The Nigerian National Petroleum Company Limited (NNPCL) has announced that it has jointly signed a commitment letter and Termsheet with the Trade Finance Bank for Africa, Afreximbank, for an emergency $3 billion crude oil repayment loan.
The company said the move, which took place today (Wednesday) at the bank’s headquarters in Cairo, Egypt, “will provide some immediate disbursement that will enable the NNPC Ltd. to support the Federal Government in its ongoing fiscal and monetary policy reforms aimed at stabilizing the exchange rate market.”
BREAKING
Relief For The Naira: NNPC Ltd Secures $3billion Emergency Crude Repayment Loan from AFREXIM Bank
The NNPC Ltd. and @afreximbank have jointly signed a commitment letter and Termsheet for an emergency $3billion crude oil repayment loan.
The signing, which took place… pic.twitter.com/KJBsVnZFkJ
— NNPC Limited (@nnpclimited) August 16, 2023
O’tega Ogra, Special Adviser to the President, explained that the agreement between the NNPCL and Afreximbank “is not a crude-for-refined products swap but an upfront cash loan against proceeds from a limited amount of future crude oil production.”
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He said the loan will assist NNPC Ltd. in settling taxes and royalties in advance and also equip the Federal Government with the necessary dollar liquidity to stabilize the Naira, with limited risk.
The move follows the push by President Bola Tinubu to stabilize the naira, which has been falling woefully in the foreign exchange market – compounding Nigeria’s harsh economic situation.
The acting governor of the Central Bank of Nigeria (CBN), Folashodun Shonubi, announced yesterday that the apex bank has the approval of the president to implement new measures that will stabilize the fluctuating forex market.
The naira has dropped significantly in the FX market, trading as low as N950 per dollar. The currency’s free fall has bolstered the nation’s inflation rate – which stood at 24.08% as of July.
One of the most significant impacts of the naira’s poor form is on the cost of petrol, which has risen to N588 and N617 per liter across the country.
On Monday, the Independent Petroleum Marketers Association of Nigeria (IPMAN) said that pump prices are expected to rise to N688 and N720 per liter due to the influence of dollar illiquidity on Nigeria’s oil market.
“It is simple mathematics, once the dollar is going up, have it in mind that the prices of petroleum products would definitely increase because the products are dollar-driven,” Chief Chinedu Ukadike, the PRO of the association said.
In response to this, the NNPCL issued a statement assuring Nigerians that there will be no further increase in the cost of petrol. The statement stoked a belief that the federal government is planning to introduce temporary subsidy, to stabilize petrol prices.
But the government said Tuesday it has no plan to reintroduce fuel subsidy of any kind.
However, looking at the statement from the CBN governor and the NNPCL’s emergency $3 billion crude oil repayment loan, it has become clear that the government’s plan to sustain the prices of petrol is tied to boosting the naira’s performance at the FX market.
The naira received further shocks last week after an audit of the central bank reveals that it owes $13.8 billion in liabilities to American banks, JP Morgan and Goldman Sachs in the 2022 financial year.
“The Group entered into a securities lending agreement with Goldman Sachs and J. P. Morgan and as part of the agreement, the Group pledged its holdings on foreign securities in return for cash. The cash received from Goldman Sachs is N0.23 trillion ($500 million), 2021: N0.22 trillion ($500 million), and JP Morgan N3.23 trillion ($7 billion), 2021: N3.05 trillion ($7 billion) is recognized in other foreign securities,” a statement posted on the CBN website said.
This revelation means that the real value of Nigeria’s foreign reserve, which is currently pegged around $30 billion, according to the CBN, is actually around $17 billion.
Investors believe it is the reason Nigeria has been unable to offset many of its financial obligations – including the repatriation of funds belonging to multinational companies.
With the free fall of the naira exacerbating Nigeria’s economic crisis, the government appears to be seeking a fast way to boost dollar liquidity. With the drop in oil output stymieing the country’s foreign exchange earnings – a strategic loan appears viable.
Ogra said the loan will be repaid against a fraction of proceeds from future crude oil production.
“It’s a strategic move that ensures a balance between our current economic needs and future production capabilities,” he said.