In a decisive intervention, the House of Representatives Special Joint Committee investigating the factors undermining Nigeria’s petroleum sector has directed the Nigerian National Petroleum Company Limited (NNPCL) to halt its plans to secure a new $2 billion loan backed by future crude oil revenues.
This move comes amid mounting concerns over the nation’s deepening revenue crisis, exacerbated by both low oil production and the extensive use of crude oil as collateral for loans.
The committee, chaired by Ikenga Ugochinyere, representing Ideato South/Ideato North Federal Constituency in Imo State, initiated its probe into potentially illicit dealings within the petroleum sector, with a specific focus on the financial maneuvers of the NNPCL. The investigation has brought to light troubling practices, including the mortgaging of future crude oil outputs to secure loans, a strategy that critics argue is shortsighted and detrimental to the country’s long-term economic health.
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The NNPCL’s plan to borrow an additional $2 billion using crude oil as collateral is the latest in a series of financial strategies that have raised red flags among lawmakers and economic analysts. According to the committee, the NNPCL, led by Group Chief Executive Officer Mele Kyari, is in discussions with international creditors to arrange this oil-backed credit facility.
The company’s financial woes, including a $6 billion debt owed to international oil traders, have been compounded by the recent removal of fuel subsidies and the resultant economic pressures.
In a statement released by Ugochinyere on Wednesday, the committee expressed deep concern over the NNPCL’s proposed loan, highlighting the potential negative consequences for Nigeria’s economic stability and resource management.
“We are calling on NNPCL to halt further plans to borrow more loans with crude oil, as the move will sabotage the President’s deal for domestic crude supply,” the statement read.
The statement noted that any further mortgaging of crude oil revenues could undermine the ongoing forensic investigation and worsen the nation’s financial crisis.
“The citizens were excited on the recent news of President Tinubu’s intervention for crude supply to local refineries in naira,” Ugochinyere stated. “We have received intel of plans to mortgage future crude revenue and oil for another loan at a time the nation is struggling. This is preemptive of the committee’s work, and we want to announce the halt of this fresh move and for the state oil company to brief the parliament. The revenue being mortgaged is the sovereign wealth of the people, and the parliament has a duty as the watchdog of the commonwealth to step in.”
The committee’s directive is not just a caution against incurring new debt but also a critical commentary on the broader implications of Nigeria’s reliance on crude oil-backed loans. The practice of leveraging future oil outputs to secure loans has been identified as a significant factor in the country’s deepening revenue crisis. With oil production levels lower than expected, the revenue generated from crude oil exports has been insufficient to meet the country’s financial obligations, including the servicing of these loans.
This issue is compounded by the global fluctuations in oil prices and Nigeria’s ongoing challenges in maintaining stable oil production levels. The country’s oil output has been hampered by several factors, including infrastructure issues, security challenges in oil-producing regions, and oil theft. As a result, Nigeria has struggled to meet its production quotas, further diminishing its export revenues.
Compounding the situation is the fact that a significant portion of the country’s crude oil production is tied up in these loan agreements, reducing the volume available for sale on the international market. This arrangement not only limits Nigeria’s immediate revenue generation capabilities but also jeopardizes future financial stability, as more of the country’s oil revenue is diverted to servicing debt rather than being reinvested in critical areas such as infrastructure, healthcare, and education.
The committee’s concerns are heightened by the recent $3.3 billion loan secured by the NNPCL from the African Export-Import Bank (Afrexim Bank) in August 2023. This loan, intended to shore up Nigeria’s foreign exchange reserves and address liquidity challenges, is to be repaid with crude oil priced at $65 per barrel.
The terms of this agreement have raised questions about the sustainability of using crude oil as collateral, particularly given the volatility of global oil prices and the uncertainties surrounding Nigeria’s production capacity.
Mele Kyari has defended the NNPCL’s strategy, arguing that such loans are necessary to address immediate fiscal challenges and support the country’s economic stability. However, the committee’s investigation aims to scrutinize these justifications and assess whether the benefits of these loans outweigh the long-term risks to Nigeria’s economic sovereignty and resource management.
The House of Representatives Special Joint Committee’s directive also reflects broader concerns about the need for greater transparency and accountability in the management of Nigeria’s natural resources. Ugochinyere emphasized the parliament’s role as the “watchdog of the commonwealth,” tasked with protecting the interests of the Nigerian people and ensuring that the country’s resources are managed responsibly and sustainably.
The committee stressed that such loans could undermine efforts to strengthen domestic refinery capacities and reduce Nigeria’s dependency on imported petroleum products. The push for domestic refineries to be supplied with crude oil priced in naira is seen as a crucial step towards achieving energy self-sufficiency and stabilizing the local economy.