8 hours of power supply daily.

Federal Executive Council (FEC) meeting and police council meeting set to hold this week

In honour of the late Chief of Army Staff, Lt. Gen. Ibrahim Attahiru, and ten other senior military officers and servicemen, who died in a plane crash on Friday, May 21, 2021, President Muhammadu Buhari thus directed the postponement of the Federal Executive Council (FEC) meeting which was scheduled to hold on Wednesday, May 26, to Wednesday, June 2.

Similarly, the President also directed the postponement of the Police Council meeting, which was earlier scheduled for Thursday, May 27, to Thursday, June 3.

This disclosure was contained in a circular issued by the Secretary to the Government of the Federation (SGF), Mr Boss Mustapha, on Monday in Abuja.

High demand optimism as oil prices rise to 2-year high

Oil prices on Friday traded close to its highest in over 2 years, rising amid hopes that an ongoing economic recovery in the United States will have a positive impact on oil demand despite concern that Iranian supplies will increase if sanctions on its crude export is lifted.

Brent crude futures rose by 0.35% with a weekly growth of 4.81% on Friday afternoon to close at $69.70 a barrel, while Western Texas Intermediate (WTI) futures rose by 0.36% to close at $67.21, after having settled at the strongest since October 2018 on Thursday. Also, the Bonny light crude rose by 0.50% to close at $68.01, with the OPEC basket going up by 0.09% to close at $67.47.

The chief Operating Officer of NNPC, on Thursday, said the cooperation is in advanced talks stage with Dangote Industries to acquire a 20 per cent stake in the 650,000 bpd Dangote oil refinery. He said the decision is majorly to ensure undisrupted product supply to Nigerians and that the risk associated with refinery business does not weigh solely on Dangote Industries.

Outlook

In the coming week, oil prices are expected to be bullish as strong U.S. economic data and expectations of a rebound in global demand will outweigh concerns about more supply from Iran once sanctions are lifted.

NBS release calendar for the week ahead

The NBS release calendar for the coming week indicates the following:
• Monday 31st May, 2021: Nigerian Capital Importation Report (Q1, 2021) & Selected Banking Sector Data: Sectorial Breakdown of Credit, e-Payment channels and Staff Strength (Q1 2021).
• Tuesday 25th May, 2021: Foreign Trade in Goods Statistics (Q1 2021).
• Thursday 27th May, 2021: Q1, 2021 Terms of Trade Report.

Despite inflation concerns, gold breaks $1,900 mark

Gold prices are expected to rise marginally in the coming week, as U.S. inflation ticks up which is favourable towards the precious metal.

Gold was bullish during the Asian session, completely erasing its 2021 losses as signs of inflationary pressures amplify investor concerns while the U.S. Federal Reserve assures investors of the outlook for monetary policy. Gold appreciated by 1.22% Week-on-Week to $1,909.65, soaring past the $1,900-mark and gaining in eight of the past nine trading sessions, while Silver also gained by 1.46% W-o-W.

More of the same for the naira

It was a bearish market for the Naira both at the official window and BDC window in the previous week which was attributed to the decision of the CBN adopting the NAFEX rate on its website after the MPC meeting held in the week.

At the I & E FX window, the Naira was flat on a week-on-week basis. The Naira closed the week at $1/N412.0 at the I&E FX window, at the NAFEX (spot market) it closed at $1/N411.00.

More of the same is expected in the week ahead as the Naira is anticipated to continue to hover around N406/$1-N412/$1 threshold.

Money market outlook

Funding rates are expected to trend in double digits in the coming week. Funding rates continued their double-digit trend last week which was supported by constrained system liquidity which opened in a deficit of N296bn last week.

Funding rates rose at the close of the week. Open Buyback (OBB) closed at 18.67% while Overnight (O/N) rates closed at 19.17% indicating a Week-on-Week (W-o-W) rise of +13.15% for OBB and +12.76% for O/N rates.

Treasury bills market outlook

Activity in the treasury bills market is expected to remain subdued next week as system liquidity remains relatively tight. The overall trading session of the Nigerian Treasury Bills market was bearish as investors’ attention was skewed towards the Treasury bills auction by DMO.

At the close of the week, the average benchmark yield for T-bills was rose by +5.89% to close at 6.10% while OMO bills rose by +3.92% W-o-W to close at 9.59%.

The DMO sold N151.11 billion worth of notes against N63.16 billion offered at its NTB auction last week. The 91-day, 182-day & 364-day notes were allotted at 2.50%, 3.50%, & 9.65% respectively. Compared to the previous auction, rates on the 91-day & 182-day were unchanged while the 364-day paper fell by 10bps

The CBN offered N50 billion worth of OMO notes but sold N41.00 billion at its auction last week. The 96-day, 180-day & 348-day notes were allotted at 7.00%, 8.50% and 10.10% respectively.

FGN bond and Eurobond market outlook

We expect market sentiment to remain soft in the near term in the absence of any trigger. The FGN bond market started the previous week on a relatively quiet note as attention was drawn to the outcome of the MPC meeting, however, towards the end of the week, activity improved which was on the back of liquidity improvement from FAAC disbursement and retail FX refund.

At the close of the week, the market was bearish with selling interest seen majorly at the short end and mid-end of the curve.

The overall average benchmark yields closed at 10.00% for the week which increased W-o-W by +5.00%.

The Eurobond market traded bullish for most of the trading session last week amid a continued drop in US treasury yield and improvement in crude prices, although the bullish sentiment was upturned by a rise in the US 10-year treasury yield, which inched up to 1.62%

The average benchmark yield closed at 6.08% at the end of the week declining W-o-W by -1.46%.

Nigerian capital market outlook

Nigerian stocks suffered another week of losses as investors sustained their profit taking on the exchange. The Nigerian bourse closed the week negative with a decline of -0.18%. The Nigerian Stock Exchange lost N34.97bn thus, year-to-date return deteriorated to -5.00%, while the market capitalization settled at N19.94 trillion.

The volume and value of stocks traded on the exchange last week advanced by +31.19% and +88.01% respectively.

Performance across sectors tracked was mixed negative last week as the NSE Insurance was the highest gainer for the week with +1.01% while NSE Banking recorded the highest decline with -1.80%. NSE Oil and Gas closed positive with +0.85% while NSE-IND, NSE-30, and NSE Consumer Goods closed the week negative with -0.43%, -0.34% and, -0.07% respectively.

Outlook

In the coming week, we expect the bearish sentiment in the market to persist however, press releases from listed companies and other macroeconomic developments is likely to impact investors decisions. In addition, we expect investors to monitor the movement of yields in the fixed income market.

The Nigerian economy in retrospect

Nigeria’s Gross Domestic Product (GDP) grew by +0.51%(year-on-year) in real terms in the first quarter of 2021, marking two consecutive quarters of growth following the negative growth rates recorded in the second and third quarters of 2020. The Q1 2021 growth rate was slower than the +1.87% growth rate recorded in Q1 2020 but higher than +0.11% recorded in Q4 2020, indicative of a slow but continuous recovery. Nevertheless, quarter on quarter, real GDP grew at -13.93% in Q1 2021 compared to Q4 2020, reflecting a generally slower pace of economic activities at the start of the year.

According to the NBS selected price watch data for April 2021, the average price of 1 dozen Agric eggs medium size increased Y-o-Y by +11.26% and month-on-month by +1.13% to N530.40 in April 2021 from N524.47 in March 2021 while the average price of a piece of Agric eggs medium size (the price of one) increased year-on-year by +18.32% and month-on-month by +1.47% to N49.14 in April 2021 from N48.43 in March 2021. The average price of 1kg of tomato increased year-on-year by +0.09% and month-on-month by +3.67% to N277.26% in April 2021 from N267.45 in March 2021. The average price of 1kg of rice (imported high quality sold loose) increased year-on-year by +14.57% and declined month-on-month by -0.67% to N540.58 in April 2021 from N544.21 in March 2021. Similarly, the average price of 1kg of yam tuber increased year-on-year by +9.87% and month on month by +3.26% to N252.80 in April 2021 from N244.82 in March 2021.

The Bank of Industry reported that its total assets grew by +78.85% from N1.04trn to N1.86trn. The rise was largely attributed to the successful debt syndications of €1bn and $1bn that was concluded in March and December 2020 respectively. Furthermore, its equity rose by +15.3% from N293.08bn in the previous year to N336.48bn in 2020 while its loans and advances grew by +1.3% to N749.84bn. Its profit before tax declined by -9.6% to N35.54bn, attributed to the challenging environment in the economy. The Chairman of the Bank, Mr. Aliyu Dikko noted that it facilitated the disbursement of N2.5bn and N1.2bn under the N-Power and Government Enterprise and Empowerment Programs to 300,011 and 109,039 beneficiaries respectively.

According to its disclosed circular titled ‘New license requirements for the payment system’, the Central Bank of Nigeria set a new capital requirement for payments firms in the country. It stated that to have a Payment Terminal Service Provider license, a firm was required to have N100m shareholders’ funds unimpaired by losses. It retained super agent’s license at N50m, Switching and Processing firm’s license at N2bn; Mobile Money Operator’s license at N2bn; Payment Solution Services at N250m and Payment Solution Service Provider at N100m. The CBN specified a non-refundable application fee of N100,000 via the licensing fees. According to the capital requirements, the payment firms must have an escrow refundable N2bn into the CBN PSP share capital deposit account.

The Monetary Policy Committee (MPC) voted unanimously to retain all parameters constant. This was disclosed by the CBN Governor, Godwin Emefiele while reading the communique at the end of the MPC meeting on Tuesday 25 May 2021. The MPR was retained at 11.5%, the asymmetric corridor of +100/-700 basis points around the MPR, and CRR was retained at 27.5%.

On Tuesday, the Nigerian National Petroleum Corporation (NNPC) and Bonga Production Sharing Contract (PSC) partners signed watershed agreements to unlock about $700m revenue to the federation and free the parties from billions of dollars in contingent liabilities. The agreement saw the renewal of Oil Mining Lease 118 for another 20 years.

The Department of Petroleum Resources (DPR) On Wednesday stated that Nigeria requires about $2 billion monthly in revenue to remain sustainable. The Director, DPR, Sarki Auwalu said there is need to upscale the nation’s oil reserve and monetise gas to generate more revenue given the sector’s over 70% contribution to monthly fiscal revenue.

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