At the conclusion of the 2019 IMF/World Bank Annual Meetings in Washington, the Nigerian delegation led by the minister of Finance said they have reached a final decision with the multilateral Institution on a concessionary loan of $3billion to finance the power sector. Speaking at a joint press briefing Finance Minister, Mrs. Zainab Shamsuna Ahmed and CBN Governor Godwin Emefiele the leader of delegation Zainab said that the discussions of a loan for the expansion of the transmission and distribution facilities of the power sector between the Nigerian government and the World Bank have reached final stages as both parties have settled on a loan size of $3 billion. She said that the funds will come in four tranches of $750 million each, adding that the approval for the first tranche will be sought at the April 2020 Spring Meetings.
According top her “We made two sets of requests to the bank. The first is technical assistance from the bank to implementing agencies especially the Nigeria Electricity Regulatory Commission (NERC) on the review of the performance improvement plans of the distribution networks. secondly, we asked for technical assistance on business continuity regulation as well as to the ministry of finance in the assessment of contingent liabilities in the power sector and options of dealing with them. And most importantly, we put a request for the financing of the sector at the range of $1.5 billion to $4 billion. At the end of the day, it is like we would be looking at the funding size of $3 billion that will be provided in four tranches of $750 million each. Our plan is that the team will be able to go to the World Bank for the approval of the first tranche in April 2020”. Continuing she said “This financing will cover the gap between the current tariff and the actual cost of generating electricity. It will also enhance our ability to pay previous obligations in the sector that has crystallised so that investors in the sector can go on with expanding investments in the sector.”
The Minister said “This financing will include right now, the gap between what is provided for in the current tariff and the cost of the businesses themselves. There is a tariff shortfall but it would also enhance our ability to pay the previous obligations that have crystallised that we have not yet been able to pay. Some portion of it will be for the transmission network and if we are able to expand the facility to $4 billion, the additional $1 billion is for the distribution network. It will help us to exit the subsidy that is now inherent in the power sector. It is supposed to be to reform the sector, to restore the distribution business side of the sector especially on a stronger footing so that they are freed up enough to go out and raise financing to invest in expanding the distribution network,” she emphasised. According to her, the Nigerian team requested for technical assistance from the bank to implementing agencies especially the Nigeria Electricity Regulatory Commission (NERC) on the review of the performance improvement plans of the distribution networks. The team also asked for technical assistance on business continuity regulation in the assessment of contingent liabilities in the power sector and options of dealing with them.
“We had very productive meetings with the World Bank Group on the on the power sector in Nigeria. The discussion centred around the power sector recovery programme wherein we received an update on the outstanding issues covering sustainable fiscal support, policy as well as regulatory environment. We also discussed extensively the need for the sector to be more operationally efficient and also the infrastructure investment that would be required to ensure the power sector is restored to full production in a manner that is sustainable,” she said. Mrs. Ahmed also disclosed the Federal Government’s plan to issue Naira- denominated jolly Bond, which will come with the support of the United Kingdom authorities to support Nigeria’s infrastructure financing. She said a working committee is being set up to interface with Nigeria on this possible naira denominated bond.
“The CBN will be leading in this efforts we will also explore all options in this regard at the next UK investment summit that will be holding in January 2020. She said the Jolly Bond will be issued offshore but denominated in the local currency and the importance of such a bond is that it protects the country, the issuer from exchange rate exposure. On the border closure, she said the exercise was not meant to be vindictive. She said that since Nigeria was committed to the African Continental Free Trade Agreement (AfCFTA), there was need to ensure that rules are obeyed otherwise local industries will be greatly affected. “Businesses have been suffering due to the activities of smugglers but with the more opening up following our commitment to the AfCFTA, this will get worse unless we make sure now that everybody comes back to obey the rules as agreed,” she said. The minister said the border closure was not permanent adding that there are lots of discussions going on at the technical level and at some point, it will be at the level of Presidents and then real commitments will be made and hopefully, everybody will comply to own side of the agreement.
CBN Governor Mr. Emefiele on his part said the Nigerian banking sector remained strong, adding that the 65 per cent Loan to Deposit Ratio (LDR) policy has increased industry loan position by N1 trillion from N15. 3 trillion to N16.3 trillion since policy take off. The CBN Governor, who argued that the Nigerian banks remained healthy, and that the result of the banking sector stress test that showed liquidity gaps in seven commercial banks, is a pointer that the CBN had as a matter of policy since 2015, tried to avoid being sensational about stress-testing. “Stress-testing has become part of our normal routine, in trying to check the strategic health of all the banks in the industry. So, what you would know is that is that from time to time, maybe one bank failed one ratio or the other and we advise that the bank should improve on the ratio – whether it is capital adequacy ratio, liquidity ratio, or other forms of ratios that have been prescribed to the banking industry,” he said.
According to Emefiele, the failure of seven banks on their liquidity positions in the December 2018 stress test does not mean that those banks are weak. “What we are saying is that there are areas that they are weak, we try to make sure they address them. If for instance, they fail capital adequacy ratio, we counsel them about how to resolve it. So, it has nothing to do with the weakness of any bank that would lead to any panic or systemic crisis in the industry”, he said. Mrs. Ahmed specifically said the World Bank and Nigerian team identified the imperative of solving operational efficiency problem in the power sector and revamping associated infrastructure to ensure that the overall success of the intervention in the sector is achieved. Continuing, she noted that the $3 billion loan is for financing the power sector.
Speaking on the disagreement between telecom operators and banks on Unstructured Supplementary Service Data (USSD) fees, where telecom operators plan to charge N4 per 20 seconds on USSD access to banking services from October 21, 2019 Emefiele said he held meeting with some telecoms companies and leading banks in Nigeria at the CBN in Lagos and the issue of the cost of USSD came up. “I hear it is N1,500 per minute and at that time, we came to a conclusion that the use of USSD is a sunk cost, meaning that it is not an additional cost on the infrastructure of the telecoms companies. But the telecoms companies disagreed with us and said it was an additional investment in infrastructure and that for that reason, they needed to impose it. I appealed to them to please review this downwards and they refused. I understand that about three to four weeks ago, rather than reduce it, they went ahead to increase from N1500 to N4500 that is a 300 percent increase. I opposed it and I have told the banks that we would not allow this to happen. The banks are the people who give these businesses to the telecoms companies and I leave the banks and the telecoms companies to engage. And I have told the banks that they have to move their business and move their traffic to a telecoms company that is ready to provide it at the lowest possible and if not at zero cost and that is where we stand and we must achieve it.”
Emefiele said banks had done well trying to embrace the Loan to Deposit Ratio (LDR) policy.
“Most of them have actually worked with us and we saw loans rising from about N15.3 trillion in the banking industry in July to, as at the last time we held the meeting to about N16.3 trillion which is a remarkable and phenomenal increase. These loans are being channeled not only to agriculture, to manufacturing to Small and Medium Enterprises (SMEs), to consumer credit. And the fact that we are saying that the banks should place more emphasis on the private sector rather than just buying securities which is zero risk instruments and the rest of them. We are happy that they are complying and it is such that moving it from 60 to 65 is another push towards making sure that we achieve this objective. We have been talking about the GDP rate being about two per cent or 1.9 per cent, but we think that doing this makes it easy for the people to raise loans from banks which will help to spur consumer demand, will help to spur manufacturing output, which will itself positively impact on output and GDP.”
On foreign exchange restriction on 43 items that can be produced locally, Emefiele defended the apex bank’s policy on it. He also rejected IMF Africa department position that the policy is making it difficult for foreign capital inflow into the country. He said: “If you feel that our restriction of foreign exchange access for the importation of items that can be produced in Nigeria is wrong, that is not false. If you are a foreign direct investor that is interested in doing business in Nigeria I will say instead of you facilitating the import of these items into Nigeria, we want you to come and produce it in Nigeria”. Emefiele added: ” Nigeria is a market of over 200 million people. So, you do not have a choice than to come, bring your investment plans and equipment and produce that item in Nigeria so that Nigerians can consume it. Then, you will make your profit and take your dividend out of the country. So, I disagree with that position that foreign exchange restriction is hurting investment inflow into Nigeria”.