Even in the midst of rising default rate, the total amount disbursed to farmers by the Central Bank of Nigeria (CBN) under the Anchor Borrowers Programme has risen to N1.01trillion as at the end of April.
This figure, obtained from the CBN’s reports of its Monetary Policy Committee, stated that the bank disbursed N29.67billion under the Anchor Borrowers’ Programme for the procurement of inputs and cultivation of maize, rice, and wheat, three crops that hitherto were significant concerns of FX demand, between January and February 2022.
“These disbursements bring the total under the programme to over 4.52 million smallholder farmers, cultivating 21 commodities across the country, coming up to a total of N975.61billion.
“Between April and May 2022, the Bank released the sum of N57.91billion under the Anchor Borrowers’ Programme to 185,972 new projects for the cultivation of rice, wheat, and maize, bringing the cumulative disbursement under the programme to N1.01trillion, disbursed to over 4.2million smallholder farmers cultivating 21 commodities across the country”, it stated.
Earlier, the Development Finance Department of the CBN had said in its revised Anchor Borrowers’ Programme Guidelines for September 2021 that insurance cover should be provided under the scheme.
The guidelines said the underwriters should “provide insurance cover for the projects; ensure timely processing and settlement of claims; provide technical assistance to farmers on insurance policies; and monitor projects for early warning signals or red flags.”
The guidelines further said that they should render periodic report on farm conditions; serve as member of the project management team; and carry out any other responsibilities as may be prescribed by the CBN from time to time.
The revised guidelines addressed current realities and developments in the ABP, with the aim of promoting best practices in the implementation of the programme.
The document recognised the distinctiveness of smallholder farmers, the ABP transactions dynamics and the project management team in the implementation process, and also adopted measures to ensure the protection of smallholder farmers.
CBN outlined eligibility criteria and responsibilities of relevant stakeholders under the programme such as the loan limit, interest rate, tenor and agricultural commodities eligible for financing under the programme.
tion process and enhancing stakeholders’ participation for the realisation of the ABP’s objective.
It also noted that the broad objective of the ABP was to create economic linkages between smallholder farmers and processors with a view to increasing agricultural output and ensuring food price stability.
By: Collins Walter
House Probes Petrol Subsidy Regime From 2017 To 2021
The House of Representatives has resolved to investigate the petroleum products subsidy regime in Nigeria from 2017 to 2021, and has set up an ad hoc committee to carry out the probe.
The decision of the parliament followed the adoption of a motion, titled “Need to Investigate the Petroleum Products Subsidy Regime in Nigeria from 2017 to 2021”, presented by Sergius Ose Ogun, representing Uromi/Esan North East Federal Constituency of Edo State at plenary.
Moving the motion, Ogun noted that Section 32 of the Petroleum Industry Act, 2021 saddled the Petroleum Midstream and Downstream Regulatory Authority with the task of regulating and monitoring technical and commercial midstream and downstream petroleum operations in Nigeria.
He said: “As of 2002, the NNPC’s purchase of crude oil at international market prices stood at 445,000 barrels per day in order to enable it to provide petroleum products for local consumption.
“Due to the decline in the production capacity of the refineries, NNPC found it more convenient to export domestic crude in exchange for petroleum products on trade by barter basis described as Direct Sales Direct Purchase, DSDP, arrangement.
“The consumption rate of Petroleum Motor Spirit, PMS, is 40million to 45million litres per day, however, the NNPC uses 65 million to 100 million litres per day to determine subsidy as discoverable from NNPC’s monthly reports to the Federal Allocation Committee, FAAC.
“Component costs in the petroleum products subsidy value chain claimed by the NNPC Limited is highly over-bloated while the transfer pump price per litre used by the NNPC Limited in relation to PPMC is under-quoted as N123-N128 instead of N162-N165 and this fraudulent under-reporting of N37-N39 per litre translates into over N70 billion a month or N840 billion naira a year.
“The subsidy regime has been unscrupulously used by the NNPC and other critical stakeholders to subvert the nation’s crude oil revenue to the tune of over S10 billion, with records showing that as at 2021, over $7 billion in over 120 million barrels have been so diverted.
“Disturbed that there exists evidence that subsidy amounts are being duplicated, thus subsidy is charged against petroleum products sales in the books of NNPC as well as against crude oil revenue in the books of NAPIMS to the tune of over N2 trillion action.”
Speaking on the motion earlier, a member of the House, Obinna Chidioka, noted that the prayer of the motion was akin to the committee currently probing the assets and liabilities of NNPC, asking the House to either commit the motion to the committee or step it down.
But his remark was countered by other lawmakers who noted a difference between the two assignments.
Adopting the motion, the speaker, Femi Gbajabiamila, gave the ad hoc committee eight weeks within which to execute the assignment and report back to the House for further legislative action.
Establish More Fuel Depots, Reps Urge NNPC
The House of Representatives has urged the Nigerian National Petroleum Company (NNPC) Ltd. to establish and equip more depots across the country and strictly regulate the operations of private depot owners to address the lingering fuel scarcity in the country.
This followed the adoption of a motion by Rep Uju Kingsley.
Kingsley, in his motion, noted that there are insufficient depots to store petroleum products in Nigeria.
According to him, an estimated 100 million litres of bad petrol imported into Nigeria have caused fuel scarcity in Nigeria with the consequent effect of adulteration of the product by roadside black market vendors.
He said from information available on the official website of the NNPC, Nigeria has 5,000 kilometres of pipeline network, 21 storage depots and nine (9) LPG depots, which, he said, are grossly inadequate to effectively serve the 36 states of the country as well as the Federal Capital Territory, hence the recurrent fuel scarcity.
The Lawmaker said it was disturbing that many other depots are owned by private individuals who receive fuel from the NNPC and then sell it at exorbitant prices, causing unnecessary irregularities in the price of the product across the country.
He added that if more fuel depots are established, fuel scarcity will be curbed while more employment opportunities will be created as a result, thus improving the country’s economy.
The House adopted the motion and mandated its Committee on Petroleum Resources
‘Smart Airlines Saving Billions Of Dollars From Oil Price Hedging’
Commodity price hedging is a popular trading strategy frequently used by oil and gas producers and heavy consumers of energy commodities, such as airlines, to protect themselves against market fluctuations.
During times of falling crude prices, oil producers normally use a short hedge to lock in oil prices if they believe prices are likely to go even lower in the future, while heavy consumers like airlines do the exact opposite, hedge against rising oil prices, which could quickly eat into their profits.
Nearly all of an airline’s costs are somewhat predictable, except one: the short-term costs of fuel. Fuel is typically the biggest line item in an airline’s expense book and can account for nearly a third of total operating costs.
Two years ago, many large carriers ditched their oil hedges after suffering massive losses due to persistently low oil prices. But with oil prices constantly taking out multi-year highs, they have now been forced to reverse course and are hedging aggressively, with brokers reporting the busiest spell of consumer hedging in years.
And, there is growing evidence that fuel hedges are working as they should this time around.
Hedging is paying off
Southwest Airlines (NYSE:LUV) and Alaska Airlines (NYSE:ALK) are the only major United States carriers that have consistently hedged the cost of jet fuel.
Southwest is the only large United State airline that is also a low-cost carrier, and fuel accounts for a third of its operating costs. The airline began hedging its fuel costs in the early 1990s after crude prices spiked during the first Gulf War and has religiously hedged through thick and thin.
Southwest aims to hedge at least 50 per cent of Southwest’s fuel costs each year and exclusively use call options and call spreads. Company’s treasurer, Chris Monroe, and his team trade crude-oil derivatives as a proxy for jet fuel. They deal with some of Wall Street’s shrewdest commodity-trading desks, including Goldman Sachs, JP Morgan, and seven more traders.
Southwest lost money on its hedges between 2015 and 2017, but this year oil hedges are paying off big-time for the Texas-based carrier.
According to The Financial Times, a crack team of four fuel traders at Southwest Airlines has managed to save the company a whopping $1.2 billion this year through smart hedging. Orchestrated by the company’s treasurer, Chris Monroe, and his team, Southwest hedges have slashed its fuel costs by 70 cents to between $3.30 and $3.40 a gallon this quarter, the carrier disclosed in a recent trading update. Southwest has pegged the fair market value of its fuel-derivative contracts for this year at $1.2 billion.
While oil prices have climbed 40 per cent in the year-to-date, middle distillates have seen an even bigger surge: jet fuel recently traded as high as ~$320/b in New York ($7.61/gallon), a massive ~$200+ premium to crude feedstock prices.
The jet fuel premium is ~10x larger than any premium seen in the past 30 years. Southwest’s hedges must have shielded the company from some major price shocks.
“Our fuel hedge is providing excellent protection against rising energy prices and significantly offsets the market price increase in jet fuel in first quarter 2022,” Southwest CFO Tammy Romo said on the carrier’s first-quarter earnings call.
Southwest is just one of many companies looking to protect themselves from high oil prices. Over the past few months, there has been a renewed appetite from many airlines as well as an influx of first-timers, including Walt Disney (NYSE:DIS), as well as trucking and manufacturing firms.
“We’re also very fortunate that for the next 12 months, we’re very well hedged on fuel. I would ascribe that more to dumb luck than supremely intelligent management. But nevertheless, we have 80% of our fuel purchased forward out to March 2023 at less than $70 per barrel,” Ryanair Holdings Plc (NASDAQ:RYAAY) CEO Michael O’Leary revealed during the company’s latest earnings call.
To be sure, hedging in the current market can be expensive, thanks to the red-hot demand for hedging products. Those higher hedging costs have been accentuated by a lack of liquidity in recent months, making it harder to find counterparties and agree on prices. But with oil prices unlikely to come down any time soon, heavy oil users are left with little choice but to hedge or risk paying billions more in extra fuel costs.
By: Alex Kimani
Kimani reports for Oilprice.com
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