Home Community Insights CBN Clarifies 50% Repatriation Rules for Export Proceeds of International Oil Companies (IOCs)

CBN Clarifies 50% Repatriation Rules for Export Proceeds of International Oil Companies (IOCs)

CBN Clarifies 50% Repatriation Rules for Export Proceeds of International Oil Companies (IOCs)

The Central Bank of Nigeria (CBN) issued a detailed clarification on the management of repatriated export proceeds, particularly addressing the handling of the 50 percent balance of these proceeds.

This comes in response to inquiries from banks and stakeholders regarding the policies outlined in recent circulars.

New Guidelines on Repatriated Proceeds

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In a circular dated May 31, 2024, and published on its website on Saturday, the CBN clarified that the 50 percent balance of repatriated export proceeds can be sold to authorized dealers or eligible users of Foreign Exchange (FX) with eligible transactions.

Dr. W.J. Kanya, signing on behalf of the Director of the Trade and Exchange Department, outlined that this balance may be sold wholly if the International Oil Companies (IOCs) do not have financial obligations to settle with these funds during or after the 90-day retention period.

Previously, the CBN had stipulated that this 50 percent balance could be used for settling financial obligations within Nigeria as required during the prescribed 90-day period. The clarification reaffirms that the initial 50 percent of repatriated proceeds can be pooled immediately or when needed.

Eligible Uses of the 50 percent Balance

The central bank provided specific guidelines on what the remaining 50 percent of the repatriated proceeds can be used for. Expenses eligible for settlement from this balance include:

  1. Petroleum profit tax
  2. Royalties
  3. Domestic contractor invoices
  4. Cash calls
  5. Domestic loan repayments (principal and interest)
  6. Transaction taxes, such as the Nigerian Content Development (NCD) Levy and education tax
  7. Forex sales at the Nigerian Foreign Exchange Market

Background and Policy Interventions

In February, the CBN introduced several policy interventions aimed at boosting FX liquidity. One significant change was the restriction that IOCs could only repatriate a maximum of 50 percent of their export proceeds initially, with the remaining 50 percent eligible for repatriation after 90 days from the date of inflow.

Additionally, the CBN prohibited the payment of Personal Travel Allowance (PTA) and Business Travel Allowance (BTA) by cash, mandating that such allowances be disbursed through electronic channels like debit or credit cards. This measure aims to curb abuses and enhance transparency in FX transactions.

Addressing Cash Pooling Practices

The CBN’s recent circulars also address the practice of cash pooling by IOCs, where proceeds of crude oil exports are often transferred offshore to fund their parent accounts. This practice, according to the CBN, affects liquidity in the domestic FX market.

While supporting the need for IOCs to access their export proceeds to meet offshore obligations, the CBN emphasizes that such repatriations should minimize the negative impact on domestic FX market liquidity.

These clarifications and guidelines follow inquiries from banks and other stakeholders concerning the CBN’s circulars on cash pooling requests. The central bank has urged banks to submit cash pooling requests ahead of the expected date of receipt, accompanied by the necessary documentation for approval.

By providing these detailed guidelines, the apex bank aims to ensure a balance between meeting the financial obligations of IOCs and maintaining stability and liquidity within Nigeria’s FX market. This approach is part of ongoing reforms designed to foster a more transparent and robust economic environment.

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