In a bid to address the ongoing fuel crisis in Nigeria, the Nigerian National Petroleum Company Limited (NNPC) is in talks to secure a new $2 billion oil-backed loan.
This comes as the national oil company continues to grapple with rising fuel subsidy costs and the need to invest in its business operations.
According to sources familiar with the situation, the NNPC aims to raise at least $2 billion through the proposed loan, which would be in addition to the $3.3 billion emergency crude oil repayment loan the company secured from the African Export-Import Bank (Afreximbank) in August 2023.
NNPC Group Chief Executive Officer, Mele Kyari, confirmed the company’s plans, stating that they are seeking the new loan against 30,000-35,000 barrels per day of crude production. However, Kyari declined to disclose the exact amount of funding the company is seeking.
The proposed loan comes as the fuel crisis continues to persist in major cities across Nigeria, with long queues at petrol stations. Marketers attribute this to a shortage of supply from the NNPC, which remains the sole importer of Premium Motor Spirit (PMS), commonly known as petrol, into the country.
Some marketers have even stopped importing the commodity due to their inability to access United States dollars. In response, the NNPC spokesperson, Olufemi Soneye, dismissed reports that the company’s debts to petrol suppliers had doubled to $6 billion in the last four months, calling the claims “false.”
The fuel crisis has been a significant challenge for the administration of President Bola Tinubu, who has been working to implement reforms in Nigeria’s oil sector, including the removal of costly fuel subsidies. However, the move has faced pushback as it has contributed to a rise in the cost of living for the population.
Kyari assured that the new loan would be used to support the NNPC’s entire business activities, including efforts to boost production growth. He also stated that the company has no problem covering its petrol payments, and the loan is simply for “normal business” and not a “desperate act.”
The NNPC is expected to conclude the new loan deal with its “critical but regular partners” within the next two months, according to Kyari. However, some industry sources have expressed concerns about the company’s growing reliance on oil-backed loans, urging the NNPC to be mindful of the long-term implications for the Nigerian oil sector.
NNPC Limited has reserved up to 90,000 barrels of crude oil to provide a safety margin for price fluctuations and ensure sufficient cash flow for repayment and other financial obligations.
If oil prices rise, the additional revenue from selling the 90,000 barrels would allow for faster repayment. If prices fall, the repayment may be slower.
The 90,000 barrel quantity was sized to ensure enough cash is available when the facility is due for repayment, as well as to meet NNPC’s other cash flow obligations.
NNPC adopted a conservative crude price benchmark of $65/barrel to calculate the allocated crude and reduce the risk of default.
The total funded facility size was increased to $3.175 billion through an accordion disbursement arrangement with a consortium of crude oil off-taker lenders.
This is a financing agreement secured by NNPC Limited to prepay future royalties and taxes to the Federal Government of Nigeria.
