Fuel Crisis Lingers As NNPC Seeks Fresh $2bn Crude-Backed Loan

The Nigerian National Petroleum Company Limited is in talks for another oil-backed loan to boost its finances and allow investment in its business, the Group Chief Executive Officer, NNPC, Mele Kyari, has said.

Sources familiar with the situation said the oil firm aims to raise at least $2bn through the proposed new loan.

In August 2023, NNPC announced that it had secured a $3.3bn emergency crude oil repayment loan from the African Export-Import Bank.

When the $3.3bn loan is added to the newly proposed loan of $2bn, it means the national oil company is about raising its crude-backed loans to $5.3bn.

Media source could not ascertain how much the oil company had repaid from the $3.3bn loan as of press time on Tuesday.

Kyari said the company wanted the new loan against 30,000-35,000 barrels per day of crude production, though he declined to say how much money it sought, Reuters reported on Tuesday.

This came as the queues for Premium Motor Spirit, popularly called petrol, persisted on Tuesday in Abuja and neighbouring states, as well as in Lagos, Nigeria’s commercial city.

Marketers blamed this on the shortage of supply by NNPC, the sole importer of PMS into Nigeria. Other dealers stopped importing the commodity due to their inability to access the United States dollars.

Marketers also advised NNPC to mindful with the collection of crude-backed loans, as they expressed hope that the situation would not become detrimental to Nigeria’s oil sector.

Reuters also reported that NNPC’s debts to petrol suppliers had doubled in the last four months to hit $6bn. This was, however, countered by the spokesperson of NNPC, Olufemi Soneye.

“False. Did they name the marketers they claim we supposedly owe? Let them name them,” Soneye had told our correspondent while responding to the Reuters report.

Nigeria’s government finances rely on the oil the NNPC exports and oil provides the bulk of crucial foreign exchange reserves. But pipeline theft, and years of underinvestment, have sapped oil production in recent years, and the cost of fuel subsidies has further depleted cash reserves.

President Bola Tinubu has been struggling to push through reforms in Africa’s biggest oil exporter – including eliminating fuel subsidies and allowing the naira currency to trade close to market levels – without pushing the country’s population to a cost-of-living breaking point.

Kyari confirmed that NNPC wanted a loan against 30,000-35,000 barrels per day of crude production, but declined to say how much money the company is seeking. He said the cash raised would be used for all of NNPC’s business activities, including supporting production growth.

“We have no problem covering our petrol payments. This is just money for normal business and not a desperate act,” Kyari told Reuters.

“It will be a syndication with critical but regular partners who have been in business with our company to forward the cash,” he said, adding he expected to conclude the deal in the next two months.

NNPC already has a $3.3bn oil-backed loan through Afreximbank, but five sources said the company’s lack of cash had been aggravated by rising fuel subsidy costs, and that the new loan would help it to pay them.

It is unclear which lender would arrange the loan, as three sources said Afrexim would be unable to extend its exposure to Nigeria that far. All five sources who spoke to Reuters asked not to be named because they were not authorised to speak on the issue.

Some oil trading houses have already stopped participating in NNPC’s tenders for petrol because the overdue bills have pushed their exposure to Nigeria above the levels their companies allow.

Tinubu announced the removal of costly fuel subsidies shortly after he took office last year, allowing pump prices to triple. Subsidies – which critics say are an inefficient tool that benefits mainly elite, city-dwelling car owners – have been a drain on Nigeria’s finances for years.

But given the pain of double-digit inflation, NNPC capped average fuel prices at just above N600/litre a year ago – a price that has become further from market levels since the naira fell and global oil prices rose.

Fuel queues began forming last week in Lagos as Abuja petrol marketers stopped selling. Sources said the ex-depot price in Lagos is above N700/litre, meaning stations would lose money if they sold at the capped prices.

The 650,000-barrel-per-day Dangote refinery on the outskirts of Lagos expects to begin producing gasoline and open a new tab in the coming weeks. But that refinery has loans – and crude oil feedstock costs – in US dollars, and would be reluctant to sell at a loss inside Nigeria – or wait months for payments from the NNPC.

The sources said the pressure had mounted on the government to increase pump prices, but leaders, mindful of deadly riots in Kenya that forced the government to backtrack on plans to increase taxes, are expected to be cautious about doing so.

Reacting to the fuel supply situation in Nigeria and the proposed loan by NNPC, the President of the Petroleum Products Retail Outlets Owners Association of Nigeria, Billy Gillis-Harry, said though the national oil company was working hard to clear the queues, marketers were still expectant of products from the company.

“NNPC has assured us that they are working hard to tackle the fuel supply issues. So we are expecting products from them because as you know, NNPC is still the sole importer of PMS into Nigeria, and that has been a challenge,” he stated.

On the proposed load, the PETROAN president advised the oil company to be smart about it, adding that “it is true that they need the funds to grow investments, but they must be sure that in the long run it would be of benefit and not detrimental to the oil sector.”

Earlier crude-backed loan

On August 17, 2023, media reported that the NNPCL announced that it had secured a $3.3bn emergency crude oil repayment loan from the African Export-Import Bank.

It had explained at the time that the loan would be used by the oil company to support the Federal Government in stabilising Nigeria’s exchange rate.

In June this year, media also reported that the Federal Government received a lifeline of $925m from Afrieximbank to boost the forex market and meet its dollar obligations.

The report stated that Afreximbank announced an additional disbursement of $925m under the syndicated $3.3bn crude oil-backed prepayment facility sponsored by NNPC.

The facility is to help the Federal Government attend to some of its dollar obligations, assist the Central Bank of Nigeria to stabilise the foreign exchange market and provide funding for NNPC, among other things.

The Afreximbank’s accordion disbursement for Project Gazelle Funding Limited brought the total funded facility size to $3.175bn.

Arranged and coordinated by Afreximbank, the accordion arrangement saw the raising of a combined total of $925m from a consortium of crude oil off-taker lenders, including but not limited to the Oando Group and Sahara Energy Resource Limited.

Providing details about the deal in the document titled, “Everything you need to know about the NNPC Limited’s $3.3bn loan, also known as Project Gazelle,” NNPC said, “This is a financing agreement secured by NNPC Limited to prepay future royalties and taxes to the Federal Government.”

The company also stated that it adopted a lower price benchmark for the $3.3bn crude-for-cash loan to reduce the risk of default and ensure financial stability.

Giving details on the benchmark oil price, the company said the facility was using a conservative crude price of $65/barrel to calculate the allocated crude to be produced and sold in the future.

“This provides a safety margin for price fluctuations in the future..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. This also ensures that NNPC Limited can meet other cash flow obligations, considering the expected future price of crude oil globally,” it stated

NNPC also said repayments were strategically planned and tied to future oil sales, with conservative pricing in oil sales contracts mitigating the risks associated with oil price volatility.