Items filtered by date: Friday, 22 February 2019
Friday, 22 February 2019 15:56

Mboweni drops R69bn Eskom bailout bomb

Eskom will get a R69-billion bailout that will increase state debt and debt-servicing costs
 
Finance Minister Tito Mboweni announced this in his maiden budget speech on Wednesday afternoon.
 
At the same time the state budget deficit will widen and the debt as a percentage of gross domestic product (GDP) will rise.
 
The R69 billion bailout will be spread over the three fiscal years ending March 2022 and will come in R23-billion annual payments. Including the Eskom bailout, total extra spending over the next three years will be R75.3 billion.
 
Mboweni also gave the South African Post Office a R1.5-billion bailout.
 
To try and partially offset the Eskom bailout and limit the amount of extra debt, Mboweni announced a R50.3-billion reprioritisation of expenditure over the next three fiscal years and 54% of the cuts coming from compensation budget adjustments.
 
The report indicates that, when compared with the medium-term budgetary policy statement in October, the main budget deficit is projected to widen to 4.7% of GDP in the 2020 fiscal year from a forecast 4.2%.
 
The 2019 fiscal year is forecast to end with a budget deficit of 4.2% up from 4% forecast at the medium-term budgetary policy statement.
 
The Eskom bailout and other extra expenditure will boost government debt and gross debt is expected to stabilise at 60.2% of GDP in the 2024 fiscal year up from a forecast debt to GDP percentage of 59.6% at the time of the medium-term budgetary policy statement.
 
Gross government debt is forecast to rise from R2.8 trillion at the end of March 2019 to R3.7 trillion in March 2022.
 
Debt service costs are also set to increase.
 
“Debt-service costs are higher than the 2018 budget estimates by R2.1 billion in the current year, R4.5 billion in 2019/20 and R10.2 billion in 2020/21,” the report said.
 
The major credit rating agencies may react unfavourably to the Eskom bailout but the reprioritisation of expenditure is an attempt to try and placate them.
 
The power utility had asked the government for a R100 billion bailout and Eskom has also applied to the National Energy Regulator of South Africa (Nersa) for three annual power price hikes of 15% or more over the next three years while at the same time looking to recover about R21 billion due to a revenue shortfall.
 
As a result of the Eskom bailout, the government hiked its expenditure ceiling by R16 billion over the next three years.
 
Investec economist Annabel Bishop this week wrote that: “On the expenditure side, the budget is likely to preserve the expenditure ceiling, which places a limit on main budget non-interest spending, outlined in the medium-term budgetary policy statement [in October] unless the capital injection to Eskom transpires not be deficit neutral.”
 
The expenditure ceiling for the fiscal year ending March 2019 will be maintained while the total hike of R16 billion will happen over the three fiscal years ending March 2022.
 
Eskom is its current form was not financially sustainable, nor could it meet the country’s power needs, 2019 budget review report said.
 
In this state of the nation speech, President Cyril Ramaphosa said that as part of the restructuring of Eskom it would be split into three units comprising generation, transmission and distribution.
 
“The Eskom board is developing a sustainable operational plan for each business. Government will give consideration to these proposal within the next three months,” the 2019 budget review report said.
 
“The first step in the separation process will be to transfer a portion of Eskom’s assets to a new transmission company … The new company will invite the participation of strategic equity partners that will provide capital for the business and strengthen oversight.”
 
“The financial support package, with strict conditions attached, will enable Eskom to restore positive cash flows and secure the necessary liquidity to undertake maintenance to restore stable electricity supply,” the report said.
 
“Further steps in restructuring the electricity market will be announced in the months ahead,” the report said.
 
The compensation adjustments to lower expenditure to make way for the Eskom bailout are a result of fewer state employees, which have fallen from 1.245 million in 2015 to under 1.23 million in 2018.
 
To try and cut more government employees and cut expenditure, the state is looking to increase early retirements.
 
“The combination of natural attrition and active measures allow a reduction of compensation budgets by R5.3 billion in 2019/20, R11 billion in 2020/21 and R10.7 billion in 2021/22. Wage increases for members of Parliament and provincial legislatures are frozen in 2019/20. In addition, public entities are encouraged to freeze salaries of employees earning R1.5 million or more in 2019/20, while those earning between R1 million and R1.5 million a year should receive a below inflation increase of 2.8%. This follows several years of below-inflation increases for senior management in national and provincial government.”
 
The wage freeze for political office holders will save R132.8 million of the amount transferred through the provincial share over the next three tax years.
 
“Several other state-owned companies are also in financial distress and have requested government support. As a result, the contingency reserve has been revised up by R6 billion in 2019/20 and any funding provided will be offset by the sale of non-core assets. Additional reforms to strengthen the governance, finances and operations of state-owned companies will be announced in the months ahead,” the 2019 budget review report said.
 
State companies that are looking for bailouts include the South African Broadcasting Corporation and Denel.
 
“Several state-owned companies face negative cash flows and are financing operations from debt, which has become increasingly difficult to raise. This moves them perilously close to default unless they receive some form of recapitalisation.”
Published in Engineering
New figures released by the Central Bank of Nigeria (CBN) has shown that the Federal Government recorded a deficit of N3.4 trillion in its financial operations in 2018.
 
The 2018 budget, signed by President Muhammadu Buhari on June 20 last year, had total spending of N9.1tn, comprising of N2.87tn for capital expenditure, N3.51tn for recurrent (non-debt) expenditure while N2.01tn was budgeted for debt servicing.
 
Government had planned to fund the budget by generating N658.55bn from Companies Income Tax, N207.51bn from Value Added Tax, N324.86bn from Customs while N57.87bn was expected to come from federation account levies.
 
Also, the government planned to raise N847.95bn through independent revenue from its agencies, while tax amnesty income, signature bonus and unspent balance from previous years was to provide N87.84bn, N114.3bn and N250bn respectively
 
However, the CBN Economic Outlook Report for the fourth quarter of 2018 showed that the government’s revenue target was not met, as it was able to generate enough to meet its expenditure.
 
In the first quarter of last year, the Federal Government’s retained revenue was put at N884.88bn while it’s expenditure was N2.01tn. This resulted in a fiscal deficit of about N1.13tn.
 
In the second quarter of last year, the Federal Government earned N1.12tn while it’s expenditure was N1.63tn, resulting in a deficit of N504.8bn.
 
For the third quarter, the revenue of the Federal Government was put at N1.03tn with the expenditure of N1.89tn, leading to a deficit of N855.09bn.
 
For the fourth quarter, the fiscal deficit widened to N910.4bn as the government was only able to generate N916.44bn to take care of its total expenditure of N1.82tn.
 
The CBN said in the report: “The Federal Government retained revenue for the fourth quarter of 2018 was estimated at N916.44bn.
 
“This was below the proportionate quarterly budget estimate and the receipts in the preceding quarter by 51.5 per cent and 11.5 per cent, respectively.
 
“Of the total revenue, the Federation Account accounted for 90.4 per cent, while Value Added Tax, Excess crude/Petroleum Profit Tax,
 
“Federal Government Independent Revenue, Excess Non-oil and Exchange Gain accounted for 4.3, 3.5, 1.4, 0.3 and 0.1 per cent, respectively.
 
“The estimated Federal Government expenditure for the fourth quarter of 2018 stood at N1.82tn and was below the proportionate quarterly budget estimate of N2.37tn by 23.1 per cent and the level in the preceding quarter by 3.4 per cent.
 
“A breakdown of the total expenditure showed that the recurrent component accounted for 87.8 per cent, while capital and statutory transfers accounted for 5.9 and 6.3 per cent, respectively.
 
“A further breakdown of the recurrent expenditure showed that the non-debt component accounted for 53.8 per cent, while debt service payments were 46.2 per cent.”
 
Published in Bank & Finance

President Nana Addo Dankwa Akufo-Addo on Thursday announced a stimulus package to revamp Ghana’s struggling textile industry.

“Our local textile industry has been struggling for years, and many textile companies have, indeed, gone under. We have decided to give it a major stimulus to help put it on a strong footing,” President Akufo-Addo stated in his 2019 State of the Nation Address (SONA) to Parliament.

“The local textile industry has, therefore, been granted a zero-rated VAT (Value Added Tax) on the supply of locally-made textiles for a period of three years,” he said.

“We have put in place a tax stamp regime for both locally manufactured and imported textiles to address the challenge of pirated designs and logos in the textile trade.”

President Akufo-Addo said the Tema Port had been designated as a Single-Entry Corridor for the importation of textile prints, with a textile taskforce in place to ensure effective compliance, and reduce, if not eliminate, smuggling of imported textiles.

He said a new textile import management system had been instituted, to also control imports of textiles.

He said the “One-District-One-Factory” policy had taken off, and 79 factories under the scheme were at various stages of operation or construction; adding that, another 35 were going through credit appraisal.

“All told, there is a lot of activity going on under the scheme, and it has awoken the interest of young people to go into manufacturing business,” he said.

President Akufo-Addo said under the Rural Enterprises Programme, funded by the African Development Bank and the International Fund for Agricultural Development, 50 small-scale processing factories would be established by the end of the year in 50 districts across the country, particularly in areas where there was evidence of significant post-harvest losses.

He said these would be owned and managed by organised youth groups, with technical support from the Ministry of Trade and Industry.

GNA

Published in Business

Zimbabwe’s decision to scrap a peg between its quasi-currency bond notes and the U.S. dollar brings a welcome end to a failing monetary policy, but it is not the solution to a deeper crisis, economists said on Thursday.

The Reserve Bank of Zimbabwe (RBZ) on Wednesday said it would carry out a “managed float” of the surrogate bond notes and electronic dollars, effectively creating a national currency for the first time since adopting the U.S. dollar in 2009.

The bond notes and electronic dollars will be known as a separate currency called RTGS dollars.

Banks were closed for a public holiday on Thursday.

Street traders said there had yet to be any change on the black market, where one U.S. dollar still costs around 3.5 bond notes and $4 in electronic funds.

“I think if the RBZ manages to keep liquidity low the rate will definitely stabilise,” one trader said.

Due to a desperate lack of hard currency, the bond notes and notional dollars in the electronic banking system have been steadily dropping in value on the street, worsening the hardships of ordinary Zimbabweans as inflation soared.

Many foreign traders have stopped accepting bond notes as legal tender, leaving businesses such as millers, brewers and miners hamstrung. A more realistic approach will be welcomed by investors and foreign donors but it will not reverse the currency crisis, experts said. The RBZ only has enough foreign exchange for two weeks of imports.

“The fact that officials finally came to their senses and ditched the notion that Zimbabwe’s quasi currency was at par with the US dollar, is comforting,” said Jee-A Van Der Linde, analyst at NKC African Economics.

“With consumer prices soaring, significant amounts of multilateral debt arrears, virtually no foreign reserves, and confidence at rock-bottom, Zimbabwe’s problems are still far from over – nor is the road ahead any clearer.”

The RBZ hopes its new measures will temper demand for dollars on the black market and ease inflation as the new currency settles at fair value. This will only work if the central bank can access foreign exchange on international markets, which it says it has secured. Many Zimbabweans have their doubts.

“What they have done is to reintroduce the Zimbabwe dollar without the name. We have seen this before, it will lose value very soon,” said James Mawire, a manager at a firm that sells mining equipment.

“What is lacking, and which is most important, is confidence in the government. People don’t trust the government and the Reserve Bank.”

Though the RBZ said it had accessed sufficient lines of credit to buttress the exchange market, it provided few details. 

“There are many questions that remain unanswered,” said Tony Hawkins, professor of business studies at University of Zimbabwe.

“This is a step in the right direction but it is not a solution. What they need is a large supply of dollars, without that this will not work. So you call this a bandage and not a cure.”

 

- Reuters

Published in Bank & Finance
A Lagos High Court sitting at Igbosere, Lagos, Southwest Nigeria has issued a bench warrant for the arrest of the former Super Eagles Captain, Austin Okocha, a. k. a. Jay Jay Okocha for failure to appear in court several times to answer to why he has allegedly failed to pay his income taxes.
 
Okocha was dragged before the court by the Lagos State Ministry of Justice for failure to furnish return of his personal income tax.
 
On June 6, 2017 complaint was filed before the court against the former Super Eagles Captain, the case came up for the first time on Oct. 5, 2017 but he failed to appear in court.
 
However, after several adjournments without him appearing in court when service had been served on him, the prosecutor urged the court to issue a bench warrant for his arrest.
 
The Presiding Judge, Justice Adedayo Akintoye, on Jan. 29 issued a bench warrant for the arrest of the ex-Supper Eagles Captain and adjourned until February 19, 2019, for him to be produced in court.
 
However, on February, 2019, the prosecution had not effected the arrest, the court then ordered that on the next adjourned date, the order should have been executed.
 
Consequently, Justice Akintoye adjourned the case till April 15, 2019 for the execution of the bench warrant and Okocha made to appear in court for trial to commence.
 
Okocha was alleged to have failed to furnish return of his income tax to the Lagos State Internal Revenue Services, which indicated that he had failed to pay his income taxes.
 
The offences alleged to have been committed by Okocha contravened Sections 56 (a) and (b) of the Lagos State Revenue Administration Law No.8, 2006, and Section 94 (1) of the Personal Income Tax Act Cap P8, Laws of the Federation of Nigeria 2004.
Published in World
The Advisory Power Team (APT) at the office of the Vice President of Nigeria has said the nation’s power sector lost N69.1bn between January 1 and February 19 this year due to the persistent challenges in the industry.
 
According to data from the APT released on Wednesday, the loss in the sector was due to insufficient gas supply to power generation plants as well as inadequate distribution and transmission infrastructure.
 
The data showed that a total of 2,332.95 megawatts of electricity was not generated due to the unavailability of gas on February 19, 2019.
 
The data further showed that 32.5MW of power was not generated due to unavailability of transmission infrastructure, while 543MW was not generated due to high frequency resulting from unavailability of distribution infrastructure.
 
On the same day, 150MW of power was recorded as losses due to water management constraint.
 
The APT said: “The power sector lost an estimated N1.468bn on February 19, 2019 due to insufficient gas supply, distribution infrastructure and transmission infrastructure.
 
“The estimated amount lost to insufficient gas supply, distribution, transmission and water reserves to date in 2019 is N69,064,000,000.”
 
Also on February 19, 2019, the average energy sent out in the sector was 4,408MW-hour/hour, up by 3.28MWh/h from the previous day’s figure.
 
The APT further noted that the dominant constraint on February 19, 2019 was unavailability of gas, preventing a total of 2,332.95MW from being available on the grid, adding that peak generation attained on the same day was 5,017MW, while peak average energy ever sent out was 4,557MWH/H on February 2, 2016.
 
The peak generation ever attained was put at 5,375MW, which was recorded on February 7, 2019.
 
Published in Economy
The South African government is forecast to be hit by a tax revenue shortfall of almost R43 billion for the tax year ending next month, Finance Minister Tito Mboweni indicated in his budget speech on Wednesday.
 
There were pronounced risks to the local economic outlook with the main risk of concern being power utility Eskom and its financial woes, the 2019 budget review report indicated.
 
The report indicated that government tax revenue for the 2019 fiscal year would come in at R43 billion under the target set at the 2018 budget speech.
 
“There are pronounced risks to the economic outlook. The main risk of concern is Eskom. Failure to fully implement the reconfiguration of Eskom could lead to a negative market reaction that would prompt capital outlflows, with greater pressure on the rand. It would also perpetuate weak investor confidence and reduce economic growth,” the report said.
 
In the worst case scenario, National Treasury is forecasting negative 1% growth this year while its best-case scenario is just over 2% growth.
 
Mboweni cut the National Treasury’s forecast for economic growth for this year from 1.7% to 1.5% due to “fragile recovery in employment and investment, and a less supportive global trade environment”.
 
By 2021, the National Treasury’s best-case scenario is growth of 3% and its worst-case scenario is 1%.
 
“The economic and revenue outlook has deteriorated since the October 2018 medium-term budgetary policy statement and funding pressures from state-owned companies have increased,” the medium-term budgetary policy statement said.
 
“Several other state-owned companies are also in financial distress and have requested government support. As a result, the contingency reserve has been revised up by R6 billion in 2019/20 and any funding provided will be offset by the sale of non-core assets. Additional reforms to strengthen the governance, finances and operations of state-owned companies will be announced in the months ahead,” the 2019 budget review report said.
 
State companies that are looking for bailouts include the South African Broadcasting Corporation (SABC) and Denel.
 
“Several state-owned companies face negative cash flows and are financing operations from debt, which has become increasingly difficult to raise. This moves them perilously close to default unless they receive some form of recapitalisation.”
 
In another worrying sign, debt owed to municipalities is increasing. At the end of March, debt owed to municipalities is forecast to climb to almost R159 billion from almost R99 billion at the end of March 2015.
 
Of debts owed by municipalities that are more than 90 days in arrears, Eskom is the major creditor – it is owed R12.8 billion – followed by water boards with R6.4 billion.
 
“From July 2018 to June 2019 municipal financial year, 113 municipal councils adopted unfunded budgets, up from 83 the prior year.”
 
The government is expecting to issue $2 billion (about R28 billion) in debt by the end of the 2019 fiscal year.
 
Over the next three years, the government will raise an additional $8 billion (about R114 billion) in global capital markets.
 
“This year’s budget underlines the National Treasury’s continued commitment to these requirements in a difficult environment in which economic growth remains weak, public debt and debt-service costs have accelerated and governance and operational concerns are manifest across the public sector,” the review report said.
 
“Weak economic performance and residual problems in tax administration have resulted in large revenue shortfalls,” the report said.
 
“The deteriorating financial position of state-owned companies has put additional pressure on the public finances,” the report added.
 
“The government’s efforts to reform state-owned companies and the launch of the infrastructure fund are expected to increase growth and investment in the year ahead,” the 2019 budget review report said.
 
For the 2020 fiscal year, consolidated government expenditure is forecast to R1.83 trillion.
Published in News Economy
Oil prices fell on Friday after the United States reported its crude output hit a record 12 million barrels per day (bpd), undermining efforts by Middle East-dominated producer club OPEC to withhold supply and tighten global markets.
 
International Brent crude futures were at 66.87 dollars per barrel at 0326 GMT, down 20 cents, or 0.3 per cent, from their last close.
 
U.S. West Texas Intermediate (WTI) crude oil futures were at 56.84 dollars per barrel, down 12 cents, or 0.2 per cent, from their last settlement.
 
U.S. crude oil production reached 12 million bpd for the first time last week, the Energy Information Administration (EIA) said on Thursday in a weekly report.
 
That means U.S. crude output has soared by almost 2.5 million bpd since the start of 2018, and by a whopping 5 million bpd since 2013.
 
America is the only country to ever reach 12 million bpd of production.
 
As output surges, U.S. oil stocks are also rising.
 
U.S. commercial crude oil inventories rose by 3.7 million barrels to 454.5 million barrels in the week ended Feb. 15, the EIA said.
 
Analysts say U.S. output will rise further and that oil firms will export more oil to sell off surplus stocks.
 
“We see total U.S. crude production hitting 13 million bpd by year-end, with 2019 averaging 12.5 million bpd,” U.S. bank Citi said following the release of the EIA report.
 
Of that, the bank said, “we could be seeing some weeks with 4.6 million bpd of gross crude exports by end-year, adding to this week’s new record” of 3.6 million bpd.
 
Friday’s dips at least temporarily halted a rally that pushed crude prices this week to their highest for 2019 so far amid the supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC).
 
OPEC and some non-affiliated producers such as Russia agreed late last year to cut output by 1.2 million bpd to prevent a large supply overhang from growing.
 
Another recent price driver has been U.S. sanctions against oil exporters Iran and Venezuela. 
 
Published in Business
Oil prices fell on Friday after the United States reported its crude output hit a record 12 million barrels per day (bpd), undermining efforts by Middle East-dominated producer club OPEC to withhold supply and tighten global markets.
 
International Brent crude futures were at 66.87 dollars per barrel at 0326 GMT, down 20 cents, or 0.3 per cent, from their last close.
 
U.S. West Texas Intermediate (WTI) crude oil futures were at 56.84 dollars per barrel, down 12 cents, or 0.2 per cent, from their last settlement.
 
U.S. crude oil production reached 12 million bpd for the first time last week, the Energy Information Administration (EIA) said on Thursday in a weekly report.
 
That means U.S. crude output has soared by almost 2.5 million bpd since the start of 2018, and by a whopping 5 million bpd since 2013.
 
America is the only country to ever reach 12 million bpd of production.
 
As output surges, U.S. oil stocks are also rising.
 
U.S. commercial crude oil inventories rose by 3.7 million barrels to 454.5 million barrels in the week ended Feb. 15, the EIA said.
 
Analysts say U.S. output will rise further and that oil firms will export more oil to sell off surplus stocks.
 
“We see total U.S. crude production hitting 13 million bpd by year-end, with 2019 averaging 12.5 million bpd,” U.S. bank Citi said following the release of the EIA report.
 
Of that, the bank said, “we could be seeing some weeks with 4.6 million bpd of gross crude exports by end-year, adding to this week’s new record” of 3.6 million bpd.
 
Friday’s dips at least temporarily halted a rally that pushed crude prices this week to their highest for 2019 so far amid the supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC).
 
OPEC and some non-affiliated producers such as Russia agreed late last year to cut output by 1.2 million bpd to prevent a large supply overhang from growing.
 
Another recent price driver has been U.S. sanctions against oil exporters Iran and Venezuela. 
 
Published in Business
Oil prices fell on Friday after the United States reported its crude output hit a record 12 million barrels per day (bpd), undermining efforts by Middle East-dominated producer club OPEC to withhold supply and tighten global markets.
 
International Brent crude futures were at 66.87 dollars per barrel at 0326 GMT, down 20 cents, or 0.3 per cent, from their last close.
 
U.S. West Texas Intermediate (WTI) crude oil futures were at 56.84 dollars per barrel, down 12 cents, or 0.2 per cent, from their last settlement.
 
U.S. crude oil production reached 12 million bpd for the first time last week, the Energy Information Administration (EIA) said on Thursday in a weekly report.
 
That means U.S. crude output has soared by almost 2.5 million bpd since the start of 2018, and by a whopping 5 million bpd since 2013.
 
America is the only country to ever reach 12 million bpd of production.
 
As output surges, U.S. oil stocks are also rising.
 
U.S. commercial crude oil inventories rose by 3.7 million barrels to 454.5 million barrels in the week ended Feb. 15, the EIA said.
 
Analysts say U.S. output will rise further and that oil firms will export more oil to sell off surplus stocks.
 
“We see total U.S. crude production hitting 13 million bpd by year-end, with 2019 averaging 12.5 million bpd,” U.S. bank Citi said following the release of the EIA report.
 
Of that, the bank said, “we could be seeing some weeks with 4.6 million bpd of gross crude exports by end-year, adding to this week’s new record” of 3.6 million bpd.
 
Friday’s dips at least temporarily halted a rally that pushed crude prices this week to their highest for 2019 so far amid the supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC).
 
OPEC and some non-affiliated producers such as Russia agreed late last year to cut output by 1.2 million bpd to prevent a large supply overhang from growing.
 
Another recent price driver has been U.S. sanctions against oil exporters Iran and Venezuela. 
 
Published in Business
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