The Nigerian National Petroleum Company Limited (NNPC) on Wednesday, announced that it had secured a $3 billion emergency loan from the African Export-Import Bank to stabilise the country’s volatile foreign exchange market.
But in a swift reaction, Phrank Shaibu, the Special Assistant on Public Communication to former Vice President of Nigeria, Atiku Abubakar, described as patently fraudulent the $3 billion loan secured by the NNPC.
There was however relief in the forex market on Wednesday, as the naira appreciated at both the official Investors’ and Exporters’ (I&E) forex window and the parallel market.
A significant upswing was observed in the parallel market as the nation’s currency strengthened from N940/$1 the previous day, to N880/$1, reflecting a substantial increase of N60. On the other hand, at the official I&E window, the nation started off with an opening rate of N774/$1 yesterday, but appreciated to N759/$1 at the close of the market.
Announcing the deal with Afreximbank in a brief statement, the national oil company stated that the formal event held at the bank’s headquarters in Cairo, Egypt, with both parties jointly signing a commitment letter and term sheet for the emergency loan.
“The NNPC Limited and Afreximbank have jointly signed a commitment letter and term sheet for an emergency $3 billion crude oil repayment loan.
“The signing, which took place on Wednesday at the bank’s headquarters in Cairo, Egypt, will provide some immediate disbursement that will enable the NNPC Limited to support the federal government in its ongoing fiscal and monetary policy reforms aimed at stabilising the exchange rate market,” the NNPC stated.
The illiquidity in the foreign exchange market recently saw the dollar exchange for as low as N950/$ in the parallel market and N775 in the official window, a situation that had become a nightmare for businesses in the country.
It had further complicated Nigeria’s massive fuel importation, which gulps about $20 billion yearly, raising the price to as high as N617 per litre, with concerns that it could soar to N720 in the coming days if the skyrocketing dollar value was not halted.
The new deal is coming over a year after the national oil company said it similarly secured a $5 billion corporate finance commitment from the Prof. Benedict Oramah-led bank to fund major investments in Nigeria’s upstream sector.
Although the NNPC’s statement was silent on specifics in terms of the volume of each instalment of the FX expected and the quantity of crude oil to be repaid, the deal was expected to boost foreign exchange liquidity into the country and prop up the value of the naira against the dollar.
The previous agreement was to be funded through a Forward Sale Arrangement with the delivery of 90,000 to 120,000 barrels per day to be delivered to the lender over a four to eight-year period.
During the signing of the new agreement yesterday, the national oil company was represented by its Group Chief Executive Officer, Mallam Mele Kyari, while the Executive Vice President of the bank, Dr George Elimbi, signed on its behalf.
Throwing more light on how the new deal will work, Spokesman to President Bola Tinubu, Ajuri Ngelale, noted on his Twitter handle that the FX accretion would to enable NNPC defray taxes and royalties in advance.
He added that it would also provide the federal government with dollars to aid liquidity to stabilise the naira via incremental releases based on the government’s needs. “Stronger naira equals lower fuel costs. This is a major buffer against the need to re-engage in subsidy regime,” he noted.
On his part, the Senior Special Assistant to the president on Digital and New Media, O’tega Ogra, explained that the emergency $3 billion crude oil repayment loan was not a crude-for-refined products swap but an upfront cash loan against proceeds from a limited amount of future crude oil production.
On whether it was a risky transaction, he noted that it was not, stressing that the exposure for NNPC Limited was very limited, covering just a fraction of their entitlements, while there are no sovereign guarantees tied to the loan.
“The loan will assist NNPC Limited in settling taxes and royalties in advance. It will also equip the federal government with the necessary dollar liquidity to stabilise the naira, with limited risk.
“The funds will be released in stages or tranches based on the specific needs and requirements of the federal government,” he added.
He noted that there were high hopes that the development would lead to a reduction in fuel prices, pointing out that there was no plan to restore subsidies.
“A strengthened naira as a result of this initiative will lead to a reduction in fuel costs. This means that if the naira appreciates in value, the cost of fuel will drop and further increases will be halted.
“A stronger naira will result in lower prices from the current level, making subsidies unnecessary. The deregulation policy remains unchanged,” he explained.
On how the loan would be repaid, he stated: “The loan will be repaid against a fraction of proceeds from future crude oil production. It’s a strategic move that ensures a balance between our current economic needs and future production capabilities.
“This is not a crude for refined products agreement where the government does not earn any proceeds from the swap.”
Meanwhile, Shaibu has described as patently fraudulent the announcement by the NNPC on the $3 billion loan.
According to him, the announcement was a mere banana peel and a ruse to force the naira to appreciate on the parallel market.
Shaibu, in a statement held the view that the move was cosmetic and unimaginative and had once again exposed President Bola Tinubu as a Lilliputian economist that lacked ideas on how to rescue the economy he had pushed to the edge with unviable policies.
He argued that monetary policy was not the job of the NNPC but the Central Bank of Nigeria and wondered why the NNPC, which claimed to be a profit-making organisation, would go ahead to take a loan for the primary purpose of stabilising the naira.
Atiku’s aide also drew parallels between the actions of the NNPC and the CBN under the authority of Godwin Emefiele.
Shaibu noted that oil production had dropped on Tinubu’s watch due to continuous oil theft. He said instead of boosting forex liquidity by increasing production and exports, Tinubu decided to take the Jejune path of obtaining foreign loans, an inglorious road that his predecessor had travelled
He added, “For many years, Tinubu claimed that he built the economy of Lagos from scratch. Now, he has been exposed as a charlatan.
“His administration detained Emefiele and vilified him for taking FX loans from JP Morgan and Goldman Sachs running into $7.5 billion, which was used in defending the naira.
“Now, Tinubu’s administration claims to have done the same thing by forcing the NNPC to take a loan of $3 billion to defend the naira. We, however, have it on good authority that this is all a ruse to force the naira to appreciate at the parallel market, an action that will further affect the government’s credibility.
“The NNPCL has failed to shed the toga of an ordinary government agency. No wonder it has refused to become a public limited liability company, as stated in the Petroleum Industry Act.
“The NNPCL boss, Mele Kyari, who is also desperate to retain his job, has allowed himself to become a willing political tool just like Emefiele.
“If the NNPCL was a publicly listed oil firm like Aramco and Mobil, would it obtain a loan in order to ‘defend the naira’?”
Shaibu added: “Tinubu lacked a clear economic blueprint, hence his constant failures.”
He further argued that Tinubu’s policy flip-flops had already begun affecting Nigerian bonds, as reported recently by Bloomberg.
He added, “He takes action whimsically without thinking about consequences. He announced the removal of petrol subsidies without proper planning and brought the nation to its knees.
“He forced the CBN to float the naira even though the country had liquidity problems. Now, he is on the verge of taking the West African region to war without Senate approval. Tinubu is nothing but a myth that will continue to unravel.
“He claims to have deregulated the petroleum sector, and yet NNPC is still the one determining the price of petrol. He has pegged the price of petrol and yet claims that there is no subsidy. Nigerians must not allow themselves to be deceived by this man.”
Chuks Okocha, Emmanuel Addeh , Nume Ekeghe and Peter Uzoho
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