Nigeria has disclosed the terms of its $3.3 billion “pre-export finance facility” (PxF) arranged by Afrexim Bank and facilitated by the Nigerian National Petroleum Company (NNPC) Ltd. The country will be paying an annual interest rate of 11.85% over the five-year tenor of the loan.
The transaction details, previously undisclosed, reveal that Nigeria has committed to repaying the loan with a total of 164.25 million barrels of crude oil. This commitment entails delivering 90,000 barrels per day starting from 2024 through Project Gazelle Funding Ltd, a special purpose vehicle (SPV) incorporated in the Bahamas for the PxF.
In comparison, a similar cocoa-backed facility for Ghana, arranged by its cocoa marketing board, carries an 8% annual interest rate. It’s noteworthy that bilateral lenders like the International Monetary Fund (IMF) typically charge lower interest rates, ranging from 1-3%, and offer longer tenors.
Effectively, the NNPC has pledged 38.58 percent of five years’ worth of tax and royalty oil to secure the loan.
Nigeria pledges over $12 billion worth of oil
At the beginning of 2024, a barrel of Nigerian oil was sold at the international market at $77.93 per barrel, according to the Central Bank of Nigeria (CBN) data.
At $77.93 per barrel, the 164.25 million barrels of oil pledged by Nigeria equals $12.8 billion — about three times more than the facility taken.
Pre-2014, the national oil company used to remit an average of $3 billion from oil sales every month.
Officially, Project Gazelle Funding Ltd (PGFL) is the borrower while the NNPC is the “sponsor” and will pay with oil to the SPV to liquidate the loan.
To make the repayment, the NNPC will forward-sell 90,000 barrels per day of Nigeria’s share of offshore crude oil under the production sharing contract (PSCs) with the oil companies.
Under PSCs, the companies usually pay royalties and taxes by giving the oil equivalent to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Federal Inland Revenue Service (FIRS) respectively.
The NNPC in turn exports the oil on behalf of NUPRC and FIRS and remits the proceeds to the agencies.
This is part of the revenues paid into the federation account and shared by the three tiers of government.
But under the PxF, the revenue from 90,000 barrels per day will be used to service the loan in the next five years.
The loan arrangers will get a commission of $66 million or 2% of the facility, TheCable further learnt.
Nigeria will pay 2 percent penalty per annum in the event of a default.
‘DOLLAR LIQUIDITY TO STABILISE THE NAIRA’
The national oil company announced in August 2023 that the PxF was to support the federal government “in its ongoing fiscal and monetary policy reforms aimed at stabilizing the exchange rate market”, describing it as “a relief for the naira”.
It called the facility “crude oil repayment” with an upfront cash loan “against proceeds from a limited amount of future crude oil production”.
At the time, the dollar exchanged for an average of N775 in the official market and N885 on the streets.
The rates have now moved to N1,035/$ (official) and N1,230/$ (parallel).
Nigeria’s outstanding forex liabilities are currently thought to be over $7 billion.
In an explainer after announcing the PxF last year, the NNPC said its exposure is very limited, “covering just a fraction” of their entitlements and that “there are no sovereign guarantees tied to it”.
It said it “will also equip the Federal Government with the necessary dollar liquidity to stabilize the Naira, with limited risk”.
A strengthened naira as a result of the initiative, it said, “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”.
It also ruled out subsidies, maintaining that a stronger naira “will result in lower prices from the current level, making subsidies unnecessary. The deregulation policy remains unchanged”.
Critics questioned NNPC’s involvement in getting loans to boost forex reserves when it should be concentrating its efforts on bringing in more oil revenues.
There were also questions over the decision to pledge the tax and royalty oil belonging to the entire federation to secure the loan.
Analysts also queried why the details of the deal were never made public.
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