The Nigerian National Petroleum Company Limited (NNPCL) has defended its decision to participate in the contentious $3.3 billion crude oil prepayment Loan alongside the African Export-Import Bank (Afreximbank) last year. During a press interview, Mr. Femi Soneye, Chief Corporate Communications Officer (CCCO) at NNPCL, elaborated on the revolutionary deal called ‘Project Gazelle’. This groundbreaking initiative marks the inaugural instance of a government institution in Nigeria facilitating the forward sale of oil. This venture’s primary objective is to offer dollar financing to the federal government.
In August, NNPCL made public their accomplishment of obtaining a substantial $3 billion emergency loan from Afreximbank. This financial support was predominantly aimed at bringing stability to the country’s tumultuous foreign exchange market, and over a year had passed when the national oil company managed to secure a massive $5 billion corporate Finance commitment from Afreximbank to support significant investments in Nigeria’s upstream sector. Towards the end of December of the previous year, the federal government revealed that they had received $2.25 billion out of the total $3.3 billion facility from this multilateral financial institution.
Loan was chosen as a temporary resolution to the prevailing FX scarcity.
Afreximbank took charge of organising the loan, with the participation of various sub-lenders such as VITOL, Guvnor (known for being one of the major energy trading houses worldwide based on its turnover), Sahara Energy Group, Oando, and the United Bank for Africa (UBA) which contributed $100 million. Despite the diverse opinions from Nigerians regarding the loan and their apprehensions about the impact it may have on Nigeria’s oil production, the NNPCL Spokesman justified the necessity of this loan as a temporary resolution to the prevailing scarcity of foreign exchange in the country. Soneye explained the crucial need for Nigeria to enhance its foreign exchange status, emphasising that by June 2023, The Central Bank of Nigeria (CBN) possessed a substantial $6 billion of unresolved obligation.
These comprised forward contracts with external entities that had exceeded their expiration dates. He clarified that this initiative was established by NNPC Ltd with the ultimate aim of adding dollar financing to the federal government. The federal government can tackle its outstanding foreign exchange obligations by obtaining foreign currency in advance through a pre-financing agreement. This injection of foreign funds will promote stability in exchange rates, offering an instant and advantageous solution for the nation. Additionally, forward sale contracts aid resource-oriented firms like the NNPCL by providing substantial initial funding for upcoming ventures well before actual production and exportation.
Investments will be made in both current and potential resources.
According to the NNPCL spokesman, the funds at hand are being utilised to make investments in both current and potential resources. This, in turn, has the potential to increase the country’s oil and gas production as emerging projects get underway. As a result, there will be a surge in oil and gas exports, consequently generating higher revenues in the form of dollars and foreign currencies. Soneye contended that global banks have a consistent history of offering financings for future sales, facilitating the influx of fresh Foreign Direct Investments (FDIs) into nations.
Considering Nigeria’s abundant proven reserves surpassing 35 billion barrels, eagerly awaiting exploration and production, he proposed tapping into a portion of these potential reservoirs to generate the necessary capital. He remarked that the acquisition of a forward sale financing scheme offers a viable solution for the immediate securitisation of the nation’s verified oil reserves, thereby accelerating the inflow of foreign currency without enduring years of waiting. Moreover, through its provision of additional exports and foreign financial resources, this financing approach can amplify foreign currency accessibility in oil and gas-dependent countries. Such enhancement empowers the nation to effortlessly meet import payments and effectively oversee its broader economic affairs.
Related Article: Instability of Nigerian foreign exchange
Once exports are initiated, the funds generated from these exports are utilised to reimburse the forward-sale investments, thereby enhancing the nation’s balance of payments. The government gains enhanced stability in oil earnings through financing, enabling efficient budgeting and effective administration of foreign exchange reserves. According to his statements, up to 90,000 barrels have been allocated to repaying the Project Gazelle. He stated that the amount of crude oil reserved is carefully determined to guarantee adequate funds for repaying the loan on time and meeting all other financial responsibilities while also considering the projected worldwide crude oil prices.