Afreximbank Engages Oil Traders in NNPCL $3bn Loan Funding

The African Export-Import Bank, Afreximbank, has commenced talks with oil traders for the execution of the $3 billion emergency loan to Nigeria through the NNPC Limited.

An authoritative oil market source told Reuters this yesterday.

The loan comes against the backdrop of sustained pressures on Nigeria’s external sector which has been hit with foreign exchange scarcity resulting into massive depreciation of the local currency.

He said the ongoing talks will culminate in drafting and signing terms containing the details and roles of all parties involved in the transaction. The source said Afreximbank is seeking the oil traders’ interest in funding the oil-backed loan to NNPC.

According to the sources, Afreximbank is working to craft terms to offer to the trading houses.

“There is a lot of interest, but they need to see terms,” an oil industry stakeholder told Reuters. The source added that oil prices climbing past $90 per barrel would help drive interest in the deal.

Also Read: NNPC Secures $3bn Afreximbank’s Loan To Stabilise Naira

One of the sources told Reuters that traders who put up cash would be repaid in physical cargoes of oil.

“The bank is working to determine how much oil to offer those traders in exchange for the financing,” Reuters said.

On August 16, the NNPC disclosed it has signed a Commitment Letter and Term Sheet with AfreximBank for an emergency $3 billion crude oil repayment loan.

The company said the agreement was jointly signed by both parties at the bank’s headquarters in Cairo, Egypt.

NNPC Limited, in a statement made available to Vanguard, explained that 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 stabilizing the exchange rate market”.

Recall that the Federal Government, early last month, reported a 13.6 percent drop in daily crude oil production in the month of July, leaving the country seriously short of USdollar revenues from crude oil export.

The Nigerian Upstream Petroleum Regulatory Commission, NUPRC, disclosed that production averaged 1.08 million barrels per day compared to 1.25mbpd recorded in June, 2023.

The July production figure was a major setback for government which has a production target of 1.69 million barrels per day in the 2023 budget. The volume of production was also significantly lower than the 1.7 million barrels per day production quota allocated to the country by the Organisation of Petroleum Exporting Countries, OPEC.

Explaining how the loan will work, Senior Special Assistant to the President on Digital/New Media, Mr. O’tega Ogra, in a series of tweets in August, said the loan “is not a crude-for-refined products swap but an upfront cash loan against proceeds from a limited amount of future crude oil production”.

He tweeted: “Is this loan risky for NNPC Ltd, or the Nigerian Treasury? No. The exposure for NNPC Ltd. is very limited, covering just a fraction of their entitlements. Additionally, there are no sovereign guarantees tied to this loan.

“What’s the benefit of this loan to Nigeria? 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.

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

Speaking against this background, the Nigeria Employers’ Consultative Association, NECA, stressed the need to ramp up crude oil production to the 1.8 million barrel per day OPEC quota for the country, as a critical factor to reducing demand pressure in the forex market and associated economic challenges.

NECA also urged government to pursue and eliminate crude oil theft and resume domestic refining to save forex for other productive uses.

NECA in a statement titled Ramping-up FOREX Revenue, Crude Production and Non-Oil Exports-Urgent Imperative for Economic Recovery, its Director-General, DG, Adewale -Smatt Oyerinde, said “The unification of exchange rate policy was supposed to bring into convergence the exchange rates at the official forex market and the parallel market windows. At the beginning of implementation, the policy appeared to have gained traction but has now progressively become undesirable. While the official exchange rate stood at about N781.64/US, the parallel market around N900/$ as noted by the Central Bank of Nigeria (CBN), the differential of which shows a premium of about 21 percent between the two windows.

“As observed by the CBN, illegal remittances through inappropriate channels and unlawful selling of dollars by commercial banks are the core reasons the Naira value has continued to degenerate. While agreeing with the apex bank, we want to add that the continuous existence of the parallel market, particularly in open places, is more than culpable for the ugly development. We believe that as long as the “black market” with the institutionalised name, “parallel market” persists, unruly banks in the country will continue to round-trip, notwithstanding the implication on the economy.

“The persistent wrong channelling and mismanagement of forex on organised businesses has become agonising. Business working capital, production, capacity utilisation, investment, sales, etc., have contracted significantly, while firms are forced to downsize. The grey trajectory portends tragedy for the economy if not quickly addressed. Consequently, a more stringent action that will significantly reduce the influence of economic saboteurs in the forex value chain must be implemented. We believe that if the Parallel market is not legal, then it is illegal and should be treated as such.

“In order to reduce the pressure of forex and other economic challenges associated with it, we urge the government, as a matter of urgency, to ramp up the production of crude oil to at least the 1.8 million barrel per day OPEC quota for the country; pursue and eliminate crude oil theft; resume domestic refining to save forex for other productive uses; and be fiscally disciplined in terms of dollar dealings. These measures will no doubt, avail more forex to CBN for onward intervention in the official forex market, which will enable businesses to source forex to sustain business activities.”

Reacting, the Special Assistant on Public Communication to former Vice President, Atiku Abubakar, Mr. Phrank Shaibu, said: “For many years, Tinubu claimed that he built the economy of Lagos from scratch. Now, he has been exposed as a charlatan. His administration detained Emefiele and vilified him for taking FX loans from JP Morgan and Goldman Sachs running into $7.5bn, which was used in defending the naira.

“Now, Tinubu’s administration claims to have done the same thing by forcing the NNPCL to take a loan of $3bn to defend the naira. We, however, have it on good authority that this is all a ruse to force the naira to appreciate at the parallel market, an action that will further affect the government’s credibility.

“The NNPCL has failed to shed the toga of an ordinary government agency. No wonder it has refused to become a public limited liability company, as stated in the Petroleum Industry Act.

“The NNPCL boss, Mele Kyari, who is also desperate to retain his job, has allowed himself to become a willing political tool just like Emefiele. If the NNPCL was a publicly listed oil firm like Aramco and Mobil, would it obtain a loan in order to ‘defend the naira’?”