People & Money

NNPC Secures $3 Billion Crude Oil Repayment Loan to Stabilize FX Market

On Wednesday, NNPC announced securing a $3 billion crude oil repayment loan from AFREXIM Bank in Cairo. It is noted that the funding was to aid the government’s efforts to stabilize the exchange rate market. 

The statement released by NNPCL on X, formerly Twitter, read, “The NNPC Ltd and Afrexim Bank have jointly signed a commitment letter and Termsheet for an emergency $3 billion crude oil repayment loan. 

“The signing which took place 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.”

Also Read: FG Mulls Selling NNPC Stakes in Oil and Gas Assets, Targets $17.4 Billion

This attempt from NNPCL is part of the attempts to bolster Nigeria’s FX reserves and halt the decline of the Naira. Since the new administration made some changes to the FX regime two months ago, the Naira has hit new lows. Nigeria’s woes were exacerbated by certain disclosures within the released CBN financial statements, indicating that the country’s Forex reserves amount to less than $20 billion. 

Facts Behind the Loan 

NNPC Limited explained the modalities of the loan arrangement in separate tweets yesterday. 

What is this $3 billion loan all about? NNPCL noted, “The NNPCL secured an emergency $3 billion crude oil repayment loan from Afrexim bank. This is not a crude-for-refined product swap but an upfront cash loan against proceeds from a limited amount of future crude oil production.”

What’s the benefit of this loan to Nigerians? NNPCL replied, “The loan will assist NNPC Ltd. in settling taxes and royalties in advance. It will also equip the Federal Government with the necessary dollar liquidity to stabilize the Naira, with limited risk.”

For the question of how the loan will be repaid, the company noted, “The loan will be repaid against a fraction of proceeds from future crude oil production. It is a strategic move that ensures a balance between our current economic needs and future production capabilities.” 

What is the difference between this and previous swap deals? The NNPCL noted, “This is not a crude for refined products agreement where the government does not earn any proceeds from the swap.” 

Is this Ways and Means 2.0? The NNPCL noted, “Absolutely not. NNPC Ltd. is not in the business of printing money and is not a Central Bank. NNPC Ltd. is borrowing from third-party institutions to prepay its taxes and royalties to the treasury (which it would have normally paid) in advance. 

Will this loan affect fuel prices? NNPCL noted, “A strengthened Naira as a result of the initiative will lead to a reduction in fuel costs. This means that if the Naira appreciates in value, the cost of fuel will drop and further increases will be halted.”

What about subsidies, are they coming back? NNPCL replied, “No. A stronger Naira will result in lower prices from the current level, making subsidies unnecessary. The deregulation policy remains unchanged.”

Also Read: Tinubu’s Government May Sell Down NNPCL Assets, However, Can it Work?

How will the loans be disbursed? NNPCL replied, “The funds will be released in stages or tranches based on specific needs and requirements of the Federal Government.”

Economist and Social Commentator, Kalu Aja in a tweet, noted, 

“Don’t overcomplicate this. NNPC is borrowing to give to the FGN. As collateral, she is offering her future receipts. In essence, spending tomorrow’s revenues today. The $3b you get today, you won’t get again, but it buys time for reforms.”

David Olujinmi

David Olujinmi studies Engineering but his true passion is research and analysis. He writes about finance, particularly the capital market, investment banking, and asset management. More »

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