August 17, (THEWILL) – The Nigerian National Petroleum Company Limited (NNPCL) has explained that the $3 billion crude oil loan agreement it signed with the African Export-Import (AFREXIM) bank was not tied to a sovereign guarantee and will not be added to the nation’s public debt stock.
THEWILL had reported that the loan translates to N2.3 trillion at the official exchange rate of N774.77/$ on Tuesday, August 15, 2023 and would add to the nation’s N49.8 trillion debt burden..
Based on the NNPCL’s explanation, the disbursement will be in tranches depending on the Federal Government’s specific needs and requirements and there are no sovereign guarantees tied to the loan, meaning that the facility will only sit on the corporation’s balance sheet.
The loan arrangement means that the NNPCL is collecting its future revenue from crude oil production in advance from the AFREXIM bank
The facility will enable the corporation to settle its taxes and royalties to the Federal Government in advance, providing the CBN with US dollar liquidity needed to provide near-term respite for the local currency.
In terms of repayment, the NNPCL will repay the loan from its future crude oil production, depending on the terms of the agreement with AFREXIM.
Experts express mixed feelings over the AFREXIM facility as it would only provide a temporary respite towards easing the pressure on the naira, but would not address the long-term need of diversifying forex revenue sources through strong domestic production.
In a note to their clients, analysts at Cordros Securities said, “While we have held a standing view that Nigeria needs significant FX inflows to provide a near term support for the FX reforms the CBN embarked on since 14 June, the NNPCL’s loan arrangement came as a positive surprise to us as it was not among our expected short-term fixes.
“Consequently, we think this loan is a favourable short-term fix in providing near-term FX supply to support the FX market and stabilise the local currency. Nonetheless, we acknowledge that the amount is not enough to significantly support the local currency, more so that the funds will come in tranches.
“Thus, if not adequately managed with other measures (such as higher interest rates and additional funding support from third parties or multilateral institutions), FX pressures may likely build up again, leading to another round of local currency depreciation”.
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
