Upcoming election is a lose-lose for Nigerian oil -Kirstin Berndt

Continued low oil prices keep the leaders of many oil-producing states awake at night, but few feel the pressure as keenly as Nigerian authorities. Dienzani Alison-Madueke, Nigeria's oil minister and current OPEC president, pled for an emergency meeting to discuss oil production cuts last month. Though such a meeting is unlikely to occur, Alison-Madueke's proposed cuts might just come from Nigeria itself.
Nigeria's postponed presidential elections are now just days away, and volatility is all but guaranteed. Falling oil prices, corruption, and multiple insurgencies will disrupt Nigeria's oil industry no matter which candidate wins the March 28thrace.
Outlined here are three potential outcomes for the Nigerian election.
The first scenario is that current president Goodluck Jonathan is re-elected, in spite of electoral fraudsuspicions. These suspicions are already widely circulating - even if Jonathan reclaims office, he must confront accusations of an illegitimate voting process. The Nigerian public is rightfully frustrated with Jonathan, whose military campaigns against Boko Haram have failed so badly that some have accused him of colluding with the insurgency. Boko Haram violence continues unabated in the north, in spite of Jonathan's assertions that voter security is a top priority for the upcoming ballot casting. On Tuesday, nearly 500 schoolchildren went missing from the Damasak region, presumed victims of the militants.
If Jonathan continues for another term, it may or may not be business as usual for Nigeria. Boko Haram will continue to oppose Abuja in an attempt to unseat the secular government and install an Islamic caliphate in its stead. Emboldened by Jonathan's failures, Boko Haram has also made threats against the oilfields and energy infrastructure. Cutting off the Nigerian government's economic lifeline would be a symbolic and devastating victory for Boko Haram.

The second scenario is that General Muhammadu Buhari is elected to the presidency, finally succeeding in his presidential bid after three consecutive attempts. Buhari has already promised a more hard-hitting approach to wiping out Boko Haram, though some have accused the Muslim candidate of planning a Sharia law regime.
Should Buhari be successful, a resurgent MEND militancy might very well re-launch violence against Nigeria's oilfields. MEND has sought control of Nigeria's oil infrastructure in the Niger Delta by bombing pipelines and kidnapping oilfield workers. Long supportive of Jonathan, MEND has threatened increased attacks in southern Nigeria should Buhari claim the presidency.

Fighters with the Movement for the Emancipation of the Niger Delta (MEND) raise their riffles to celebrate news of a successful operation by their colleagues against the Nigerian army in the Niger Delta on September 17, 2008. MEND has declared a full-scale "oil war" against the Nigerian authorities in response to attacks by the Nigerian military launched against the militants. "Our target is to crumble the oil installations in order to force the government to a round table to solve the problem once and for all", said Boy Loaf, leader of the militants.


The third scenario is both the most troublesome and the most likely. In lieu of a decisive victory by either candidate, the results of the election may not be widely accepted. Broad evidence of electoral fraud, ballot rigging, and voter intimidation could lead to a rejection of the election results by the general public. Alternatively, either Jonathan or Buhari may outright reject the victory of the opposing candidate, refusing to admit defeat after hard-fought campaigns.

If either candidate refuses to back down, we need look no further than nearby Libya to assess the failure of a governmental system in which two rival administrations claim authority. In the absence of centralized control, Libyan militant groups professing allegiance to ISIS have swept into the void. Intense confrontation in the oilfield regions has completely knocked Libya's production capability offline. It is not difficult to envision a similar situation in Nigeria, as Boko Haram and MEND already have strong incentives to attack oil infrastructure. Given that Boko Haram has recently pledged allegiance to ISIS, the insurgency may already be considering how to use Nigeria's crude to support the ISIS cause.

Sadly, with a glut of oil on the market, it is questionable whether fellow OPEC states will particularly care about a disruption in Nigerian oil operations. Wealthier OPEC nations and oil-exporting states might benefit from slightly higher prices should domestic instability or declaration of a "force majeure" cut into Nigeria's oil production. Even the United States has little reason to become involved in Nigerian production cuts, given that shale energy has completely supplanted all oil imports from Nigeria that were recently as high as 1 million barrels per day.

Regardless of election outcomes, the outlook for Nigeria appears bleak. Falling oil prices drastically cut into the government's ability to combat Boko Haram and MEND insurgencies. The incoming president must make difficult decisions about how to divide smaller oil revenues among military and police forces that are already thinly stretched. Public dissatisfaction with the military's poor track record and accusations of widespread human rights abuses by Nigerian forces will likely worsen. Accusations of election fraud will endure, leaving the Nigerian public resentful and intensifying political rivalries between the Christian South and the Muslim North. Continued violence and threats will discourage foreign investment prospects already turned off by low potential profits. Indeed, Shell has announced a huge divestment program in its Nigerian operations , citing concerns about fiscal stability and security for Shell workers.
Nigerian oil minister Dienzani Alison-Madueke correctly assumes that Nigeria can't count on OPEC to rescue the country's increasingly shaky oil industry. At this point, it seems unlikely that Nigeria can even rescue itself. With no good election outcome in sight, it may only be a matter of days before Nigeria's future as a significant oil producer slips completely out of reach.


* Kirstin Berndt is a graduate student at the NYU Center for Global Affairs, where she focuses her research on the geopolitics of energy and transnational security. She holds a B.A. from UC Berkeley and is a U.S. Army veteran.

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Nigerian bond yields to take cue from election

Yields on Nigerian bond have dropped across the board this week, fuelled by increased liquidity.
Traders said local pension and some lenders were taking position in the market, driving down yields, but said the market would be driven by this week's presidential election.
Frontrunners President Goodluck Jonathan and former military ruler Muhammadu Buhari are facing off in a contest many think is too close to call. Jonathan warned against violence ahead of the vote as people stockpiled food, cash and fuel for fear of post-election clashes. [ID:nL6N0WT2FM]
"We seen the market taking a cue from the out coming of the election on Saturday, if all goes well, the market should see more demand, if otherwise, we should expect a bit of volatility going forward," another dealer said.
Yields fell across the major tenors, with the 2016 bond trading at 15.5 percent from 16.03 percent last Friday.
The 2022 paper fell to 15.4 percent against 16.99 percent, while 2024 note was down to 15.45 percent from 16.35 percent.

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Nigeria overnight lending rates up as central bank curbs liquidity

Nigeria's overnight lending rates rose to an average of 12.5 percent on Friday, compared with 9 percent last week, after the central bank drained cash from the money market.
The central bank debited commercial lenders 58.2 billion naira ($293 million) to enforce its Cash Reserve Requirement (CRR) and another 306 billion naira ($1.5 bln) to fund Treasury bill purchases, curbing liquidity.
The central bank debits lenders twice in a month to enforce its CRR rule, which requires banks set aside cash with the regulator against its public and private deposits.
"Rates shot up... to an average of 15 percent when the CRR was debited, but later eased as cash for government workers hit the market," one dealer said.
The secured Open Buy Back (OBB) rose to 12 percent from 9 percent last week. The secured fund was one percentage points below the 13 percent central bank's benchmark interest rate.
Overnight placement also rose to 13 percent against 9 percent last week.

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Nigeria raises 98 bln naira in Treasury bills at lower yields

Nigeria raised 97.8 billion naira ($491 million) in Treasury bills at an auction on Wednesday that fetched lower yields compared with the previous sale last week owing to strong appetite for the debt, the central bank said on Thursday.
Investors - mostly domestic banks and pension funds - submitted bids totalling 297.06 billion naira, three-times more than the central bank had advertised but demanded yields ranging between 10 percent to 18 percent.
The bank said it sold 14.03 billion naira in 91-day notes at 10.69 percent, compared with 10.79 percent at the previous auction on March 18.
It auctioned 10.61 billion naira in 182-day bill at 14.5 percent, compared with 14.7 percent previously while it raised 73.16 billion naira in the 1-year note at 14.85 percent, down from 15.35 percent at the last auction.

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Nigerian interbank rates ease on government budget cash flow

Nigerian interbank lending rates fell to 9 percent on average on Friday compared with 25 percent last week in anticipation of monthly budgetary allocations to government agencies.
Nigeria distributes revenue from oil exports among its three tiers of government - federal, states and local government - every month. Dealers said February allocations would filter through the banking system by close of business on Friday.
"Lending rates dropped because of the expected cash flows from budget and payment of interest on bonds to some investors," one dealer said.
Cost of borrowing among banks had shot up to 25 percent last week partly because of debiting of banks' accounts for premium payment to the Nigerian Deposit Insurance Corporation (NDIC).
"Although, NNPC (state-owned energy firm) recalled about 100 billion naira ($503 million) from lenders to its account with the central bank this week, payment of interest on bonds countered the impact on system liquidity," another dealer said.
The secured Open Buy Back (OBB) fell to 9 percent from 25 percent last week. The secured fund was 4 percentage points below the 13 percent central bank's benchmark interest rate.
Overnight placement also fell to 9 percent against 25 percent last week.
Lending rates among banks are expected to stay steady next week because of the anticipated increase in liquidity from the disbursal of monthly budget allocations.

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Nigerian interbank rates ease on government budget cash flow

Nigerian interbank lending rates fell to 9 percent on average on Friday compared with 25 percent last week in anticipation of monthly budgetary allocations to government agencies.

Nigeria distributes revenue from oil exports among its three tiers of government - federal, states and local government - every month. Dealers said February allocations would filter through the banking system by close of business on Friday.

"Lending rates dropped because of the expected cash flows from budget and payment of interest on bonds to some investors," one dealer said.

Cost of borrowing among banks had shot up to 25 percent last week partly because of debiting of banks' accounts for premium payment to the Nigerian Deposit Insurance Corporation (NDIC).

"Although, NNPC (state-owned energy firm) recalled about 100 billion naira ($503 million) from lenders to its account with the central bank this week, payment of interest on bonds countered the impact on system liquidity," another dealer said.

The secured Open Buy Back (OBB) fell to 9 percent from 25 percent last week. The secured fund was 4 percentage points below the 13 percent central bank's benchmark interest rate.

Overnight placement also fell to 9 percent against 25 percent last week.

Lending rates among banks are expected to stay steady next week because of the anticipated increase in liquidity from the disbursal of monthly budget allocations.

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Nigeria bonds to rise on election jitters

Nigerian bonds yields will rise as Africa's biggest economy prepares to hold presidential elections on March 28, while a planned Monetary Policy Committee (MPC) meeting to set rates on March 24 would also unnerve investors, traders added.
The continent's largest oil producer is facing a faltering economy after global oil prices plunged, weakening the naira.
Nigeria raised 91 billion naira ($455 million) in bonds this week, with maturities ranging between 5-year and 20-year at higher returns across the board.
"Trading is expected to be mixed next week but the market would likely stay above the 16 percent resistance level," one dealer said.
Yields on the 2016 debt closed flat at 16.15 percent compared with 16.16 percent last week, while the 2022 debt note dropped to 16.03 percent from 16.07 percent previously.
The benchmark 2024 debt note however rose sharply to 16.63 percent from 16.13 percent last week.

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Nigeria raises 91 bln naira in bonds at higher yields

Nigeria raised 91 billion naira ($456.14 million) at a bond auction held on Wednesday with yields rising by more than one percentage point across all tenors, the Debt Management Office (DMO) said on Thursday.
A total of 20 billion naira worth of the 5-year bond was sold at 16.49 percent, up 95 basis points from 15.54 percent from the previous sale on Feb 11, the debt office said.
The 10-year paper was sold at 16.84 percent compared with 15.75 percent previously, raising a total of 40 billion naira, while 31 billion naira worth of the 20-year debt note was sold at a yield of 19.99 percent, up from 15.85 percent previously.
Dealers said the sale attracted low demand from investors.
Total subscriptions stood at 119.14 billion naira compared with 123.6 billion naira at the last auction.

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Nigerian interbank rates rise on tightening liquidity

Nigerian overnight lending rates rose to 11.25 percent on Friday compared with 8.25 percent last week after local currency liquidity tightened following purchases of Treasury bills and foreign exchange, traders said.

Market liquidity dropped to about 260 billion naira ($1.31 billion) credit by Thursday compared with 400 billion naira last Friday, according to dealers.

Nigeria sold a total of 254.96 billion naira of debt against bids worth 318.58 billion naira.

The secured Open Buy Back (OBB) rose to around 11 percent from 8 percent last week.

The secured fund was 2 percentage points short of the central bank's 13 percent benchmark interest rate. Overnight placement stood at 11.5 percent against 8.5 percent last week.

"We anticipate a slight increase in the cost of borrowing among banks next week because of plans to debit banks' account for cash reserves requirement (CRR) on Thursday and cash outflow to bond issuance," one dealer said.

Nigeria's central bank requires commercial lenders to set aside 75 percent of public sector and 15 percent of private sector deposits in liquid cash in their account with it.

The regulator debit banks accounts twice every month to enforce this requirement.

Nigeria plans to raise 95 billion naira by selling sovereign bonds with maturities ranging between 5 and 20 years on March 11.

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Yields seen up on Nigerian bonds next week

Investors are seen asking for higher yields on Nigerian bonds at an auction next week,  in tandem with prevailing returns at the secondary market.
    Nigeria plans to raise 95 billion naira ($476.31 million) in bonds with tenors ranging between 5-year and 20-year next week.
    Yields at the auction could range between 16.5 to 17 percent on the shorter tenor due to low appetite for local debt by investors, dealers said.  
    "We don't see banks going heavily on bonds at the auction because of liquidity, foreign exchange and political risk," one dealer said.
    Nigeria, Africa's biggest economy and the continent's largest oil producer, is facing a faltering economy after global oil prices plunged, weakening its naira currency.
    Political uncertainty following a six-week delay in  presidential elections has worsened the outlook, sending its financial markets into a tailspin.  
    The election is due on March 28, and has kept some players from making new investments, dealers said.
    Yields on the 2016 debt closed lower at 16.16 percent against 16.42 percent last week, while the 2022 debt note inched up to 16.07 percent from 16 percent previously.
    The benchmark 2024 debt note also closed higher at 16.13 percent compared with 16.04 percent last week.

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Flour Mills of Nigeria to cut capex as economy falters

Flour Mills of Nigeria expects to cut capital expenditure by almost half this year, down from 40 billion naira a year ago, as the slowdown in the economy, caused by the oil price collapse and the weakening naira, hurts consumer spending.
Chairman John Coumantaros told Reuters Africa Investment Summit that Flour Mills had spent around $750 million over the past 3-5 years to build capacity but would expected to spend around 19 billion naira ($95.53 million) this year, from cash flows and development loans.
A year ago, Flour Mills had planned to invest $1 billion over the next 3-5 years to fund growth and expand into West Africa.
But Coumantaros said the company with a focus on food processing, agriculture and logistics, was shifting focus to driving efficiencies and cutting cost to deliver growth.
Nigeria expects to lower its forecast for 2015 economic growth again, after cutting its forecast to 5.54 percent in January, as oil prices fell and the naira weakened further last month.
"Rather than growing, investing and expanding, we now have to look inwards," Coumantaros said.
Revenue for the manufacturer of pasta, flour, vegetable oil and livestock feed grew 10-15 percent over the last five years. He expected that growth rate to continue this year largely due to the inflationary effect of a weaker naira.
Shares in Flour Mills have shed 10.7 percent so far this year, outperforming the drop in the main share index down 11.6 percent.
Coumantaros was bearish on the outlook for the naira currency, but said he expected the fall to enable Nigeria reduce reliance on imports and consume goods made at home, an advantage for Flour Mills.
Flour Mills' reported half-year results in November, with profits down 21.3 percent to 5.77 billion naira. Revenues also fell to 165.54 billion naira.
"We've definitely seen the spending power of the consumer slow ... in certain areas like biscuits ... when one tries to increase prices there is a corresponding drop in demand."
Coumantaros said his firm, set up more than 50 years ago in Nigeria, was on track with its expansion plan into the rest of Africa over the 3-5 year period in order to tap into a greater population on the continent and diversify revenues.

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Nigeria's cenbank fixes spread on dollar sales by oil firms

Nigeria's central bank has fixed the rate at which banks can buy dollars from oil companies at not more than 2 naira spread to its clearing rate, dealers said, its latest attempt to prop up the currency hit by the drop in oil prices.
The naira crashed through the psychologically important level of 200 to the dollar last month in a rout triggered by weak oil prices and escalating tension over the postponement of a presidential election in Africa's biggest economy.
The central bank has pledged to stabilise the naira and has been deploying various measures.
Dealers said the central bank did not issue a formal circular on the directive, but instead resorted to persuasion, adding that the total outstanding dollar demand of about $600 million was unmet.

"The central bank on Monday fixed the rate at which we can buy dollars from oil companies," one dealer told Reuters.
The local unit of Royal Dutch Shell sold an undisclosed amount of dollars this week, as well as Brass LNG and Eni but the sales have failed to buoy the naira.
Oil companies usually sell dollars through an auction to lenders to buy naira to fund their local operations.
The naira closed at 197 to the dollar on Thursday, firmer than 199.9 its ended on Wednesday.
Dealers said the bank had beefed up inspection of commercial bank's trading books to verify utilisation of its dollar sales.
The central bank scrapped its bi-weekly currency auctions last month and a market body said it would sell dollars only at 198 naira, a move that amounts to a de facto devaluation of the currency of Africa's biggest economy.
The central bank also barred lenders from reselling oil company dollars to other lenders unless the sale was backed by a customer order, dealers said.

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Nigeria sells $1.3 bln in Treasury bills at higher yields

Nigeria's Treasury bill yields rose across the board at an auction on Wednesday compared with a previous sale on Feb. 18, the Debt Management Office (DMO) said on Thursday.
The DMO said it sold a total of 254.96 billion naira ($1.3 billion) of the debt against bids worth 318.58 billion naira.
The 91-day debt note worth 17.85 billion naira was sold at 10.8 percent compared with 10.75 percent fetched at the previous auction, the debt office said.
The 182-day paper worth 15.03 billion naira was sold at 14.85 percent versus 13.70 percent previously, it added.
The debt office said a total of 222.08 billion naira of the 1-year debt note attracted 15.89 percent against 15.25 percent at the previous auction.

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MTN wories over oil price, naira falls, economic growth in Nigeria

MTN, Africa's largest telecoms provider has reported muted full-year earnings growth and warned of possible headwinds as weaker oil prices bring economic doubts to its biggest market in Nigeria.
Nigeria, africa's biggest economy contributed nearly 37 percent of MTN's total revenue, while its South African home market made up about 27 percent.
"In Nigeria some level of uncertainty remains with regards to the implications of the oil price and currency fluctuations, which may lead to slower economic growth," MTN said in a statement.
Authorities in Africa's biggest economy have devalued the naira currency and raided foreign exchange reserves to feed demand following the slump in crude prices.
A tough regulatory environment has also meant MTN has been forced to offer similar tariffs to its own subscribers and those of its smaller rivals. It has also been hit with bans against selling SIM cards and promotional pricing.
"It would appear that the regulatory pressure may ease, but the unknown at this stage is the economic impact of the falling oil price," said Reuben Beelders, portfolio manager at Gryphon Asset Management.
MTN, which has operations in nearly two dozen countries across Africa and the Middle East, said it would invest nearly 80 percent more capital in South Africa in 2015. This, analysts said, was to keep up with rival Vodacom's expansion.
Nigeria's capital spend will increase by 5 percent although it is expected to contribute more than a quarter of the 17.5 million new subscribers MTN hopes to sign on this year.
MTN surprised investors by declaring a 1,245 cents per share total dividend, up from 1,035 cents last year. It said it planned increases of between 5-15 percent a year, which sent the shares up as much as 2.8 percent.
One analyst said he was concerned that the firm might not be able to meet that goal.
"When one looks at MTN right now, how certain is the dividend and dividend growth going forward?" said Nadim Mohammed, an analyst at First Avenue Investment Management.
MTN's diluted headline earnings per share, the main measure of profitability in South Africa, rose to 1,527 cents in the year ended December, up nearly 9 percent from a year ago. Data was a key growth driver, climbing 33 percent to contribute nearly a fifth of overall revenue.

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Nigerian naira gains on dollar sales by oil firms

Nigeria's local currency firmed 1.13 percent against the dollar on the interbank market in thin trade on Monday, supported by dollar flows from two energy companies, traders said.
The naira closed at 199.7 to the dollar compared with 202 on the interbank market on Friday, dealers said.
The central bank had set its intervention rate at 196.8/197.8 to the dollar on Monday, but dealers said the regulator had not yet sold dollars to lenders by 1302 GMT.
The Nigerian unit of Royal Dutch Shell sold an undisclosed amount of dollars while Eni  sold $15 million, lending support to the naira, traders said.
The currency of Africa's top crude exporter suffered its biggest monthly fall in over five years in February on concerns over political uncertainty and the central bank's ability to manage a currency hammered by weak oil prices.
"There was not much of activity in the market today, apart from dollar sales by the two oil companies which boosted liquidity a bit and supported the naira," said a trader.
Traders expect the local currency would be driven by availability of dollar inflows through anticipated month-end sales by oil companies during the week.

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Nigerian overnight lending rate falls sharply on increased liquidity

Nigerian overnight lending rates fell to 8.25 percent on Friday, from 25 percent last week after monthly payments of budget allocations to government agencies and proceeds of cash call by joint crude-oil production partners.
Traders said about 256 billion naira ($1.26 billion) in January budget allocations was injected into the system on Thursday, while 60 billion naira from the cash call entered the market this week, forcing down borrowing cost among banks.
Before the drop, lending rates hovered between 20 percent to 40 percent at the beginning of the week, owing to cash squeeze.
Banks' cash balance with the central bank stood at around 400 billion naira credit on Friday compared with 4.8 billion naira credit last week, traders said.
The secured Open Buy Back (OBB) closed at 8 percent, compared with 25 percent closed last week. The secured fund was 5 percentage points below the central bank's 13 percent benchmark interest rate.
The central bank withdrew 11 billion naira from lenders this week to meet its cash reserves requirement to keep liquidity tight, but monies from government disbursement meant that the banking system awash with funds, dealers said.

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