----- Forwarded by Femi Kupoluyi/NG/AFR/TCCC on 22-01-11 03:40 PM -----
| From: | Mobolaji ALUKO <alukome@gmail.com> |
| To: | USAAfrica Dialogue <USAAfricaDialogue@googlegroups.com>, NaijaPolitics e-Group <NaijaPolitics@yahoogroups.com>, OmoOdua <OmoOdua@yahoogroups.com>, ekiti ekitigroups <ekitipanupo@yahoogroups.com>, "nigerianid@yahoogroups.com" <nigerianID@yahoogroups.com>, naijaintellects <naijaintellects@googlegroups.com> |
| Date: | 22-01-11 02:12 PM |
| Subject: | [EKITIPANUPO] UN-STAR INFO: Nigeria oil fund fears hit bond issue.....Intrigue surrounds oil windfalls...as Demand falls for Nigeria's debt |
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Nigeria's Foreign Exchange Reserves vs. Oil Price (2007-2011)
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FINANCIAL TIMES
Nigeria oil fund fears hit bond issue
By William Wallis and David Oakley
Published: January 20 2011 22:07 | Last updated: January 20 2011 22:07
Mounting concern about a huge outflow of money from Nigeria's "rainy day" oil fund has prompted some big investors to shun the country's debut international bond issue on Friday.
Nigerian officials said an investor roadshow to market the $500m bond issue had generated considerable appetite among international investors.
However, several major funds have told the Financial Times they are not interested in the deal because of Nigeria's deteriorating fiscal situation and worries about how President Goodluck Jonathan's government has run the excess crude account, designed to store up windfall oil revenues.
The account was set up under former President Olusegun Obasanjo, who stood down following 2007 elections. At that time there was $20bn in the fund. But as recently as last September there was less than $400m, according to public disclosures, which showed billions flowing out of the account last year.
To deflect questions about the constitutionality of the fund, the federal government struck a deal in 2007 to divide oil windfalls between national, state and local governments.
Since then, more than $30bn of revenues – calculated on the difference between the budgeted and market price of oil – has flowed out of the account, according to donor and government officials. The funds went partly in regular payments to state governors over which there was little subsequent oversight, and partly in federal spending on infrastructure.
"The fact they have run down the excess crude account is very worrying," said Antoon de Kler at Investec based in Cape Town, adding that "it is unclear where the money is going".
"Why does a country that relies for 90 per cent of its income on oil, which has seen a big rise in price, need to run down its foreign exchange reserves? For these reasons we are not buying the bond."
Other big international investment funds, which invest in Africa, also told the FT they would not participate in the sale. Some Nigerian politicians and officials have questioned why foreign reserves have not risen, and the excess crude account did not grow during the past year of rising oil prices.
Revenues from oil sales go direct to the Nigerian National Petroleum Corporation, the state oil company, before reaching the central bank.
Technocrats in Mr Jonathan's administration say Nigeria would have earned nearly $16bn in windfall revenues in 2010, based on production of 750m barrels of oil with average oil prices $21 higher than the $60 budgeted.
Not all of that would have returned to government because of its joint ventures with international oil companies. Olusegun Aganga, finance minister, told the FT that Nigeria spent heavily on oil production last year and on clearing arrears to oil companies.on top of these costs. The government had also partly financed the budget deficit out of the excess crude account to reduce domestic borrowing, he said
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FINANCIAL TIMES
Intrigue surrounds oil windfalls
By William Wallis in London
Published: January 20 2011 22:07 | Last updated: January 20 2011 22:25
The way Nigeria manages windfall revenues when oil prices soar has been a continuous source of friction and intrigue since the days of military rule.
The excess crude account (ECA), which has surfaced as an issue for investors as Nigeria makes its debut on international bond markets, was one of the more controversial financial innovations of the elected government of Olusegun Obasanjo, who stood down in 2007.
The fund, into which surpluses from crude exports above the budgeted price of oil are supposed to accumulate, was set up two years earlier to reduce Nigeria's historical vulnerability to swings in the world oil price, on which the country depends typically for more than 80 per cent of earnings. At the time, the government was setting about clearing its $33bn external debt, marking a transformation from financial basket case to budding frontier market.
But the special account stirred political tensions because legally under the federal constitution the revenues should be split between the federal, state and local governments. Mr Obasanjo, a stubborn former general, found ways to contain pressure to disburse the money, and the account began to fill up as oil prices soared.
By the time he left office in 2007 there was $20bn in the ECA, part of total foreign reserves over $60bn.
However, his more emollient successor, the late Umaru Yar'Adua, who rose to the top having served as a state governor, applied the letter of the law, acceding to demands that the federal government divvy up the funds.
In the nearly four years since, more than $30bn has flowed out of the account, with about $7bn alone last year, according to officials and analysts.
The problem is that no one in government has been either willing or able to put a finger on exactly how much has gone in and out of the account, now close to empty, according to a senior official, and how exactly it has been spent.
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FINANCIAL TIMES
Demand falls for Nigeria's debt
By David Oakley
Published: January 20 2011 22:07 | Last updated: January 20 2011 22:07
Investors have long forecast the potential of Nigeria because of its oil wealth, size and growing private sector.
Jim O'Neill, the head of Goldman Sachs Asset Management, included the country in his N11, or next 11, emerging market countries to watch after the Brics – Brazil, Russia, India and China – because of its potential.
But the country has lost some of its lustre for investors, as worries have increased over its fiscal prudence and falling foreign exchange reserves.
That explains why Nigeria's first sovereign bond issue has not seen the strong demand that it might have attracted even a few months ago, they say.
Bankers expect to set a cost of borrowing for 10-year bonds, which will be priced on Friday, at about 7 per cent, higher than comparable debt of other sub-Saharan countries. The 10-year bonds of Gabon and Ghana are currently trading at 5.5 per cent and 6.3 per cent respectively.
One investor said: "We met the Nigerians and we were not very impressed. We have seen too much fiscal slippage. The lack of transparency in Nigeria's finances is a problem. We are not buyers of this deal."
Other investors cite potentially destabilising presidential elections in April as another reason to stay on the sidelines.
Bankers insist the deal will still attract the targeted $500m. The growth of the private sector, banking reforms and the fact the country is rich in resources still make its debt attractive to some investors.
Others say the yields of 7 per cent also make it a worthwhile investment. One said: "This is not German or US debt. People who want to buy into Nigeria realise this. It is still rated junk and is not risk free." Nigeria is rated B+ by Standard & Poor's, four levels below investment grade.
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FINANCIAL TIMES
Beyondbrics
Nigeria: oil fund turns investors skittish
January 20, 2011 10:05 pm by Shannon Bond
Last fall it seemed investors were clamouring for Nigeria's $500m eurobond issue – but worries over the country's fiscal situation are sapping that enthusiasm, according to a report in Friday's FT by William Wallis and David Oakley:
Several major funds have told the Financial Times they are not interested in the deal because of Nigeria's deteriorating fiscal situation and worries about how President Goodluck Jonathan's government has run the excess crude account, designed to store up windfall oil revenues.
The account was set up under former President Olusegun Obasanjo, who stood down following 2007 elections. At that time there was $20bn in the fund. But as recently as last September there was less than $400m, according to public disclosures, which showed billions flowing out of the account last year.
As one South Africa-based analyst explains,
The fact they have run down the excess crude account is very worrying . . . it is unclear where the money is going.
Why does a country that relies for 90 per cent of its income on oil, which has seen a big rise in price, need to run down its foreign exchange reserves? For these reasons we are not buying the bond.
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