Fitch doubts Nigeria’s crude-for-loans deals with India, China

Fitch doubts Nigeria’s crude-for-loans deals with India, China Fitch Ratings, a global credit rating agency, has expressed doubt over Nigeria’s multi-billion dollar crude-for-loans prepayment deals with India and China.

The Minister of State for Petroleum, Dr. Ibe Kachikwu, recently said the country had negotiated a $15bn investment with India, where the Indian government would make an upfront payment to Nigeria for crude oil purchases.

The Senate had last week said it would probe the deal with India, and another with China worth over $80bn, with an additional $20bn deal with China’s two biggest oil companies.

Fitch said in a report on Monday that the Nigerian oil and gas sector continued to suffer from security issues and weak oil prices that had dragged down the ratings of indigenous oil and gas companies.

It said, “Nigeria remains Africa’s largest oil producer, but its production has dropped by 25 per cent in 2016 due to security issues and the closure of a number of export pipelines.

“Nigeria has a healthy proved reserve life of 43 years, but its future oil production will be driven by the resolution of security issues and infrastructure constraints.”

The rating agency said it viewed positively Nigeria’s recent ‘Seven Big Wins’ programme, which covered sector regulation, upstream and downstream projects, security, as well as transparency and corporate governance.

It said, “Another welcome sign is Nigeria’s reported $5bn settlement with western oil majors to cover their exploration and production costs since 2010.

“On the other hand, the long-overdue Petroleum Industry Bill, a cornerstone of President Muhammadu Buhari’s oil sector reform, is still far from being passed, and the recent rebel activity in the Niger Delta region is only delaying the bill’s passing.”

Fitch said the proposed de-consolidation and partial privation of the Nigerian National Petroleum Corporation would likely promote investment and hence benefit the country’s oil sector.

“We also remain sceptical that the multi-billion crude-for-loans prepayment deals with India and China will achieve the announced targets. Furthermore, Nigeria’s dependence on oil product imports and the low use of natural gas hamper its oil and gas sector,” the agency stated.

It said without developing domestic refining and natural gas capabilities, Nigerian oil and gas companies would remain exposed to oil price fluctuations, thus capping their ratings.

Noting that the significant oil oversupply and increase in inventories had contributed to the collapse in the global oil prices since the second half of 2014, the agency said the Organisation of Petroleum Exporting Countries was partially responsible for the supply glut.

It said global oil supply reached nearly 98 million barrels per day in October, up by 800,000 bopd in September, due to a record OPEC output of 33.8 million bopd, according to the International Energy Agency.

Fitch said, “Oil and gas companies responded by cutting upstream capex, which is expected to drop by over 40 per cent in 2016 on 2014. Companies are adapting to the $50 per barrel environment by improving efficiencies of existing operations and developing new resources in regions where infrastructure already exists.”

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