NSE looks to oil, gas, power to drive $1trn target

  The entrance of upstream oil and gas companies and successor electricity distribution companies (Discos) of the Power Holding Company of Nigeria (PHCN) into the capital market is expected to contribute significantly to the achievement of the target of $1 trillion capital market by 2016.

The Director-General of the Nigeria Stock Exchange (NSE) Oscar Onyema, who spoke at the BusinessDay Capital Market 2013 conference last Wednesday, said the oil and gas sector was among the sectors that had been under-represented in the nation’s capital market. The other sectors, according to him, are agriculture, telecommunications and utilities (including electricity companies).

He said the passage of the Petroleum Industry Bill (PIB), which has scaled the second reading in the National Assembly and is being considered by the relevant committees in the legislature, would make it easy to encourage upstream oil and gas companies to be listed on the stock market.

He stressed the need for favourable policies, which he said the government was working on.

“The PIB should be passed. We need to provide enabling fiscal environment , appropriate tax regime that would make the market attractive for companies to be listed,” he said, adding that the PIB should be passed to allow the bourse go after oil companies, especially oil majors and marginal field operators.

He said the NSE would continue to follow up closely on the PHCN Discos that are being privatised to attract them to the market, adding that NSE would like their coming to be earlier than the five-year timeline that has been given.

According to Onyema, the oil and gas sector is expected to contribute about N265 billion to the market capitalisation target with the listing of 20 percent of the companies in the upstream sector. He added that the unbundling of the Nigerian National Petroleum Corporation (NNPC) would facilitate the coming of oil companies into the market.

In a similar vein, Eyo Ekpo, commissioner, markets, rates and competition, Nigerian Electricity Regulatory Commission (NERC) said there were obviously huge opportunities in the Nigerian Electricity Supply Industry (NESSI) for the capital market.

He said despite the risks that exist in the power sector, some of the Discos have been able to achieve considerable reduction in losses, especially the losses arising from payment and technical risks.

“Losses are now being reduced significantly by some of the Discos. About six of them are already showing potential in terms of revenue, and they will drive the speed at which the Discos will come to the capital market.

“Eko Distribution Company has reduced losses by 75 percent, followed by Ikeja Disco, 65 percent and Abuja Disco, 60 percent,” he added.

The other risks he highlighted were construction, fuel supply, transmission and political risks.

Ekpo observed that construction risk was a very significant factor affecting the companies, and that the idea of abandoning power projects half way must be discouraged for the industry to be taken seriously by investors. He said in the short-term, there was a lot to learn about construction of power projects in the country, as many of the projects are not often completed on schedule.

On the risk of fuel supply (gas), he stressed the need for the availability of gas to drive the power sector, saying that over 90 percent of generation capacity would come from natural gas.

He said gas should be priced in such a way that would make it affordable for electricity companies. This, he said, should be taken care of by the PIB.

  In spite of the fact that the country has a market which is rapidly increasing in demand for power consumption, the current gas price of $1.5 per standard cubic foot, being paid to gas producers is a poor incentive, if any, for the promotion of investments in the gas sub-sector.

Industry watchers say investors would be discouraged if the current fiscal terms in respect of gas in the PIB are passed as they presently stand.

The fiscal terms in the draft PIB, operators say, are harsher than the ones presently governing gas operations in the country, adding that the imposition of domestic gas supply obligations on companies without addressing the basic issue of infrastructure deficit and low pricing will not increase gas supply need for power generation.

Under the current fiscal terms, royalties are between five and seven per cent of revenues, but in the PIB, a production -based rate of between five and 12.5 per cent is being proposed, and a price-based rate of 0-21 per cent.

 

OLUSOLA BELLO & FEMI ASU