The Nigerian National Petroleum Company Limited is currently in discussions to secure an additional oil-backed loan aimed at bolstering its financial position and enabling investment in its operations, according to the Group Chief Executive Officer, NNPC, Mele Kyari.
Reports indicate that the oil firm is seeking to raise a minimum of $2 billion through this proposed new loan. This plan comes after NNPC disclosed in August 2023 that it had successfully obtained a $3.3 billion emergency crude oil repayment loan from the African Export-Import Bank.
With the potential addition of a $2 billion loan, NNPC’s crude-backed loans would amount to $5.3 billion. However, it remains unknown how much of the $3.3 billion loan has been repaid at this time.
Kyari revealed that the company is looking to secure the new loan against a daily crude production range of 30,000-35,000 barrels, although the specific amount being sought was not disclosed, as reported by Reuters.
Meanwhile, persistent queues for Premium Motor Spirit, known as petrol, have been observed in Abuja, neighboring states, and in Lagos, Nigeria’s commercial city, due to a shortage of supply by NNPC, the sole importer of PMS into Nigeria. This scarcity results from other dealers halting the importation of the commodity due to challenges in accessing United States dollars.
In addition, marketers have advised NNPC to exercise caution in the accumulation of crude-backed loans, expressing hope that the situation will not negatively impact Nigeria’s oil sector. Reuters has also reported that NNPC’s debts to petrol suppliers doubled in the last four months, reaching $6 billion. However, NNPC’s spokesperson, Olufemi Soneye, refuted this claim, urging the naming of the purportedly owed marketers.
Nigeria’s government heavily relies on the oil exported by the NNPC, with oil serving as the primary source of crucial foreign exchange reserves. However, factors such as pipeline theft and years of underinvestment have led to a decline in oil production, while the cost of fuel subsidies has further eroded cash reserves.
President Bola Tinubu has been pushing for reforms in Africa’s largest oil exporter, including the elimination of fuel subsidies and allowing the naira currency to trade closer to market levels, while striving to minimize the impact on the population’s cost of living.
Kyari emphasized that the sought-after loan would be utilized for all of NNPC’s business activities, including supporting production growth, and clarified that there are no issues with covering petrol payments. He underscored that the loan is intended for normal business operations and not an act of desperation, as per the Reuters report.
“According to an unnamed source, the upcoming syndication deal involves regular partners who have a history of doing business with our company. The goal is to secure cash flow. The Nigerian National Petroleum Corporation (NNPC) already has a $3.3 billion oil-backed loan from Afreximbank. However, the company’s financial situation has been strained due to rising fuel subsidy costs. The new loan is intended to help cover these expenses.
The lender arranging the loan remains uncertain. While some sources suggest that Afreximbank may not extend its exposure to Nigeria to that extent, others remain unnamed due to authorization constraints.
Several oil trading houses have stopped participating in NNPC’s petrol tenders because overdue bills have exceeded their acceptable exposure levels in Nigeria.
Last year, fuel subsidies were removed, allowing pump prices to triple. Critics argue that these subsidies disproportionately benefit elite car owners in cities. Despite this, NNPC capped average fuel prices just above N600 per liter a year ago. However, the naira’s depreciation and global oil price increases have pushed market prices further away from this cap.
Recently, fuel queues formed in Lagos as petrol marketers in Abuja ceased selling. Sources indicate that the ex-depot price in Lagos exceeds N700 per liter, making it unprofitable for stations to sell at the capped prices.
The Dangote refinery, with a capacity of 650,000 barrels per day, is set to produce gasoline soon. However, the refinery faces challenges due to loans and crude oil feedstock costs in US dollars. Selling at a loss within Nigeria or waiting months for payments from NNPC are both unappealing options.
Pressure is mounting on the government to raise pump prices, but leaders are cautious due to the memory of deadly riots in Kenya triggered by tax increase plans.
Billy Gillis-Harry, President of the Petroleum Products Retail Outlets Owners Association of Nigeria, acknowledges NNPC’s efforts to address fuel supply issues. However, he emphasizes the need for smart financial decisions regarding the proposed loan, ensuring long-term benefits for the oil sector.
On August 17, 2023, There reports that the NNPCL had secured a $3.3 billion emergency crude oil repayment loan from the African Export-Import Bank.
At that time, the NNPCL had clarified that the loan would be utilized to assist the Federal Government in stabilizing Nigeria’s exchange rate.
Earlier in June this year, the Federal Government had received a lifeline of $925 million from Afrieximbank to bolster the forex market and fulfill its dollar obligations.
The report indicated that Afreximbank had announced an additional disbursement of $925 million under the syndicated $3.3 billion crude oil-backed prepayment facility sponsored by NNPC.
This facility was intended to help the Federal Government address some of its dollar obligations, support the Central Bank of Nigeria in stabilizing the foreign exchange market, and provide funding for NNPC, among other purposes.
The Afreximbank’s accordion disbursement for Project Gazelle Funding Limited had increased the total funded facility size to $3.175 billion.
Arranged and coordinated by Afreximbank, the accordion arrangement had resulted in a combined total of $925 million being raised from a consortium of crude oil off-taker lenders, including, but not limited to, the Oando Group and Sahara Energy Resource Limited.
In a document titled, “Everything you need to know about the NNPC Limited’s $3.3 billion loan, also known as Project Gazelle,” NNPC provided details about the deal, stating, “This is a financing agreement secured by NNPC Limited to prepay future royalties and taxes to the Federal Government.”
The company also mentioned that it had adopted a lower price benchmark for the $3.3 billion crude-for-cash loan to minimize the risk of default and ensure financial stability.
Regarding the benchmark oil price, the company revealed that the facility had been using a conservative crude price of $65/barrel to calculate the allocated crude to be produced and sold in the future.
“This provides a safety margin for price fluctuations in the future,” NNPC Limited had reserved up to 90,000 barrels of crude for Project Gazelle, ensuring sufficient cash flow for repayment and other financial obligations.
“If oil prices rise, more money will come in from selling the 90,000 barrels, allowing for faster repayment. However, if oil prices fall, the repayment may be slower.”
NNPC underlined that the quantity of crude earmarked (90,000 barrels) had been sized to ensure enough cash was available for the repayment of the facility when it is due. This also ensured that NNPC Limited could meet other cash flow obligations, considering the expected future price of crude oil globally.
NNPC also emphasized that repayments had been strategically planned and tied to future oil sales, with conservative pricing in oil sales contracts mitigating the risks associated with oil price volatility.
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