Questions National Assembly should ask on $3bn NNPCL crude oil loan

THE National Assembly will be saving Nigerians from lots of economic distress if it evaluates and properly scrutinises the details of the transactions of the Nigerian National Petroleum Company Limited (NNPCL), $3bn emergency crude repayment loan from Afrexim bank, industry pundits have stated.

On Wednesday, August 16 2023, the NNPCL and Afrexim Bank jointly signed a commitment letter for an emergency $3 billion crude oil repayment loan.

The signing, which took place at the bank’s headquarters in Cairo, Egypt, will provide some immediate disbursement that will enable the NNPCL to support the federal government in its ongoing fiscal and monetary policy reforms aimed at stabilising the exchange rate market.

For many knowledgeable economists, the NNPCL’s poor reforms have pushed the country to a fiscal cliff while pushing Nigeria’s foreign exchange volatility further high.

Available records showed Nigeria’s major foreign exchange earning is from its oil resources, a situation that has made it steadily hinge its budgetary provisions on oil benchmark pricing.

The ICIR has earlier reported how the NNPCL kept shifting the goalpost on getting enlisted in Nigeria’s stock exchange, which could have offered it a platform to source for funds.

“NNPCL is borrowing to give to the federal government. As collateral, It’s is offering her future receipts. In essence, spending tomorrow revenues today,” a financial expert and development economist Kalu Aja said.

“The $3 billion you get today, you won’t get again, but it buys time for reforms,” he said.

Another development economist, Kelvin Emmanuel, believes the evaluation of the term sheet of the transaction by the National Assembly will save Nigeria from many economic problems.

“The National Assembly must review and ask specific questions on the deal. For instance, how many barrels of crude is involved in the swap, what is the duration of the swap, at what price was the swap deal consummated, what happens if crude oil price drops below the forward price, what happens if the crude oil price rises above the strike price, is the stock going out from Nigeria’s export quota?

“Other key questions to be raised by the National Assembly should also include: how will Federation Accounts and Allocation Committee FAAC audit the transaction to ensure NNPCL is transparent?

“If there’s no sovereign guarantee from CBN, what collateral did NNPCL use to secure the swap deal? What happens if there’s a force majeure on daily production volumes and the output is not sufficient to go around after deductions of JV cash calls?

Other key questions also include: Is Afreximbank going to send an irrevocable standing payment order (ISPO)to the NNPCL account with JP Morgan to debit payment from the source, until funds are liquidated?”

Apart from the raised concerns, the deal will cushion the effect of fuel price jump and scarcity of forex, associated with the free float of the naira, in line with President Bola Tinubu’s promise of harmonising various exchange rates.

It would be noted that the naira float had seen the currency plunge from below N500 per dollar on the official exchange windows to a record low of about N900 naira.

Also, Petrol now sells at N617 from the first increment of N540 per litre since May 29, when Tinubu announced that the fuel subsidy was gone.

Giving further insights on the $3 billion loan facility, O’tega Ogra, senior special assistant to the president on Digital/New Media via his social media handle, explained that the deal with Afreximbank would enable NNPC Ltd to defray taxes and loyalties in advance.

Ogra, said it would also provide the government with dollar liquidity to stabilise the naira with limited risk.

He clarified further that the emergency $3 billion crude oil repayment loan was not a crude-for-refined products swap but an upfront cash loan against proceeds from a limited amount of future crude oil production.

He said it would not pose any risk, adding that the exposure for NNPCL is very limited, covering just a fraction of their entitlements.

“Additionally, there are no sovereign guarantees tied to this loan,” he said.

On the benefit of the loan to Nigerians, Ogra said it would assist NNPCL in settling taxes and royalties in advance and also equip the Federal Government with the necessary dollar liquidity to stabilise the Naira, with limited risk.

Ogra said the funds would be released in stages or tranches based on the specific needs and requirements of the Federal Government.

“A strengthened Naira as a result of this initiative will lead to a reduction in fuel costs.

“This means that if the Naira appreciates in value, the cost of fuel will drop and further increases will be halted.

“A stronger Naira will result in lower prices from the current level, making subsidies unnecessary. The deregulation policy remains unchanged,”he said.

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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