Nigeria to cut stake in oil assets under Buhari's economic plan

ABUJA, Nigeria (Bloomberg) -- Nigeria will sell portions of its oil assets to help fund President Muhammadu Buhari’s four-year plan to lift the economy from its worst slump in a quarter century and create 15 million jobs.

In the 2017-2020 economic blueprint, which lenders, including the World Bank, are awaiting to conclude funding facilities for Africa’s second-biggest oil producer, Buhari proposes to “reduce the federal government’s stake in joint-venture oil assets” and “significantly reduce federal government stakes in other oil and non-oil assets.” Privatizing selected assets will “optimize their efficiency and reduce fiscal burden on the government,” according the proposal posted on the Abuja-based Ministry of Budget and National Planning’s website.

Nigeria’s economy shrunk 1.5% in 2016, the first full-year contraction since 1991, mainly due to a drop in prices and output of oil, the nation’s biggest export, and the resultant shortage of foreign currency. The naira weakened after the central bank removed a peg in June, increasing the prices of imports from fuel to food and medicine, contributing to the inflation rate rising to the highest in more than a decade. The new plan targets growth of 7% and inflation under 10% by 2020 by increasing oil output, opening up new farmland and boosting investment in power, roads and ports to diversify revenue.

Nigeria has an average 55% stake in joint ventures run by Royal Dutch Shell Plc, Exxon Mobil Corp., Chevron Corp., Total SA and Eni SpA, which produce about 90% of its crude. The government also owns 49% of Nigeria LNG Ltd, a multi-billion-dollar company, which operates Africa’s biggest liquefied natural-gas plant. The government has also hinted it may award concessions for airports.

The government aims to increase oil output to 2.5 MMbpd by 2020 from a low of 1.6 MMbpd during third-quarter 2016 when militants bombed pipelines. This is forecast to increase government revenue by 800 billion naira ($2.53 billion) annually. Some of the additional funds will be used to revamp domestic refineries to increase capacity to a level where the country will turn into a net exporter of refined fuel.

The West African nation raised $1 billion in a Eurobond issuance last month and will probably tap the international bond market for a second time this quarter to raise $500 million. Nigeria will rebalance its debt portfolio to increase the proportion of foreign financing and “make arrangements to pay off hidden federal government debt,” according to the plan.

The central bank has intervened since August to keep the naira at about 315 against the dollar, after abandoning the peg of 197-199 per dollar. The regulator has increased its key lending rate to a record 14% to fight inflation, despite calls from Finance Minister Kemi Adeosun to loosen policy to support the economy.

Nigeria will “sustain a market-determined exchange rate” and monetary policy will be “aligned with other aspects of the federal government’s macroeconomic program,” according to the plan.

The government will introduce cost-reflective power tariffs to encourage investment in a sector that’s heavily indebted and struggling with cash flow. The Ministry of Power, Works and Housing said the government would, from January, guarantee 702 billion naira for state-controlled Nigeria Bulk Electricity Trading Plc to pay for electricity it receives from generating companies and sells to distributors. Nigerian power distributors paid only 27% owed to generators in 2017, according to data from the National Bureau of Statistics.

The plan proposes reforms including increasing value-added tax on luxury products to 15% in 2018 from 5% and improving compliance to add 350 billion naira to annual revenue collections. At least 100,000 hectares of additional arable land will be irrigated, farmers will have better access to fertilizer, a staple crop-processing zones authority will be established, and the Bank of Agriculture will be recapitalized to increase loans. This is part of the nation’s strategy to boost production to meet domestic demand and export products including rice, cashew nuts, ground nuts, cassava and vegetable oil by 2020.