Naira Strengthens at I&E Window Against Black Market, Records N765.13/$ as Trade Volume Surges 113%

June 23, (THEWILL) – The Investors’ and Exporters’ (I&E) window (official market channel) has turned the tide against the black market, as the gap between both foreign exchange channels stood at N11.83 in favour of the official window as of Thursday, June 22, 2023.

Thursday’s closing rate of 765.13/$ was a marginal drop of N1.96 from 763.17/$ Wednesday, representing a 0.2 percent dip.

THEWILL notes that Nigeria witnessed a historic convergence of both official and parallel markets on Tuesday when trading hovered around N750.50 at both channels.

The FMDQ Exchange, an official rate aggregator, disclosed that trade volume surged by 113 percent to $204.84 million on Thursday, from the previous day’s $96.44 million, suggesting marked improvement in liquidity.

Before the forex reform of June 14 which saw the Naira floated against the previous CBN-controlled rate policy, average daily turnover hovered around $70 million.

Experts predict that the development signals a quick stability in exchange rate and significant improvement in liquidity which has been the root cause of the volatility in the forex market over the years.

The black market rate has been higher than that of the official window in the last eight years; however, earlier this week, the former began to drop below the latter.

The black market has been appealing to foreign exchange sellers due to the premium rate offered, as the dollar was sold and bought above N700, while it hovered around N450 in the official market before June 14, when the rate was let lose.

The disparity between both channels resulted in individuals or businesses in possession of dollars approaching the black market.

This undermined various forex policies of the CBN to strengthen the Naira, such as the now scrapped RT200FX which prescribed incentives for repatriated forex from non-oil exports.

This also caused round tripping among banks, as reports had it that some bank officials obtained dollars from the official market but go ahead to sell in the parallel market to profit from the gap.

However, after the CBN unified the multiple exchange rates last week Wednesday, the gap between the two foreign exchange markets has been closing until the convergence this week, when the dollar rate in the official market began to top the rate in the black market.

About the Author

Sam Diala, THEWILL

Homepage | Recent Posts

Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.

• Sam Diala, THEWILL

  https://thewillnews.com/author/sam/

  Unilever Nigeria Shareholders Approve N4.3bn Dividend
• Sam Diala, THEWILL

  https://thewillnews.com/author/sam/

  CBN To Transfer N5.5trn Development Finance Activities To Private Banks, DFIs
• Sam Diala, THEWILL

  https://thewillnews.com/author/sam/

  Cybersecurity Levy: SERAP, BudgIT, 136 Nigerians Drag CBN to Court
• Sam Diala, THEWILL

  https://thewillnews.com/author/sam/

  Electricity Consumers, industry experts, insiders and other stakeholders have expressed the doubt about the relevance of the recent unbundling of the Transmission Company of Nigeria (TCN) into two entities in solving the notorious electricity challenge that has bedeviled Nigeria for decades. The Nigerian Electricity Regulatory Commission (NERC) recently announced that it has unbundled TCN by establishing the Nigerian Independent System Operator of Nigeria Limited (NISO). NERC made this known in a circular dated April 30. By this development, TCN is expected to transfer all market and system operation functions to the new company, while TCN takes charge of transmission of power to the distribution companies (DisCos) while the generating companies (GenCos) remain the source of power . According to the announcement, the commission had previously issued transmission service provider (TSP) and system operations (SO) licences to TCN, in accordance with the Electric Power Sector Reform Act. However, the Electricity Act 2023, which came into effect on June 9 of that year, provided clearer guidelines for the incorporation and licensing of the independent system operator (ISO), as well as the transfer of assets and liabilities of TCN’s portion of the ISO. Therefore, in the circular, the commission ordered the Bureau of Public Enterprises (BPE) to incorporate, unfailingly on May 31, a private company limited by shares under the Companies and Allied Matters Act (CAMA). The company, NERC said, is expected “to carry out the market and system operation functions stipulated in the Electricity Act and the terms and conditions of the system operation licence issued to TCN” “The name of the company shall, subject to availability at Corporate Affairs Commission, be the Nigerian Independent System Operator of Nigeria Limited (“NISO”),” NERC said. Citing the object clause of the NISO’s memorandum of association (MOU) as provided in the Electricity Act, NERC said the company shall “hold and manage all assets and liabilities pertaining to market and system operation on behalf of market participants and consumer groups or such stakeholders as the Commission may specify”. The new ISO, the commission said, will also be responsible for negotiating and entering into a contract for the procurement of ancillary services with independent power producers and successor generation licensees. Also, it will generally carry out market and system operations functions as specified under the Electricity Act and the terms of its licence in the interest of market participants and system users. NERC said the company is expected to carry out all market and system operation-related contractual rights and obligations handed over by TCN, THEWILL sought clarification of the new arrangement from industry experts and, more especially, employees of TCN who volunteered the necessary information but pleaded for anonymity as they do not have the authority of their employer to speak on the matter. A management staff member of the organisation in Lagos said that the arrangement is not new. He explained that four entities emerged from the carcass of the unbundled national power company, Power Holding Company of Nigeria (PHCN) which the Power Reform Act of 2003, enacted ten years after the unbundling of PHCN in 2013, substituted. These are the GenCos (power providers), Independent Service Operators (grid operators), Transmitting Company (power conveyors) and the DisCos (distribution of power to the final consumers). According to the source, the ISO has been existing and performing its function of evacuating power from the GenCos, and selling to the DisCos via the Transmitting entity. He said, successive administrations and TCN leadership were reluctant to allow the ISO operate independent of TCN because “that is where the meat is”. According to him, the ISO ‘unit’ under TCN relates with the GenCos and the DisCos buy buying power from the GenCos) and selling to he DisCos but “the DisCos are the trouble Nigeria has”. He explained to THEWILL that the DisCos do not accept the volume of power alloted to them by the GenCos on the flimsy excuses that they do not have the capacity to carry the entire volume. Some also claim that a large population of their consumers are chronic debtors and would not pay for the power they receive. “The GenCos constitute a cesspool of corruption. They would prefer to sell power to unmetered consumers on estimated billing band and charge them outrageously far above the service actually rendered. “Again, under the Electricity Reform Act, the DisCos are required to provide and elevate the power infrastructure such as the transformers, transmission wires, cables and metres to the consumers. But the consumers most of these items yet they do not enjoy electricity supply that is commensurate with the money they spend,” the source said. He lamented that the DisCos collect the money from the consumers but fail to invest in infrastructure thereby defeating the purpose of the initiative. “It is not a matter of unbundling, it is tackling the corruption in the system. Why do the DisCos play tricks with the metre supply? Why has it taken us this long to have every electricity consumer metred?” Is it not the same people that will man the unbundled entities?”asked another insider in Abuja TCN. The Nigeria Electricity Report by the National Bureau of Statistics (NBS) for Q3 2023 revealed that the number of estimated-billing customers of the 11 DisCos increased to 6.03 million from 5.9 million year-on-year. The report stated that “estimated customers during the quarter were 6.03 million, higher by 0.53 per cent from 6.00 million in Q2 2023. On a year-on-year basis, estimated customers increased by 2.02 per cent in Q3 2023 from 5.91 million in Q3 2022”. TCN contacts reached out to say they have changed roles and are no longer in the position to speak on the matter. A member of Ikeja Electric Distribution Company who would not want his name disclosed, denied the allegation of corruption against the DisCos. “We distribute what we receive, we are in business, why would a DisCo decline off-take of the volume of power allotted to it?” he asked. Nigeria, with a population of over 200 million rely on about 5,000 megawatts of electricity which makes life and businesses unbearably expensive. Amid this challenge, the federal government recently approved a tariff hike in electricity which makes the people pay more for darkness than electricity supply. The new electricity Act signed by President Bola Tinubu, which allows states to establish their own power generating facilities will help to ameliorate the situation eventually.