Tinubu reverts to defending Naira with NNPC’s $3bn AFREXIM loan deal

Those who sold the Tinubu presidency to Nigerians on the supposed strength of his shrewd economic management must be having a hard time defending his slate of policies, the latest being the return to borrowing to defend the naira, the same policy many economists say contributed to bringing the economy to its knees.

Nigeria’s state-owned oil firm, the Nigerian National Petroleum Corporation (NNPC) Limited is taking a $3billion loan from Africa Import and Export Bank (AFREXIM) against royalties from future oil production, as a temporary measure to improve dollar supply to the uniform foreign exchange window, where the gap with the parallel market had widened by about N200 in the past week.

President Bola Tinubu and his beleaguered Central Bank have received firepower from Afrexim Bank in Cairo to help them fight the so-called speculators that have ambushed the local currency but not many believe this will be enough to ease the FX volatility that has created several crises for Africa’s most populous nation.

In a statement late Wednesday, the NNPC limited said the “NNPC and Afrexim Bank have jointly signed a commitment letter and term sheet for an emergency $3bn crude oil repayment loan.”

According to the statement, the “signing which took place today at the bank’s headquarters in Cairo will provide some immediate disbursement that will enable the NNPC limited to support the Federal government in its ongoing fiscal and monetary policy reforms aimed at stabilizing the exchange rate market.

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Analysts and experts are alarmed that once again, Nigeria is foregoing long-term, deep reforms for temporary measures that akin to band-aids do no lasting good. Some have questioned the wisdom of taking a loan of this size without a cabinet in place and with the country already neck-deep in debt.

This new loan comes amid shrinking oil production largely due to crude theft and insecurity in the Niger Delta. Nigeria’s oil production fell to 1.2million barrels per day in July and only recently did Forcadoes terminal come back on stream after being shuttered for most of July due to repairs.

O’tega Ogra, a special assistant to President Tinubu said the loan exposure for NNPC Ltd. is very limited, covering just a fraction of their entitlements. “Additionally, there are no sovereign guarantees tied to this loan,” he said in a Twitter post.

But without clear plans to combat insecurity in the Niger Delta and raising oil production to 2m barrels a day, increasing land space under cultivation by no less than a million hectares while also stopping the banditry in many parts of the country that has driven farmers away from the farms, the plans have little chance of success.

Some analysts nevertheless see an upside. “It’s an upfront cash loan backed by proceeds from a limited volume of future crude oil production. The loan will assist NNPC Ltd. to pay its taxes and royalties in advance whilst equipping the federal government with the necessary dollar liquidity to stabilize the Naira, without much risk,” said Ayodele Oni, energy lawyer and partner at Bloomfield law firm.

The Tinubu government has rejected counsel to reduce the size of governance instead he instituted the biggest cabinet since Nigeria’s return to democracy largely filled with out-of-work politicians. The legislators carry on with the same reckless pattern of spending oblivious to the suffering and angst in the land.

But hot money comes at a steep cost. According to one oil industry player, “This is the sort of hot money that got the country where it is. No tie to production or reserves growth- just a payday loan at a huge cost! When we were in this sort of fix in the military era, we offered investment incentives (Reserves Addition Bonus) that resulted in the world-class Bongas, Erha’s and Agbami’s, along with some crude sweeteners (the latter for cash). Without impacting the fundamentals like raising crude oil production and reserves, I’m afraid what NNPCL is doing is akin to what Emefiele did with Morgan Stanley et al.

The concern for many is that this loan which is not tied to any efforts to improve Nigeria’s oil production returns Nigeria to the Emefiele days, where state institutions operated like their sole existence was to provide liquidity to the Federal Government. The potential for abuse is also high, they say.

“Assuming sustained effective output, how many years of crude is $3b? How much effective output do we need to have to repay this loan? How long will this 3b loan last for it not to be any different from what Emefiele did in 2017 with $150m,” asked a Twitter user (@kcemenike) in reply to Ogra’s post.