In spite of the immediate benefits of the Nigerian National Petroleum Company Limited ,NNPCL $3 billion commitment letter and term sheet for an emergency crude oil repayment loan, JOSEPH INOKOTONG writes on the need for full disclosure.
The announcement by the Nigerian National Petroleum Company Limited (NNPCL) last week that it had secured a $3 billion loan from Afreximbank was received with mixed reactions.
Ordinarily, the news ought to have been received with wild jubilation because of the obvious impact a fresh injection of $3 billion in the country’s foreign exchange (FX) market would have on the entire economy. For inexplicable reasons, this failed to happen.
In some quarters, it was discussed in hushed tones, while experts probed further into what some term as an opaque nature of the whole transaction, which they said was lacking in full disclosure. The criticisms of the paucity of information about the facility by some Nigerians kept pouring in despite the explanation by the NNPCL of the benefit of the loan to the Nigerian economy.
The obviously elated Group Managing Director of the NNPCL, Mr Mele Kyari, did not waste time in explaining its benefits to Nigerians. He went ahead to throw more light on the loan and how the country stands to benefit more from it.
The first task for Mr Kyari was to explain if and how the loan would affect fuel prices. The NNPCL boss said, “A strengthened naira as a result of this 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.” On if subsidies will come back, he stated, “No. A stronger naira will result in lower prices from the current level, making subsidies unnecessary. The deregulation policy remains unchanged.” On how the loan would be repaid, he said, “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.”
Trying to calm the nerves of many Nigerians who were uncomfortable with the handling of the swap deals the NNPCL had entered into in the recent past, Kyari stated the difference between the loan and crude oil swap deals, pointing out that “This is not a crude for refined products agreement where the government does not earn any proceeds from the swap.”
Such a brilliant presentation ought to have attracted commensurate commendation, which it did.
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First to fire the salvo was Professor Uchenna Uwaleke, Director, Institute of Capital Market Studies, Nasarawa State University, Keffi, who began his criticisms by commending the initiative of the NNPCL to go for the loan at a time the country’s FX market was gasping for breath and its attendant consequences on the economy.
Professor Uwaleke raised some pertinent issues, which require further clarifications from the NNPCL. He started by saying, “Much as an intervention in the forex market by the CBN is desirable, a more cost-effective option would have been to use what is left of our external reserves as opposed to taking a loan from Afreximbank or even the IMF.
“The fact that the $3 billion loan was taken by NNPCL, a company still owned 100 percent by the Federal Government with the Ministries of Finance and Petroleum Resources holding 50 percent share each, makes it more worrisome. By implication, the Federal Government that is already saddled with huge debt is borrowing to lend to the CBN, when it should have been the other way round. Ultimately, this new loan contracted by the NNPCL adds to the growing public debt and may have been contracted at non-concessionary terms being an emergency loan.
It is important that Nigerians, especially the National Assembly, are informed about the terms of the loan and the collateral security involved.
“Without doubt, this $3 billion loan on the balance sheet of NNPCL will make the company less attractive and possibly jeopardise the ongoing plan to privatise the company by listing it on the Nigerian Exchange.
“May I add that contracting external loans to lend to the CBN creates an erroneous impression of insolvency on the part of the CBN which is not a healthy signal to foreign investors.
“Also, if the security for the loan are some barrels of future crude oil production, at what forward contract price has this been negotiated? In view of the fact that all proceeds of crude oil sales are paid into the federation account, this sort of swap transactions has implications for FAAC receipts meant for the three tiers of government.”
It is correct to say that a strengthened naira will lead to reduction in fuel costs, but like Professor Uwaleke stated, the terms of the loan are not known to the public apart from the few explanations that were given by the NNPCL. The point of full disclosure of the loan terms cannot be over emphasised for reasons already known to many Nigerians. The country is trapped by huge debt burden and the $3 billion will be an addition.
Besides, if the security for the loan is some barrels of future crude oil production, at what forward contract price has this been negotiated? A timely and adequate answer to this particular poser by the professor is needed. This is because the NNPCL has remained a major cobtributor to the Federation Account where all proceeds of crude oil sales are paid into. Therefore, this sort of swap transactions has enormous implications for FAAC receipts meant for the three tiers of government.
Data from the quarterly statistical bulletin of the Central Bank of Nigeria (CBN) showed that the last time Nigeria had a record for earnings from crude oil sales was in August 2022. This means that all of country’s earnings from the sales of crude oil for about seven months from September 2022 to March 2023, according to the CBN data, had gone into subsidy payment and for the first time, Nigeria’s crude oil export earned zero revenue during the period.
In July 2022, the NNPC Limited posted zero revenue from crude oil export at a time when many oil exporting countries were following the international crude oil market with broad smiles. Data from the NNPCL monthly presentation to the Federation Account Allocation Committee (FAAC) meeting of August 24, 2022 showed Nigeria earned zero dollars income from crude oil revenue in July 2022 as against $5.96 million earned in June 2022 and there was no explanation for the zero revenue from export crude in the month of July.
NNPCL’s data showed Nigeria earned $75.88 million from crude oil export in January 2022; $13.05 million in February; $88.93 million in March; $14.70 million in April and $5.7 million in May. Also, in that July, NNPCL’s records showed that the state-owned oil company earned just about N400 billion from the gross domestic crude oil and gas receipts, implying that the amount spent on petrol subsidy for the month exceeded the total oil sold for the month by roughly N48 billion.
The records showed that the country had paid N2.04 trillion to offset subsidy payments in the seven-month period, while the payment of N1.04 trillion was carried forward. Subsidy payments took a toll on the country’s finances to an extent where for about seven months in a row, the NNPCL failed to make remittances into the Federation Account owing to huge subsidy payments.
The Organisation of the Petroleum Exporting Countries (OPEC) said recently that Nigeria’s oil production declined in July 2023, making the country the third largest oil producer in Africa. In its latest monthly report for August, OPEC said Nigeria’s oil output in June 2023 stood at 1.249 million barrel per day (bpd), surpassing Libya and Angola, making it Africa’s largest producer, but production decreased to 1.081 million bpd in July 2023.
The acquisition of $3 billion loan by the NNPCL from Afreximbank might have signalled a turnaround in the fortunes of the sector and provide a breathing space for the floating naira to find its realistic value, but the scenario and background painted above have reinforced the agitation by many Nigerians to get the correct and detailed information on the country’s foreign earnings, which are major sustainer of the economy.
Indeed, as envisaged, on the day the announcement of the $3 billion loan was made, currency speculators recorded huge losses as the naira made swift recovery at the official and parallel markets.
Currency dealers were thrown into a temporary state of confusion over the sudden recovery of the naira at both markets. This caused massive losses to speculators who had bought huge sums of the greenback in anticipation of selling at a higher exchange rate of about N1,000 to the US dollar.
Market analysts were quick to attribute the naira’s appreciation against the dollar to the NNPCL $3 billion Emergency Crude Repayment Loan from Afreximbank.
The loan “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,” NNPCL had stated on its verified X (formerly Twitter) page.
One thing is certain, despite increase in landing cost of Premium Motor Spirit (PMS) and foreign exchange crisis, the Federal Government has said it would not effect any increase in the petrol pump price as widely speculated.
Oil marketers had earlier last week predicted a 20 percent increase which would push the price from its present amount to between N700 and N750 citing the depreciation of naira against the dollar as a major factor.
However, despite the obvious economic realities, the NNPCL came out Tuesday last week to say it has no plans to increase price. It said, “Dear esteemed customers, we at NNPC Retail value your patronage and we do not have the intention to increase our PMS pump prices as widely speculated. Please buy the best quality products at the most affordable prices at our NNPC retail stations nationwide.”
There has been no increase in the pump price of petrol since the NNPCL announced the signing with Afreximbank a commitment letter and term sheet for an emergency $3 billion crude oil repayment loan. Also, the value of the naira has been appreciating against the dollar and other foreign currencies. These are pointers to immediate benefits of the facility to Nigeria. However, it does not discount the need for full disclosure of the loan details, especially the securities as doing otherwise will be tantamount to unpardonable disservice to the nation.