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Discussion Starter · #1 ·
NEW YORK/LAGOS, Oct 22 (Reuters) - Fitch Ratings on Friday lowered its sovereign credit outlook on Nigeria to negative from stable, citing the depletion of its windfall oil savings and heightened political uncertainty ahead of elections next year.

Nigeria's rating of BB-minus, three notches below investment grade, was affirmed, Fitch said in a statement.

The ratings agency said continued withdrawals from the excess crude account (ECA), into which Africa's biggest oil producer saves crude oil earnings above a benchmark price, and lower forex reserves were a threat to economic stability.

'The depletion of the ECA and continued gradual fall in international reserves at a time of high oil prices and record high oil production is a major concern,' sovereign ratings analyst Veronica Kalema said in the statement.

'In addition, elections in the first half of next year have increased short-term political uncertainty,' she said.

Standard & Poor's rates Nigeria one notch lower at B-plus.

Analysts said the Fitch revision was unlikely to affect the pricing of Nigeria's forthcoming $500 million debut global bond, which it plans to issue by the end of the year to establish a benchmark in the international market.

'Ahead of its maiden Eurobond, the market implications of the Fitch outlook revision are probably limited,' said Razia Khan, lead economist for Africa at Standard Chartered.

'However, there is considerable market expectation that any eventual external debt issuance by Nigeria is likely to trade tighter than similarly-rated peers,' she said.

The excess crude account is meant to guard sub-Saharan Africa's second biggest economy against sharp drops in world oil prices and was a pillar of reforms launched in 2003 backed by the International Monetary Fund.

But there is no clear legal basis to determine how ECA funds should be shared between the federal, state and local governments and the savings have fallen to less than $500 million from $20 billion in 2007 amid political wrangling.

President Goodluck Jonathan last month sent a bill to parliament to create a sovereign wealth fund, which the government says will give a more transparent and firmer legal basis to manage oil savings.

But Fitch said it would be a challenge to implement this ahead of the elections, likely to be held in April.

POLITICAL UNCERTAINTY

The presidential race is set to be the most fiercely contested since the end of military rule more than a decade ago, with no clear consensus candidate in the ruling People's Democratic Party (PDP) for the first time since then.

Jonathan is broadly considered the front runner but he faces a tough battle convincing some ruling party elders to back his election bid and jettison a gentleman's agreement that means the next president should be a northerner.

The unwritten pact in the PDP is meant to prevent tribalism and regional rivalries becoming a factor in federal politics by ensuring power rotates every two terms between north and south.

Jonathan is from the southern oil-producing Niger Delta and inherited the presidency after the death of northern President Umaru Yar'Adua this year part-way through his first term.

'Political risk has been heightened by the end of the zoning agreement within the PDP ... This could give rise to instability in the Niger Delta or in the northern states,' Fitch said, noting any unrest in the oil delta would hit the economy.

Kayode Akindele, a director at Lagos-based Greengate Strategic Partners, said the fixed tenure of figures such as the central bank governor and head of the capital markets regulator meant reforms were unlikely to be derailed.

'Key members of the economic management team such as the Central Bank Governor and the Director General of the SEC are insulated ... so the shape of the reforms will more likely continue under any new government,' he told Reuters.

Fitch said Nigeria's current rating was constrained by low per capita income, weak transparency and governance in addition to infrastructure deficits such as power shortages.

But it said robust non-oil sector growth, low public and external debt ratios and a net external creditor position much stronger than peers supported the rating.

It said it saw little concrete progress until after the elections on privatising the power sector, a multi-billion dollar plan which could end chronic electricity shortages and help unlock economic growth.

But it noted costs arising from the AMCON asset management company, set up to soak up bad loans from banks rescued last year in a $4 billion bailout, would still leave Nigeria's debt ratios comfortably below rated peers.

To read the full text of Fitch's statement, click
 

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Analysts caution FG over economy after Fitch rating
MONDAY, 25 OCTOBER 2010 00:00 JOHN OMACHONU
Analysts, yesterday, took a look at Nigeria’s outlook from stable to negative by Fitch Ratings, and expressed caution over the economy, advising government needs to be mindful of some of the concerns raised in the outlook which are likely to scare investors.

Specifically, the analysts agreed at the weekend that, considering the heightened political risk, investors will exercise a greater degree of caution by pricing the country’s instruments on the international market at a higher premium, to compensate for the risks.

But the Federal Government had said that although the report does not amount to downgrading the sovereign rating of the country, it considered the “decision to adjust the outlook downwards, unduly punitive and disagree with it, given the numerous positive features of the country’s economy and ongoing reforms cited by Fitch in its recent press release.”


Last week, international ratings agency, Fitch Ratings (Fitch) affirmed Nigeria’s sovereign credit rating at BB-, but revised the outlook from stable to negative, citing depletion of the Excess Crude Account (ECA), decline in foreign exchange reserves, and their own concern that the reform agenda of the current administration, which they found to be very positive, may not be implemented before the elections.

Reacting to the development, Razia Khan, Regional Head of Research, Africa, Standard Chartered Bank, said: “Given the depletion of the excess crude account and the near-term fiscal pressure Nigeria is experiencing, the Fitch move - revising the outlook on Nigeria ’s rating to negative from stable, while affirming the BB- rating, is not entirely unexpected.

The drawdown of the excess crude account and fall in international reserves are factors that have worried investors, but the Fitch move is altogether more measured, and strikes a good balance between considering near-term cyclical pressures and the potential upside further out. Crucially, they have not downgraded Nigeria, and there is also clear guidance on what would be needed for Nigeria to see its rating improve – the institutionalisation of oil savings, fiscal improvements, including a removal of fuel subsidies, and greater transparency overall.

Nonetheless it is clear that political risk is elevated in the near-term, and investors will exercise a greater degree of caution until there is more clarity on potential outcomes, so the decision to amend the outlook on Nigeria’s rating remains very much in tune with current investor assessment of the risks.”

Khan was of the opinion that recent reforms, such as the effort to establish a sovereign wealth fund and the banking sector policies, should help establish a sounder foundation for future growth and use of hydrocarbons revenue. She went further: “Although – as Fitch correctly point out – the cost of the banking sector clean-up (which will largely be borne by the sector itself) is not inconsiderable, and more meaningful fiscal reforms are unlikely to be enacted until after the elections. Nonetheless, Nigeria’s generally low public debt ratios are a good starting point.

The test for Nigeria will be whether reform momentum can be sustained in the longer term, leading not only to an upward revision to the outlook on Nigeria’s rating, but actual rating upgrades that have so far been denied the country. The reform momentum is key for Nigeria to live up to its potential.”

Johnson Chukwu, managing director and chief executive officer Cowry Asset Management Limited, expressed similar views but said the development will not deter investors, but will make them “invest at a higher premium to compensate for the perceived higher risk.”

But Olusegun Aganga, finance minister, at the weekend, said: “The decision to retain the sovereign rating underscores the fact that the ongoing reforms being implemented by the Federal Government are on the right track, and the prospects for economic growth remain bright. It is important to state that, contrary to some recent media reports, Fitch has not downgraded the sovereign rating of the country. However, we do consider the decision to adjust the outlook downwards unduly punitive and disagree with it, given the numerous positive features of the country’s economy and on-going reforms cited by Fitch in its recent press release.”

Aganga further said: “The Federal Government remains committed to implementing the various reforms which are designed to strengthe the economy and ensure a strong foundation for growth, infrastructural development and job creation.”

However, Atiku Abubakar, former Vice President and a presidential aspirant, has called on the Federal Government to take drastic measures to check the deteriorating state of the nation’s economy. Atiku said the gloomy picture of the nation’s economy painted by foremost rating agency, Fitch Ratings, is a matter for urgent intervention devoid of any political leanings.
 

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FG disagrees with Fitch over rating

Monday, 25 October 2010
The Federal Government has disagreed with the international ratings agency, Fitch Ratings (Fitch), over the reversal of the stable ratings earlier on given to the country to negative.

According to a press statement issued by the Minister of Finance, Mr Olusegun Aganga, at the weekend, the decision to adjust the outlook downwards was unduly punitive, stressing that the government disagreed with it, given the numerous positive features of the country’s economy and ongoing reforms cited by Fitch in its recent rating.

Mr Aganga said the major reasons to reverse the rating cited by Fitch such as the depletion of the Excess Crude Account (ECA); the decline in foreign exchange reserves; and its own concern that the reform agenda of the current administration, which it found to be very positive, may not be implemented before the elections were not cogent enough considering the many positive measures being taken by the current administration to address these concerns which it describes as the “renewed reform momentum in 2010”.

These measures, according to the minister, include the proposed establishment of a Nigerian Sovereign Wealth Fund and urgent steps which are being taken to address the infrastructure deficit, particularly in the power sector as outlined in the power road map that was unveiled by President Goodluck Jonathan in August..
 

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While the rating agencies are crucial to the financial system, especially for the harmonization of investor language, their statements should be taking as professional opinions--opinions that are just as valid as those of the finance ministers and domestic analysts--and not investment gospels. There are more events of collapse that contradicts ratings in the history of finance than those that affirm them. Some countries like Jamaica and Brazil that have never defaulted on their debt have uninspiring ratings for the failure of these agencies to consider economic uniqueness; however, the Nigerian government would be ignoring this outlook at its own peril.

It's just important for observers like you and I to look at the information from both sides of the mirror, and not base long-term economic perception on opinions of private institutions. Their words are only powerful because over the decades, over twenty US financial laws have been mistakenly built around these agencies, like one that defers bank financial institutions from investing in securities with ratings under AA. These firms are not even liable for misstatement arising from negligence or even bias (like auditors are)..

So SSC investors, conduct a more comprehensive analysis of Nigeria before you make your decision.
 

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$30 billion fund now down to under $500 million??!! What happened to the money?
They were mostly disbursed to states and local governments, many of which were experiencing revenue deficits and had problems completing capital projects. Most of these states couldn't access domestic bonds as easily as Lagos or Kaduna states . The money also funded some power projects. So far, there's no element of corruption in the use of the excess crude account and the reserves under the watch of the CBN. The reserves have been depleted because of the pressure of stabilizing the local currency. There's just no specific formula for the use of these funds (institutionalization). Hence, the conversion of the excess crude account to a sovereign wealth fund, which has cleared frameworks for use.
 

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Discussion Starter · #7 ·
While the rating agencies are crucial to the financial system, especially for the harmonization of investor language, their statements should be taking as professional opinions--opinions that are just as valid as those of the finance ministers and domestic analysts--and not investment gospels. There are more events of collapse that contradicts ratings in the history of finance than those that affirm them. Some countries like Jamaica and Brazil that have never defaulted on their debt have uninspiring ratings for the failure of these agencies to consider economic uniqueness; however, the Nigerian government would be ignoring this outlook at its own peril.

It's just important for observers like you and I to look at the information from both sides of the mirror, and not base long-term economic perception on opinions of private institutions. Their words are only powerful because over the decades, over twenty US financial laws have been mistakenly built around these agencies, like one that defers bank financial institutions from investing in securities with ratings under AA. These firms are not even liable for misstatement arising from negligence or even bias (like auditors are)..

So SSC investors, conduct a more comprehensive analysis of Nigeria before you make your decision.
But seriously, where did the money go? The depletion of the ECA is a matter of fact rather than opinion.
 

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Maybe a new thread should be opened for Nigeria's depleting ECA. The outlook is mostly for the reason of heightened political risk with approaching elections. The ECA is not something that should bother external analysts as it's simply a Nigerian innovation. Don't let the nomenclature 'excess' fool you. If the account hadn't been created, the fund would have served the same purpose it serves now in the federation accounts, only with less public scrutiny.
 

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$30 billion fund now down to under $500 million??!! What happened to the money?
Its $20Billion not 30 like u claim. . . and it was used to finance countercyclical monetary expansion when oil fell to $40 a barrel

Because when oil falls below the $60/barrel benchmark.. . u dont have an excess anymore.u actually have deficits (in revenue projections),start piling up

So for most of 2009 the money was given to states to augment their FG allocations. .
Nigeria grew by 5.9% in 2009 so obviously the money served its purpose. . .
which was to maintain the same level of Govt expenditure and avoid a nasty recession

Thats what every Govt in the world did. . .those that didnt have excess savings like Ghana ran up deficits as high as 19% of GDP in 2009,which they have to pay off in coming yrs

U have to be informed about Nigeria before u start making unnecessary noise
by law the several federating units(states,local Govt and so on) own 60% of this money and have a right to it if they cant meet payroll or salaries

after-all whats the point of having money saved for a rainy day,when u cant spend it when heavy rainfall finally comes?
 

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Discussion Starter · #10 ·
Its $20Billion not 30 like u claim. . . and it was used to finance countercyclical monetary expansion when oil fell to $40 a barrel

Because when oil falls below the $60/barrel benchmark.. . u dont have an excess anymore.u actually have deficits (in revenue projections),start piling up

So for most of 2009 the money was given to states to augment their FG allocations. .
Nigeria grew by 5.9% in 2009 so obviously the money served its purpose. . .
which was to maintain the same level of Govt expenditure and avoid a nasty recession

Thats what every Govt in the world did. . .those that didnt have excess savings like Ghana ran up deficits as high as 19% of GDP in 2009,which they have to pay off in coming yrs

U have to be informed about Nigeria before u start making unnecessary noise
by law the several federating units(states,local Govt and so on) own 60% of this money and have a right to it if they cant meet payroll or salaries

after-all whats the point of having money saved for a rainy day,when u cant spend it when heavy rainfall finally comes?
Ive just checked, even when the oil price had recovered it was still going down. And now that oil prices have been above $60 for a long time the ECA is still diminishing. Just in June it was $3.2 billion.

Furthermore, the biggest single tranche was actually a $5.3billion withdrawl, more than 25% of the ECA, for a federal "emergency" power generation scheme. They just built a 1000MW power station in Tehran at the cost of $500 million. So I ask you again, where did that money go?
 

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Ive just checked, even when the oil price had recovered it was still going down. And now that oil prices have been above $60 for a long time the ECA is still diminishing. Just in June it was $3.2 billion.

Furthermore, the biggest single tranche was actually a $5.3billion withdrawl, more than 25% of the ECA, for a federal "emergency" power generation scheme. They just built a 1000MW power station in Tehran at the cost of $500 million. So I ask you again, where did that money go?
Your Question makes no sense because,your premise is built on wrong logic

If i have a savings account in which i pile up money in good times,i cannot be accused of stealing from myself when things go sour for me

The money u are shouting about belongs to Nigerians not u. . . and it went to Nigerian states to pay salaries and maintain a level of spending they are used to
others went to the NIPP which will come on stream in 2011

Nobody came down from mars to save that money for the GOVT and for Nigerians,so if they were corrupt like u allege in your tone,they would not have bothered to save it in the first place

The money was not borrowed like they did in ghana,USA,Uk and so on. . .
so pls stop with your B.S questions

and the International standard for building power plants(Gas fired) is $1Billion for 1000MW output

one more thing Nigeria was able to build those reserves when crude went to $140 a barrel. . right now its nowhere near there
 

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Skipper Energy Plans $1.5 Billion in Nigerian Coal-Power Plants
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By Dulue Mbachu

Oct. 19 (Bloomberg) -- Skipper Energy, a power company operating in the Middle East, India, Switzerland and Ghana, plans to spend about $1.5 billion to build two coal-fueled power plants in Nigeria by 2013.

“Each will have a capacity for 500 megawatts and cost $750 million to $800 million,” Jitender Sachdeva, the company president, said yesterday in an interview in the Nigerian capital, Abuja. The plants will be in Odu and Abocho in Kogi state, central Nigeria, using coal from nearby Okaba and Ogbogbo coal mines where the company has concessions, Sachdeva said.
CONTD. . http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aU1C_ksMmGtg
 

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Discussion Starter · #13 ·
Your Question makes no sense because,your premise is built on wrong logic

If i have a savings account in which i pile up money in good times,i cannot be accused of stealing from myself when things go sour for me

The money u are shouting about belongs to Nigerians not u. . . and it went to Nigerian states to pay salaries and maintain a level of spending they are used to
others went to the NIPP which will come on stream in 2011

Nobody came down from mars to save that money for the GOVT and for Nigerians,so if they were corrupt like u allege in your tone,they would not have bothered to save it in the first place

The money was not borrowed like they did in ghana,USA,Uk and so on. . .
so pls stop with your B.S questions

and the International standard for building power plants(Gas fired) is $1Billion for 1000MW output

one more thing Nigeria was able to build those reserves when crude went to $140 a barrel. . right now its nowhere near there
So Nigeria should have had extra 3000 or 4000 MW at least. $5.3 billion is a lot when there is nothing to show for it.
 

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So Nigeria should have had extra 3000 or 4000 MW at least. $5.3 billion is a lot when there is nothing to show for it.
who told u theres nothing to show. . Most of the IPPS being built are at about 80% level of construction and will push output to 10,000mw BY 2011. . .when completed

However there is also need to invest in a new transmission grid to move the power out,and more gas pipelines to supply the plants..
all these are being worked on
 

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Why should Abesha come in here.

If someone follows a particular type of discussion frequently, then they must be knowledgeable or have some experience or expertise. But then again, I guess this forum is all about learning.
 
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