The Nigerian National Petroleum Company Limited (NNPCL) has secured a $3 billion Emergency Crude Repayment Loan from African Export-Import Bank (AFREXIMBank).
In a short statement disclosing the deal, the NNPC said the commitment letter, which was signed at AFREXIM Bank’s headquarters in Cairo, Egypt on Wednesday, will enable it to support the Federal Government in its ongoing fiscal and monetary policy reforms aimed at stabilising the exchange rate market.
The short statement reads, “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 today 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 stabilising the exchange rate market.”
What does this mean for the government and how will it impact the live of Nigerians.
The first thing to know is that this deal has been championed by the state-owned company, NNPC Limited. The NNPCL and Afrexim led by Nigeria’s Benedict Oramah have been in negotiation for some time but when the talks began the primary objective was to help provide cash for NNPCL to consummate its bogus ambition to buy-off oil assets that were being sold by the IOCs despite not having any track record of managing these assets efficiently. This explains the speed of the announcement.
Secondly, the so-called term sheet referred to in the statement made by NNPCL means a set of conditions which the state oil company has agreed to be able to access the $3bn and key among this, is that NNPCL will pledge part of its royalty crude oil that is still in the ground as collateral for the loan.
Thirdly, the $3bn will immediately be available to the Central Bank of Nigeria to boost its foreign reserves about which very unsavory news has been printed lately. With this firepower, the naira should in the short term be better protected against the so called speculators.
Fourthly, the government President Bola Tinubu may have resorted to this quick fix because things were getting out of hand for this is not the first time Nigeria has found itself in such tight corner. In the past, the government of the day offered the IOCs significantly better fiscal and tax incentives like reserve addition bonus for them to invest to grow both oil reserves and production levels and that’s how we got to now have the world class Bongas, Erha’s and Agbami’s. The problem with this option is that it is like a worker who gets an office IOU in lieu of his salary and when the month ends, he will have nothing in his bank account unless he get a salary raise.
The final key point of this agreement is that so far, the government has not said how this loan will lead to lifting crude oil production levels from the current 1.3m to around 2m barrels a day, the level analysts say Nigeria needs to reach to expand FX availability in the medium to long term. And this is why so many Nigerians are unimpressed on social media.
Some analysts have called the loan a mere band aid while others have questioned taking a loan of this size without a cabinet in place and without saying what the loan will be used to achieve.
