The Nigerian National Petroleum Company Limited’s (NNPC) $3.3 billion crude-for-cash loan from the African Export-Import Bank (Afreximbank) has sparked debate and raised questions about its long-term implications for the nation’s economy.
While the loan, dubbed ‘Project Gazelle,’ was hailed as a crucial lifeline to stabilise the naira and fund fiscal reforms, concerns linger about its potential pitfalls.
“I am not a fan of resource-backed loans, and this forward sales agreement that is akin to the financialization of future oil and gas assets is an anomaly in statecraft that the National Assembly should fight with all rigour,” Kelvin Emmanuel, an energy expert, and co-founder/CEO at Dairy Hills, said.
“There is no genius in it; it is a lazy approach to getting dollars to improve your balance of payment position,” he said on X.
On August 16, 2023, the NNPC secured a $3.3 billion emergency crude repayment loan to support the naira and stabilise the foreign exchange market.
To make the repayment, the NNPC said it would carry out a forward sale of 90,000 barrels per day of Nigeria’s share of offshore crude oil under the production sharing contract (PSCs) with the oil companies.
Giving details on the benchmark oil price, the NNPC said the facility uses a conservative crude price of $65 per barrel to calculate the allocated crude to be produced and sold in the future. Brent crude price traded at $78 on Monday.
“This provides a safety margin for price fluctuations in the future,” the NNPC said in a document signed by Olufemi Soneye, its chief corporate communications officer.
It added: “NNPC Limited has reserved up to 90,000 barrels of crude for Project Gazelle, ensuring sufficient cash flow for repayment and other financial obligations.
“If oil prices rise, more money will come in from selling the 90,000 barrels, allowing for faster repayment. However, if oil prices fall, the repayment may be slower. The quantity of crude earmarked (90,000 barrels) is sized to ensure enough cash is available for the repayment of the facility when it is due.”
Reacting to this development, Emmanuel said: “$65 benchmark at 90,000 barrels per day over 60 months or 1,825 days, you’ll arrive at $6.6 billion. This is minus the differentials from spot minus base price.
“I am shocked at the structure of this transaction, and the need to bring in private sector banks to act as lead arrangers in the syndicate when you can deal with the MDB directly at a much cheaper rate with a lengthier moratorium period.”
A senior energy expert who pleaded anonymity said the Project Gazelle’s interest rate, tenor and facilitation costs are a high burden for Nigeria’s economy.
“Interest rate at 6 percent; Secured Overnight Financing Rate at 11.85 percent pa tenor; five years facilitation cost and two percent to loan facilitators ($66m) are very expensive for taxpayers. The Nigerian government needs to be more transparent,” he added.
Another energy expert questioned NNPC’s decision to securitise $3.4 billion to stabilise the economy and pay back more than $8 billion to Afreximbank.
“To the best of my knowledge, the whole thing is not transparent enough for analysts and the public to scrutinise the deal which in retrospect, is not a good look for the parties involved,” he added.
NNPC Ltd had announced in August 2023 that the loan facility from Afreximbank was to support the federal government “in its ongoing fiscal and monetary policy reforms aimed at stabilising 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”.
