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NNPC JVCs depleting foreign reserves, CBN governor

THE governor of the Central Bank, Mallam Sanusi Lamido Sanusi, says some Joint Venture Cash Calls, JVCs,  agreements entered into by the Nigeria National Petroleum Corporation (NNPC) with international oil companies (IOCs) was responsible for the fast decline in the nation’s foreign reserves.


Sanusi, who said this on Friday while briefing the press on the communiqué of the 69th Special Monetary Policy Committee (MPC) meeting, in Abuja, further disclosed that the apex bank has approved the establishment of a N200 billion Small and Medium Enterprises (SMEs) credit guarantee scheme.

According to him, the JVCs were having a negative effect on the economy, noting, “It is a big problem for us. The reason for the depletion in our foreign reserves is that the revenues that come in are increasingly being diminished by the Joint Venture Cash Calls.

“The very high Joint Venture Cash Calls was robbing government of monies that would have gone into other uses including developing necessary infrastructure and improving the economy”.

Sanusi noted that the issue of the Joint Venture Cash Calls is currently being looked into by the Revenue Mobilization and Fiscal Allocation Commission (RMFAC) and other agencies of the Federal Government.

He added, however, that government was determined to ensure that “most of the revenues that accrue to the government from the sale of crude is kept in the account and not taken up completely by these cash calls.” The CBN boss said that there were annual outstanding NNPC Joint Venture Cash Calls claims running into billions of dollars yet to be settled by the Federal Government in favour of both the NNPC and its joint venture partners. He explained  that as at March 31, 2010, the gross external reserves stood at US$40.68 billion representing a decrease of US$0.71 billion or 1.71 per cent relative to the level of US$41.39 billion as at February 28, 2010.

He added that although the external reserves were sufficient to finance 17 months of imports, which were well above the internationally recommended 3-months import cover, the committee believed that with the rising price of crude oil in the international market in recent months, coupled with the improvement in output with peace in the Niger Delta, there is likely to be an improvement in the level of foreign exchange reserves in the near term.

Sanusi pointed out that the N200 billion SMEs scheme, which will be funded 100 percent by the CBN, has the objective of fast-tracking the development of manufacturing and industrialization of the economy, and improve access to credit to SMEs. In considering the modalities for the restructuring/refinancing programme, he said the committee was concerned about the need for a proper definition of SMEs that will not exclude many potential beneficiaries thereby limiting the effectiveness/impact of the intervention.

“In this regard, the MPC noted the existence of several definitions of SMEs, but felt that by providing a limit to the size of the loan per borrower from an institution more potential borrowers would be covered,” he said.

While speaking on developments in the economy during the first quarter of 2010, Sanusi observed with concern the persisting high lending rates despite the current low inter-bank and deposit rates, and as a consequence the wide spread between lending and deposit rates.

This, the CBN boss attributed to inefficiency in cost management and unrealistic profit expectations and targets. It believed that promoting transparency in the pricing and setting of rates by DMBs could help to drive down lending rates.

“In this regard, DMBs would be required to regularly publish and submit their risk-based interest rate pricing model to the CBN. In addition, the banks would be required to provide a statement showing the relationship between the MPR and their prime and maximum lending rates”, Sanusi stressed.

He said the Monetary Policy Rate (MPR) remains the same at 6 per cent with the asymmetric corridor of interest rates remaining at 200 basis points above the MPR and 400 basis points below the MPR.

According to him, the political system is fully functional with the presence of the acting president and the cabinet. The CBN governor said the MPC had considered, among other things, the modalities for the injection of N500 billion into the real economy in continuation of the current quantitative easing policy.

The MPC, he said, also reviewed domestic economic conditions during the first quarter of 2010 against the backdrop of the global economic and financial developments with a view to guiding monetary and financial sector policies for the rest of 2010.

“The committee noted the persisting tight credit conditions and the continuing under-performance of key monetary aggregates which had informed its earlier decision to embark on a quantitative easing policy to be implemented through investment in debentures to be issued by the Bank of Industry (BOI).

“The committee commended the co-operation of key stakeholders in preparing the modalities for the injection of the N500 billion financing facility for the emergency power projects dedicated to industrial clusters and restructuring/refinancing of DMBs’ exposures to the manufacturing sector and SMEs”, Sanusi said..

He stressed the need for even greater co-operation in fast-tracking on-going reform efforts in the banking sector to ensure the smooth flow of credit to the real sector of the economy as well as energizing reforms in the power and other economic infrastructure sectors, to promote private sector/foreign investment and employment-generating growth.
In this regard, he added that the MPC welcomes the attention to the power sector by the Federal Government.

“The committee emphasized that while economic reforms and human capital development remain key ingredients for economic growth the Bank is mindful of the supportive role that macroeconomic and financial stability plays in achieving sustainable growth and, will continue to focus attention on these two areas,” Sanusi said. “The MPC directed that banks be required to submit their Risk-based Interest Rate Pricing Model to the Central Bank of Nigeria on a monthly basis which will be published. A circular to this effect will be issued shortly.

”It also endorsed complementary policies being put in place by the Board of the CBN, especially the revised guidelines for loan loss provisioning for preferred sectors, the N200 billion guarantee for real sector credit and regulations governing margin lending.” He added that loan pricing, henceforth, be stated as fixed spread above MPR, and shall be adjusted along with MPR movements.

The CBN governor also noted with satisfaction the progress of the AMCON Bill through the national legislature and said that the apex bank will continue in its effort towards expedited passage of the Bill and speedy implementation.


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