The Nigerian National Petroleum Company Limited (NNPCL) has made significant progress in repaying a $1.036 billion loan it secured in September 2021 to finance the acquisition of a stake in the Dangote Petroleum Refinery and Petrochemicals Free Zone Enterprise (DPRP FZE).
As of December 31, 2023, NNPCL has repaid $625 million of the principal amount, leaving an outstanding balance of $424 million. This repayment is documented in the NNPCL’s financial statement for the year ending December 31, 2023, under the section titled “Financing of Investment in Dangote Refinery.”
Details of the Loan and Repayment
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The $1.036 billion loan was secured through a forward sale agreement with Lekki Refinery Funding Limited, with an interest rate set at 3-month LIBOR plus 6.125%. Under the terms of the agreement, NNPCL committed to supplying 35,000 barrels of crude oil per day as part of the repayment plan. The financial statement reveals that as of December 31, 2023, NNPCL had repaid $625 million, with $424 million still outstanding.
“In September 2021, NNPC entered into a forward sale agreement with Lekki Refinery Funding Limited to supply 35,000 barrels of crude oil per day for the settlement of the $1.036 billion (N426.2 billion) funding received for the financing of investment in Dangote Refinery.
“The interest rate for the facility is 3-month LIBOR plus 6.125%. As of 31st December 2023, NNPC limited has paid $625 million principal, while $424 million (N324 billion) is still outstanding,” the financial statement partly said.
Initially, the loan was used to finance the acquisition of a 20% stake in the Dangote Refinery, a deal expected to cost $2.76 billion. However, NNPCL’s stake in the refinery has since been reduced to 7.25%, a significant decrease from the originally intended 20%. This reduction occurred after NNPCL failed to pay the balance of its share, which was due in June 2023. The management of this investment, originally handled by NNPC Greenfield Limited, a special-purpose vehicle wholly owned by NNPCL, was transferred to NNPC Downstream Investment Service (NDIS) following the company’s restructuring under the Petroleum Industry Act (PIA).
Allegations of Financial Recklessness
NNPCL’s financial dealings, including the acquisition of the Dangote Refinery stake, have not been without controversy. The company has been mired in allegations of financial recklessness, with critics pointing to a pattern of taking on substantial and, in some cases, questionable loans. The NNPCL is currently seeking to borrow an additional $2 billion, even as it is reportedly owing about $6.8 billion to international traders.
Against this backdrop, NNPCL has reportedly not remitted any funds to the federation account since January 2024, a situation it attributed to what it describes as a “subsidy shortfall/FX differential.”
NNPCL has informed President Bola Tinubu that due to the burden of subsidy payments, it is currently unable to pay taxes and royalties into the federation account, as required by sections 64(c) of the Petroleum Industry Act (PIA). This section obligates NNPCL to remit 70% of sales from crude oil to the federation account, keep 20% as retained earnings, and allocate 10% to the frontier basin exploration fund.
However, the company has recently declared a record-breaking net profit of N3.297 trillion for the 2023 fiscal year. This profit marks a significant increase of N749 billion, or 28%, from the N2.548 trillion profit reported for 2022. Despite this robust financial performance, the lack of remittances has sparked concerns about the company’s financial transparency and its adherence to statutory obligations.
What This Means for NNPCL and Nigeria
The NNPCL’s financial challenges, coupled with its inability to remit funds to the federation account, highlight the precarious state of Nigeria’s oil sector. Energy experts have noted that the company’s decision to reduce its stake in the Dangote Refinery, while financially necessary, may have long-term implications for its strategic position in the industry.
They further noted that while the NNPCL has made strides in repaying its loan for the Dangote Refinery stake, the broader context of financial mismanagement, mounting debt, and non-remittance to the federation account paints a troubling picture.