DESPITE delayed kick-off of the implementation of the Petroleum Industry Act, (PIA), the Nigerian National Petroleum Company (NNPC) Ltd has secured a $5bn corporate finance loan from the African Export-Import Bank(Afreximbank) to fund major investments in Nigeria’s upstream sector.
The funding commitment is an outcome of a meeting between Chairman of the Board of Directors and President of Afreximbank Benedict Oramah and the NNPC Ltd team led by Group Managing Director/Chief Executive Officer Mele Kyari, in Cairo, Egypt, on Wednesday.
Kyari was accompanied on the trip by the Chief Financial Officer of the NNPC Umar Ajiya; Group Executive Director in charge of upstream segment Adokiye Tombomieye; Group General Manager of NAPIMS Bala Wunti; and Managing Director of NNPC Trading Lawal Sade, and others.
The move is a major milestone in the quest of the corporation to scale investments in the oil and gas industry following the commencement of the implementation of the PIA.
The PIA was signed into law by President Muhammadu Buhari on August 16, 2021.
Following the assent of the president, the NNPC LTD was incorporated by the Corporate Affairs Commission on September 22, 2021, after it received application for its registration from the Federal Government.
The new legislation has provided business opportunities that will enable the NNPC to earn more revenue for the country.
The PIA has also raised stakeholders’ expectations on the company, even as it has given it a wide room to stimulate investments in the oil and gas industry.
The NNPC’s $5bn corporate finance commitment from Afreximbank is seen by oil industry stakeholders as a dividend of the PIA and the incorporation of the NNPC as a limited liability company.
Under the NNPC Ltd funding strategy for selected upstream investments, the company would be raising between $2.5bn and $3bn as corporate finance to fund major upstream investments.
To achieve this objective, the NNPC plans to take over ownership from non-investing partner through acquisition of pre-emption rights in the sample joint venture.
The NNPC’s strategy would also see the company invest in assets to address integrity, bottlenecking and growth issues, including rig-less activities and drilling campaigns in the oil industry.
The company’s preference is to source lenders that can provide this funding in a ratio based on the capacity of each of the lenders.
The funding would also be used to finance part of the NNPC’s investment, including acquisition of interest in quality upstream oil and gas producing assets.
The acquisition is an integral part of the NNPC’s corporate strategy to rebalance its portfolio by divesting from some toxic assets to acquire choice strategic assets that will help support its long term strategic objectives.
The repayment of the funding is expected to be done through a forward sale arrangement, whereby the funds provided will constitute the payment purchase of 30-60kpd of crude to be delivered to the lender over a period.
The repayment of the fund is being projected to be made within a four- to eight-year period with an objective to ensure major fiscal obligations and operating expenses are discharged appropriately
The meeting between the NNPC and Afreximbank team agreed to intensify efforts at deepening investment in Nigeria’s oil sector.
Also, the NNPC and the Afreximbank agreed to, among other things, deepen the business collaboration between the two institutions.
The bank agreed to enter into a finance advisory and fundraising role to raise $5bn to “acquire, invest and operate energy producing assets in Nigeria as part of NNPC’s growth strategy following its incorporation as a limited liability company.”
As part of the landmark transaction, Afreximbank will also underwrite $1bn as part of forward sales base trade finance transaction.
It would be further noted that the NNPC and Afreximbank also explored the innovative idea of establishing a pan-African energy transition bank and agreed to collaborate towards achieving the objective.