Buhari’s second term to prioritise power, transport infrastructure

Improving power distribution and transport infrastructure will be the key focus areas of the second term of President Muhammadu Buhari, BusinessDay has learnt through notes from high-level meetings with senior government officials, the Central Bank and the Debt Management Office.

Consequently, the Federal Government has agreed to raise electricity tariffs to make them more cost-reflective. It hopes this will attract more investments and make the sector efficient. Apart from tariffs, the Federal Government wants to tackle challenges power distribution companies (DisCos) face monetising their services and recapitalise them by selling down its stakes to private investors.

According to analysts at Renaissance Capital who had meetings with some Nigerian government officials including Vice President Yemi Osinbajo, policymakers and regulators including the CBN governor and the Debt Management Office, the Federal Government wants a new power sector reform programme that will make it easier for private companies to thrive.

The current Power Sector Recovery Programme (PSRP) ran aground due to non-review of tariffs. The tariff methodology, called the Multi Year Tariff Order (MYTO), should have been reviewed five times in the past 15 years, but was only done in 2012. With elections over, the Federal Government will remove the brakes on tariff review and allow NERC to assert a modicum of independence at regulating electricity pricing.

The Federal Government will also continue to resuscitate rail tracks and ports around the country, BusinessDay learnt. Osinbajo had previously said the government was investing over N2 trillion on private sector-led agriculture and transport infrastructure projects.
To fund these projects, the FG will raise excise duties, tariffs and taxes. The government plans to cut its stake in joint venture agreements with offshore oil companies to boost revenues in the near term.

“However, there seems to be some unwillingness on the part of the government to completely remove the de facto subsidies at this time,” analysts at RenCap said. Rather, they added, “the intention will be to progressively deal with the subsidies by ensuring a better subsidy regime in a bid to ultimately reduce them over time”.

Buhari’s government has spent N7.9 trillion in the past four years importing petrol to augment supply from the country’s rickety refineries, according to data from the National Bureau of Statistics (NBS). This is more than Nigeria’s entire 2017 budget of N7.2 trillion and 5 percent of the country’s current gross domestic product. This could persist for the next four years.

“It is a big shame that we are one of the world’s biggest producers of crude oil and still the world’s biggest importer of petrol. This has to change,” said Adeola Adenikinju, director, Centre for Petroleum and Energy Economics and Law and member, CBN Monetary Policy Committee.
But RenCap said it “seems unlikely that market-based reforms in the downstream petroleum sector and power sector will materialise this year”.

“Hence, the upside risks to our current inflation forecasts that we have highlighted may not crystallize,” RenCap analysts said.

The analysts added that in keeping with its core mandate of price and monetary stability, the CBN will continue to tighten monetary policy.

“The recent cut in the MPR was merely to signal to the government to enter a pro-growth phase. The apex bank will only consider substantive monetary policy easing when the headline inflation moderates to single digits,” they said.

The analysts said the CBN will continue its ‘managed float’ foreign exchange policy and support the currency around the $1/N360 levels particularly with foreign reserves in the region of $45 billion, adding that the Federal Government could review its foreign exchange policy if oil prices fell below $50 per barrel and foreign reserves below $30 billion.

Apparently, the DMO did not get the memo on Nigeria’s debt crisis. It does not think that Nigeria is close to debt distress because debt-to-GDP ratio remains very low at 19 percent. Current debt service-to-FGN revenue ratio stood at 63 percent in the nine months ending September 2018, according to RenCap calculations.

The Federal Government plans to cut back borrowing, seek more concessionary foreign loans, as opposed to Eurobonds and other commercial loans, whose rates could be potentially lower and increase Nigeria’s revenue base. By year end, the DMO wants to get a 60:40 split between local and foreign borrowing against the current split of 70:30.

“Overall, we didn’t get the sense that there are significant reforms on the way that will potentially spur growth to be faster than we have already forecast. We still expect the Nigerian economy to grow by 2.5 percent y/y in 2019,” analysts at RenCap said.

“Sure, we expect the government to continue on its current infrastructural drive but we believe that creating an environment for public private partnerships to thrive will be key to further unlocking growth in the economy,” they said.

ISAAC ANYAOGU