Controversies trail NNPC’s crude-for-cash loan

THERE are unanswered questions about the Nigerian National Petroleum Company Limited’s (NNPCL) $3.3 billion crude-for-cash loan from the African Export-Import Bank (Afreximbank).

The national oil company had sought to stabilise the naira with the facility, but experts are concerned about some pitfalls.

Despite the crude-for-cash arrangement, the naira has continued on a downward spiral against the dollar.

For instance, data from the FMDQ exchange showed that the naira closed at N925.34 at the official Nigerian Autonomous Foreign  Exchange Fixing-NAFEX rate on Monday, January 22.

However, at the parallel market rate, it traded at N1,360/$, showing a further decline against the dollar.

More so, there are questions about the long-term implications of the swap deal in the nation’s economy, amid Nigeria’s growing debt.

Chief executive officer of Financial Derivatives Company Limited, Bismarck Rewane, expressed worry about such arrangements by the national oil company, adding that the naira had been under pressure despite the arrangements.

“In all due respect, that will not solve the problem of the naira. The naira is still under pressure and is trading at about N1,350/$ this morning, the lowest point it has gone to in many years,” he said.

Also, the co-founder of Dairy Hills, Kelvin Emmanuel, expressed concerns over the high risk of resource-backed loans.

“I am not a fan of resource-backed loans, and this forward sales agreement that is akin to the financialisation of future oil and gas assets is an anomaly in statecraft that the National Assembly should fight with all rigour,” Emmanuel, the chief executive officer of Dairy Hills said on X.

“There is no genius in it; it is a lazy approach to getting dollars to improve your balance of payment position,” he added.

On August 16, 2023, the NNPC secured a $3.3 billion emergency crude repayment loan to support the naira and stabilise the foreign exchange market.

To make the repayment, the NNPCL said it would carry out a forward sale of 90,000 barrels per day of Nigeria’s share of offshore crude oil under the production sharing contract (PSCs) with the oil companies.

Giving details on the benchmark oil price, the NNPCL said the facility uses a conservative crude price of $65 per barrel to calculate the allocated crude to be produced and sold in the future. Brent crude price traded at $78 on Monday.

    “This provides a safety margin for price fluctuations in the future,”  Chief corporate communications officer of NNPCL, Olufemi Soneye, said in a clarification statement.

    He added, “NNPC Limited has reserved up to 90,000 barrels of crude for Project Gazelle, ensuring sufficient cash flow for repayment and other financial obligations.

    The NNPCL had also announced its intention to make advance payments for upcoming royalties and taxes to the Federal Government.

    This will be done using the $3.3 billion in financing it secured from the African Export-Import Bank last year. This has raised further concerns about the impact of the borrowing, which puts further pressure on the naira.

    Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.

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