BUSINESS HALLMARK
Successive administrations’ penchant for taking foreign loans backed by natural resources, especially crude oil, has been identified as the major cause of Nigeria’s present revenue crisis, a new Business Hallmark investigation has revealed.
For close to twenty years, administration after administration, working hand in hand with the management of the Nigerian National Petroleum Corporation Limited (NNPCL), had resorted to taking loans backed by future crude oil productions to balance their annual budgets, BH gathered.
Sources in the Ministries of Finance, and Petroleum Resources, informed our correspondent that a large chunk of the monthly revenue flowing into the country from oil sales have been going into the offshore accounts of lending institutions and commodity traders, who had facilitated the loans for the administrations or supplied refined petroleum products to the defunct NNPC in exchange for crude oil.
As as result of this, the nation is in a dire financial situation, despite oil production climbing to 1.4 million barrels daily on average in June 2024.
This has forced administrations, especially, the current one, to resort to aggressive revenue drive like taxing manufacturers, corporate and religious bodies, as well as citizens.
BH’s in depth investigation unearthed multiple crude for refined products swap deals and crude-backed loans dating back to early 2000s.
Specifically, in August 2023, NNPC secured a $3.3billion emergency crude oil repayment loan for the Federal Government from the African Export-Import Bank (Afreximbank) to help stabilise the naira.
The facility, NNPCL had explained, was to help the government to meet some of its dollar obligations and assist the Central Bank of Nigeria (CBN) to stabilise the foreign exchange market.
Known as Project Gazelle, the crude for loan facility was arranged by Afreximbank with a consortium of crude oil off-taker lenders, including Oando Group and Sahara Energy Resource Limited.
Part of the deal includes setting aside 90,000 barrels of crude daily at a lower price benchmark of $65/barrel in order to reduce the risk of default.
“This provides a safety margin for price fluctuations in the future. 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”, the NNPCL had stated.
On July 10, 2024, NNPC announced it is negotiating another loan of $2billion to boost its finances and allow investment in its business. The new facility will effectively raise the firm’s crude-backed loans to $5.3billion in eleven months (August 2023 to July 2024).
Speaking on the matter, the Group Chief Executive Officer of NNPC, Mele Kyari, said the firm will trade between 30,000-35,000 barrels per day of crude production for the loan. In essence, Nigeria, in a spate of one year, mortgaged 125,000 barrels a day of her future crude production in exchange for funds.
Apart from the recent two oil-backed loan deals, BH reliably gathered from industry players that NNPC has not exited the controversial crude for refined products swap deal it entered into with suppliers.
Multiples sources, including a former Chief Operating Officer (COO) in charge of the Upstream Business Unit at the defunct NNPC, Mr. Bello Rabiu, disclosed that the country through the state oil firm still exchanges 450,000 barrels per day of crude oil previously reserved for the Port Harcourt, Warri and Kaduna refineries for about 1 million metric tons (MT) of petrol, equivalent to 1.341 billion litres.
According to Rabiu, refined petroleum products are supplied through the Direct-Sale Direct-Purchase (DSDP) arrangement between some international traders and NNPC.
“With consumption capacity estimated at about one million MT (1.341 billion litres) currently supplied through DSDP importation programme of NNPC, local and international traders are contracted to lift Nigerian crude oil owned by NNPCL and deliver petroleum products in ex-Lagos.
“This remains the only supply source of PMS in the Nigerian market due to inability of other players to secure forex for direct importation. Thus, NNPC is effectively the only supplier of PMS in Nigeria today”, Rabiu revealed.
However, other sources put the figure of crude oil swapped for petrol at between 200,000 to 250,000 barrels per day, and not the 450,000 barrels disclosed by Rabiu.
Owing to the drastic fall in Nigeria’s oil production, it was learnt that NNPCL had consistently defaulted in keeping up with the term of giving suppliers crude in exchange for refined products, a development that forced some of the traders to withdraw from the deal. Their withdrawal, it was learnt at the weekend, is responsible for the current fuel scarcity being witnessed across the country.
A renowned news agency, Reuters, reported on July 4, 2024, that NNPCL’s debts to petrol suppliers had doubled in the last four months to $6 billion.
According to Reuters, NNPCL started struggling early this year, when late petrol payments passed the $3 billion threshold.
“The company has still not paid for some January imports”, traders said, “and the late payments amount to $4 billion to $5 billion.
“Under contract terms, NNPCL is obligated to pay within 90 days of delivery. The only reason traders are putting up with it is the $250,000 a month (per cargo) for late payment compensation.
“At least, two suppliers have already withdrawn from current tenders after reaching their self-imposed debt exposure restrictions to Nigeria.
“Traders thrive in risky environments, but they place limits on how much credit they allocate per trade in order to avoid too much exposure on one borrower. These limits vary by company based on their size and where they operate”, the news agency claimed while quoting an industry player.
However, while reacting to Reuters report, the national oil company countered it, calling it a fabricated lie.
“False! Did they name the marketers they claimed we supposedly owe? Let them name them”, NNPCL’s spokesperson, Olufemi Soneye, fired back, while responding to the Reuters report.
Further checks revealed that the NNPCL had committed to supplying a percentage of the nation’s future crude output in exchange for either loans, share purchases or services.
For instance, NNPC Exploration & Production Limited (NEPL’s) capital commitments to Eagle Export Financing Limited stand at $352.88 million (N158.3 billion) as of December 31, 2022.
The deal is in relation to the forward sale agreement with Eagle Export Financing Limited for the delivery of crude oil.
Based on the agreement, NNPCL, through NEPL, must nominate, schedule and deliver, at least, 1,800,000 barrels of crude oil at Eagle Export Limited delivery terminal commencing from August 28, 2022.
NNPCL confirmed this in Its latest audited report, which stated that also its subsidiary, NEPL, recorded capital commitments of $352.88 million as of December 31, 2022.
In the same vein, NNPC acquired 40 percent of Chevron Nigeria’s interest in OML 86 and 88 in April 2021, after beating Conoil to the deal.
To acquire 40 percent of Chevron Nigeria’s interest in OML 86 and 88, the national oil firm confirmed to BH back in 2021 that finances were raised through a forward sale agreement with Middleton Export Funding Limited to fund the acquisition through Project Brogue.
According to available records, as of December 31, 2022, only $33.36 million has been paid back by NEPL to Middleton Funding Limited, a subsidiary of MRS Holdings Ltd, which belongs to the family of Sayyu Dantata, the 53-year-old younger half-brother of Alahji Aliko Dangote, out of the $300 million commitment.
Though, several industry sources informed BH that there are still several undisclosed crude swap deal entered into by the NNPCL that were secretly signed, this newspaper could not independently verify the claims.
However, based on the largely verifiable crude swap deals NNPCL had owned up to, the nation had traded off, at least 45% of its present and future oil production and will not get any financial benefits from it.
The situation would have been worse had the planned acquisition of 20 per cent stake in Dangote Refinery for $2.76 billion through a $1.036 funding and crude swap sailed through.
NNPCL, it would be recalled, had acquired 20 per cent stake in Dangote refinery for $2.76 billion through a $1.036 funding from Lekki Refinery Funding Limited, with $1 billion paid to Dangote Oil Refining Company and $36 million accounting for transaction costs.
In exchange for the $1.036 billion funding from Lekki Refinery Funding Limited, NNPC entered a forward sale agreement (FSA) with the firm for the sales of 35,000bpd of its future crude oil.
The national oil company failed to respond to BH enquires on whether it had fulfilled its obligation to Lekki Refinery Funding Limited.
Meanwhile, the oil corporation, failed to provide the balance of $1.76 billion equity, which would have come in form of crude feedstock of 300,000 bpd to Africa and Europe’s biggest refinery upon its commencement of operations or any other date agreed by the two parties.
After waiting endlessly, Dangote was forced to cancel the existing contract, which slashed the shares of NNPCL in his refinery to about 7.3%.
NNPC Ltd, findings show, have also been using crude oil to offset its Joint Venture Agreements (JVAs) with local and international oil companies to produce in onshore and shallow-water oil wells, where it owns about 60 percent owing to its inability to contribute its share of costs.
In order to offset the cash call arrears, NNPCL normally compensate its partners with crude oil, a reliable source in the industry informed our correspondent.
Available data suggest that the NNPCL owns between 51 and 60 per cent stakes of all oil in the country, with the remaining belonging to oil companies. On average, Nigeria owns about 55% of all crude oil produced in the country.
With the current production output of about 1.4million barrels per day, Nigeria is entitled to 770,000 barrels per day.
The implication is that if the nation’s oil output fails to improve, the Federal Government will continue to struggle with its finances.
With an estimated 440,000 barrels of crude oil per day (bpd) already tied to debt obligations and payments for refined petroleum products, the nation is left with about 320,000 barrels per day to rely on.
