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UK industry could face shutdowns as wholesale gas price hits record high

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UK industry could face shutdowns as wholesale gas price hits record high

Wholesale gas prices hit new all-time highs on Wednesday, prompting warnings that factories could be forced to shut down over winter or switch to more polluting fuels just as the UK hosts the Cop26 climate conference next month.

The crisis has already forced a wave of collapses among energy suppliers that has led to warnings of “desperate choices” for households likely to face higher bills as a result.

As power-hungry sectors such as steel, glass and chemicals fight their own battle with soaring gas and electricity costs, they warned of further shocks to both industry and consumers, including higher prices of goods and factories being forced to temporarily close.

Growing concern about the domino effect of high energy prices came as the cost of gas for delivery the next day reached 350p per therm on Wednesday, while gas for delivery in November reached 407p, both new records. Prices fell back later, after Russia’s president, Vladimir Putin, indicated that the country, the largest supplier of gas into Europe, was prepared to help ease the crisis.

But leading figures from energy-intensive industries said serious ramifications were already on the cards unless the government heeded their call for measures to reduce energy costs.

Trade body UK Steel said it was now “uneconomic” to make steel at certain times in the UK, with British firms facing double the electricity prices paid by rivals in Germany, France and the Netherlands. British Steel, based in Scunthorpe, has begun adding surcharges of up to £30 a tonne to its products to recoup higher energy costs, increasing costs for customers in the construction and automotive sectors.

David Bailey, a professor of business economics at Birmingham Business School, said consumers could end up feeling the pinch if steel remained expensive. “They’ll pass it on to consumers ultimately, so it could increase the price of cars,” he said.

Network Rail, which owns Britain’s 20,000 miles of railway and buys about 97% of its track from British Steel, said it had yet to see an increase in prices.

With just weeks to go until the UK hosts the Cop26 global climate conference, leaders in the glass and minerals industries said high gas prices could ultimately lead to increased pollution.

Richard Stansfield, the chief executive of the lime manufacturer Singleton Birch, said the increased cost of production was being passed on to consumers, including water companies and firms that use the mineral to turn waste into energy.

“We could get into a ridiculous situation where it’s cheaper to put waste into landfill than to put it into waste-to-energy plants,” he said. “There are all sorts of knock-on effects.”

Paul Pearcy, the federation coordinator at the trade body British Glass, said companies that make windows could be forced to revert to powering their furnaces with polluting fuels that had been abandoned.

“Some of our members still have heavy fuel oil on site, having moved over to gas,” he said. “Some of them are seriously considering moving back to that because of the price of gas.

“As prices go the way they are, it becomes more and more financially attractive but with Cop26 around the corner, it’s not a great advert.”

Glass companies and steelmakers run their furnaces continuously, making it extremely difficult, time-consuming and costly to shut down.

Jon Flitney, of the British Ceramic Confederation, said the same was true of its members’ kilns, meaning any decision to scale back operation would “not be taken lightly”.

However, he said that if prices remain high, “the balance between income and operating costs may shift”.

The glass, steel and minerals industries are all members of the Energy Intensive Users Group trade body, which warned of shutdowns in essential industries without help from the government and the energy regulator, Ofgem.

Richard Leese, the chairman of the group, said: “We have already seen the impact of the truly astronomical increases in energy costs on production in the fertiliser and steel sectors.

“Nobody wants to see a repeat in other industries this winter given that UK energy-intensive industries produce so many essential domestic and industrial products and are intrinsically linked with many supply chains.”

The group has called for exemptions for energy-intensive industries from measures designed to help fund renewable energy and penalise carbon emissions.

Any slowdown in work schedules could place a further drag on the economy, adding to concern in sectors such as construction, where shortages of materials and staff drove growth expectations to an eight-month low, according to survey figures released on Wednesday.

Spiking gas prices have already taken their toll on British business, forcing fertiliser plants to shut down and capsizing 12 energy suppliers. A 13th, Omni Energy, warned its customers on Wednesday that it could cease trading in November.

The energy adviser Cornwall Insights said it expected the effect to drive up household energy bills into 2023, by driving the government-imposed cap on energy prices higher.

It expects the energy price cap, currently set at £1,277 for an average dual fuel customer paying by direct debit, to reach £1,659 for summer 2022 and £1,663 for next winter.

The business department said: “We are determined to secure a competitive future for our energy-intensive industries and in recent years have provided them with extensive support, including more than £2bn to help with the costs of energy and to protect jobs.

“Our exposure to volatile global gas prices underscores the importance of our plan to build a strong, home-grown renewable energy sector to further reduce our reliance on fossil fuels.”

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Naira depreciates further to N614/$ at parallel market

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Naira depreciates further to N614/$ at parallel market

The Nigerian naira has dropped to N614 against the dollar at the parallel section of the foreign exchange market.

The figure signifies a depreciation of N7 or 1.2 percent compared to the N607 it traded last two weeks.

Bureaux De Change operators (BDCs), popularly known as ‘abokis’, who spoke to TheCable in Lagos on Tuesday, said they purchase the greenback at N608/$, make a gain of N6, and then sell at N614.

At the official market, the naira also depreciated by 0.21 percent to close at N421/$ on Monday, according to information obtained from FMDQ OTC Securities Exchange — a platform that oversees official foreign-exchange trading.

Nigeria operates multiple exchange rate windows ranging from the importers and exporters window (I&E) window, where forex is traded between exporters, investors, and purchasers of forex, the SMEIS window where forex is sold to importers, and others.

International organisations such as the World Bank and the International Monetary Fund (IMF) have constantly advised the Central Bank of Nigeria (CBN) to unify the official and parallel market exchange rates.

But Godwin Emefiele, the CBN governor, had said that despite advice offered by IMF and the World Bank, developing economies such as Nigeria had the liberty of adopting “homegrown solutions to their economic problems.

According to him, the managed floating exchange rate, which allows the CBN to intervene in the market when there is a supply shock, would be in place as long as supply exceeds demand.

“They want us to free the exchange rate. And you do know that this has some impacts on the exchange rate itself,” he had said.

“When you allow that to happen, you will have an uncontrollable spiral on the naira.

“But what managed float means is that we have some measures in place to help control the spiral.”

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FG, states in trouble, as NNPC again fails to remit, despite N470.61bn revenue

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FG, states in trouble, as NNPC again fails to remit, despite N470.61bn revenue

These are challenging times for the federal and state governments as one major source of income to the federation account seems to be totally cut off.

On Monday, The National Petroleum Company Limited (NNPC) revealed it failed to remit monies to the federation account in May 2022 despite making N470.61 billion.

This is the fifth straight month NNPC has failed to credit the federal account while exporting crude at an average price of $100 per barrel.

Details of the June FAAC report obtained by The Harmattan News showed NNPC since the start of the year made N1.897 trillion, over N234.1 billion more than the expected revenue.

Sadly, however, NNPC said all the revenue had gone into various expenditure which includes petrol subsidy, oil search, Pipeline Security & Maintenance cost, National Domestic Gas Development and Nigeria Morocco Pipeline cost among others.

As expected, the bulk of the expenditure, N1.27 trillion, went toward recovery (also known as petrol subsidy).

In fact, NNPC said it has budgeted another N617 billion for petrol subsidy in June.

The report reads: “The Value Shortfall on the importation of PMS recovered from May 2022 proceeds is N327,065,907,048.06 while the outstanding balance carried forward is N617bn .”

“The estimated Value Shortfall of N845,152,863,012.97bn (consisting of arrears of N617bn plus estimated May 2022

Value Short Fall of N227,721,200,478.23) is to be recovered from June 2022 proceed due for sharing at the July 2022 FAAC Meeting,” it added.

The development means states have a tough road ahead and will have to look inwards to cover for the drop in federal allocations.

Already, some states have announced plans to slash workers’ salaries over dwindling income.

Kano Sate has already announced plans to slash workers’ salaries, following in the foot steps of the Ekiti State government that announced civil servants’ and political appointees’ salaries will be slashed in response to the present economic reality in the country.

Ekiti went further to suspend minimum wage implementation with no date of resumptions.

The Harmattan News had recently reported that pension contribution from governments dropped to a 16-year low in the first quarter of 2022.

From recent developments, it is more likely the figure will tank further.

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Nigerian govt to auction N225bn bond as search for funds continues

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Nigerian govt to auction N225bn bond as search for funds continues

Federal government bonds worth N225 billion would be auctioned today, Monday, June 20, 2022, by the Debt Management Office (DMO) at the primary market.

The debt instrument is being sold by the central government to raise funds to finance the 2022 budget deficit and in today’s exercise, the DMO is offering the notes in three tenors.

The debt office is anticipated to sell the FGN bonds at double digits to make the asset class more attractive to investors.

In a circular published on its website and obtained by The Harmattan News, all three maturities are re-opening, meaning they are from the previously sold bonds.

The circular noted that N75 billion worth of a 10-year bond with maturity in 2025 would be offered for sale at the auction. Another N75 billion worth of a 10-year note maturing in 2032 is up for grabs and N75 billion worth of a 20-year instrument with maturity in 2042 would be sold.

Intending subscribers would be expected to reach out to primary dealer market makers to buy the bonds for N1,000 per unit subject to a minimum subscription of N50 million and in multiples of N1,000 thereafter.

The interest would be paid by the government semi-annually, while the bullet repayment will be done on the maturity date.

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