June 21, 2024

Tinubu’s administration owes Nigerians an explanation for the NNPC $3.3bn emergency loan

By Godfrey Okoro

IN what appears to be a landmark economic decision of the Bola Tinubu-led administration, the Federal Government last year, precisely on August 16, 2023 through the Nigeria National Petroleum Company (NNPC) secured a $3.3 billion emergency crude repayment loan, which according to the NNPC, was to help give support to the Naira and stabilize the Foreign Exchange market.

The curious thing about this transaction is that up till now, the Federal Government continues to keep mum about it, and the only information available to the public on the mega deal is coming only through unofficial sources from the NNPC.

The deal is supposed to be a crude-for-cash loan arranged by the African Export-Import Bank. According to information available, a Special Purpose Vehicle called Project Gazelle Funding Limited is driving the deal, and it was incorporated in the Bahamas.

The SPV is the borrower while the NNPC is the sponsor, with an agreement to pay with crude oil to the SPV in order to liquidate the loan at an interest rate that is a little over 12 per cent.

What is even more confounding about this deal is why the Federal Government would register a company in the Bahamas, knowing full well the recent scandal of the Paradise Papers that involved that country.

Curiously also, Nigeria’s current Barrels Produced Daily (BPD) is 1.38 million, and according to the Project Gazelle deal, Nigeria is to supply 90,000 Barrels of its daily production, starting from 2024 till it is up to 164.25 million barrels for the repayment of the loan.

Now, this is where the details get disturbing because Nigeria’s benchmark for the sale of crude per barrel in 2024 is $77.96. A simple multiplication of that figure by 164.25 will give us a whooping $12bn.
It is on this note that we are calling on the Federal Government to speak up on this shady deal.

It is inconceivable that the Federal Government will lead the country to take a loan of $3.3b with an interest rate that is not more than 12 per cent, but with estimated repayment amounting to $12bn.
That is a humongous differential of about $7b between what is in the details of the deal on paper and what indeed is the reality.

There are questions to be answered on the integrity of this deal, and we earnestly request the Federal Government to talk directly on these cloudy details behind the deal.

We therefore demand, on behalf of the ordinary people of Nigeria, that the Federal Government provides answers to the following questions, “Has the Federal Government accessed the loan; Is the loan in the government’s borrowing plan as approved by the National Assembly; Who are the parties to the loan, and what specific roles are they expected to play; What are the conditions to the loan, including tenor, repayment terms, the collateral, and the interest rate; And, lastly, why register an SPV in the Bahamas knowing the recent scandal of the country’s notoriety for warehousing unclean assets?, former vice president of Nigeria, Atiku Abubakar revealed.

Matters Arising

There has been a lot of hue about the $3.3 billion said to have been the NNPC loan from African Export – Import Bank with crude repayment arrangement.

The truth is that the Nigerian National Petroleum Company Limited (NNPC) has not really presented the matter in a manner free of opaqueness and misrepresentation. And this may have created a gross misrepresentation of its real motive for the $3 billion financing to African Export-Import Bank (Afreximbank) and other lenders, a distressing development that may have facilitated the failure of the deal, according to sources familiar with the matter who confirmed this to EnergyDay.

The gist is that in the meeting between the NNPC officials and the Consortium that was to give the loan held last August in Cairo, Egypt, the parties only agreed in principle to some terms and conditions before a statement from the NNPC packaged ,clothed and ornamented the deal as if it were ready, taking the backers by surprise, and sending jitters down their spines

“The NNPC Ltd. and Afreximbank have jointly signed a commitment letter and term sheet for an emergency $3 billion crude oil repayment loan,” the national oil company said in the statement on August 16.

It was emphatic that the signing, 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”.

EnergyDay learnt that the lenders were not only shocked by this gross misrepresentation coming from the NNPC but were also miffed at the development since there had not been any conclusion on the matter but work in progress.

They were particularly shocked by the assertion that the financing “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,” sources say.

It was all the more appalling to the lenders according to insiders that the official talks that had started out in ambience of an uneasy discussion on how the financing would unlock critical projects immediately veered off into talks about propping up the naira, raising concerns in the Boards of the financial institutions, since propping up the naira was not part of the discussion and reason for the financing.

This turn of development was said to have sent wrong signals to Afreximbank’s board, which caused them to be apprehensive. Other development financial institutions (DFIs) and commercial lenders that were billed to be part of the deal declined to be part of the financing.

The main headache for the Board of Afreximbank was that while the NNPC had only secured an indicative term sheet, basically a document outlining non-binding terms and conditions upon which the lender will provide financing, the NNPC presented it as if it were completed.

Worse still, the purpose announced in the NNPC for the loan did not align with the declared intentions in the discussion with lenders.

Afreximbank had issued an indicative term sheet on the condition that other DFIs and lenders were going to join the syndicate to complete the initial 8.3 percent contribution of $250 million by Afreximbank but after the NNPC’s announcement, the deal collapsed.

EnergyDay’s efforts to get the NNPC to respond to Atiku’s posers failed as at time of publication.
The state oil firm has found itself forced to enter into different financing arrangements using the country’s crude from various contracts as collateral but as multilateral financial institutions bow to pressure from environmental groups to halt financing for oil and gas projects, the NNPC has seen its options dwindle.

In this case, the NNPC had been seeking a short-term fix to Nigeria’s dwindling dollar supply on account of falling oil production to boost liquidity and remove some pressure on the local currency.
Meanwhile, analysts draw a direct line between the collapse of the financing deal to the naira’s loss of value.

“The fact that the foreign exchange market is in turmoil, with black market premium at 25 percent is an indication that the liquidity that was meant to provide temporary succour to panic buying did not come through,” said Kelvin Emmanuel, CEO of Daily Hills Limited.

Emmanuel said that this may not come as a surprise because multilateral financing institutions with a well-defined environment, ESG framework are becoming constrained to issue a resource-backed loan.

Under the deal, Afreximbank was to provide $250 million as indicative loan financing while other development banks would contribute the rest to make up the $3 billion. Following the pull-out of Afreximbank, other DFIs that would have been part of the syndicated loan also ran for the hills, leading to the collapse of the deal.

Despite the reforms touted by the Tinubu government, the naira has lost over a quarter of its value since he became president largely because the reforms, though market-friendly, lacked cohesion, proper planning and concrete actions.

For example, the central bank has tried to unify the exchange rates but continues to discriminate against a list of 40 items it banned from accessing forex. It removed petrol subsidies but continues to charge port and taxes in dollars, making importers shun it. Following the rise of oil prices, it has restarted paying petrol subsidies from NLNG dividends.

While the NNPC is seeking resource-backed loans, Nigeria’s crude supply is dwindling. Oil multinationals are keen to leave onshore fields troubled by crude theft and vandalism and local producers are struggling to raise enough cash to start new projects.

“The government needs to restore the confidence of oil corporations to keep drilling like we saw with ExxonMobil at the United Nations General Assembly sidelines,” said Jide Pratt, an energy sector expert, “otherwise, we have a long road ahead.”

Many experts have voiced their opinion on the illegality of the move by NNPC Limited.
Femi Fálànà celebrated lawyer and human rights activist says: “NNPC is no longer a parastatal of the government. I cannot find any provision that allows them to take a loan for the Central Bank of Nigeria (CBN). This illegality must stop in the interest of the country. $7.5bn loan was taken on behalf of the country.

“The Debt Management Office was not aware, the National Assembly was not aware. Loans were taken in 2006; the government yanked off $7bn from our foreign reserve and distributed them to 14 banks. I wrote the Economic and Financial Crimes Commission (EFCC) then that they should explain this. We wrote to the CBN and they said they had forgiven the banks that took the loan. Where have you got the power? We now have to let the government know the effects of dollarisation of the economy.

“Speaking from a legal perspective, I have had to sue the CBN to a Federal High Court because Section 16 of the CBN Acts imposed a duty on the CBN to fix and determine the rate of the Naira vis- a-vis other currencies, so there is no provision for floating the Naira, it’s illegal. To say that the value of the Naira would be determined by market forces, that is not in the law.

“Section 20 sub-section of the CBN Act provides that the only legal tender in Nigeria shall be the currency notes issued by the CBN, which is the Naira. Section 20, sub-section 5 provides that anybody who spends any other currency in Nigeria without the approval of the CBN has committed an offence and shall be prosecuted, the penalty is six months imprisonment. You ask yourself, why do the Nigerian government allow properties to be sold in dollars, rents to be collected in dollars, and some school fees to be paid in dollars?