NNPC Obtains $3bn oil-for-cash Loan to Stabilise the Naira

The Nigerian National Petroleum Corporation (NNPC) Limited has successfully obtained a $3 billion urgent loan for repaying crude oil, aimed at providing support for the Nigerian currency (naira) and ensuring stability in the foreign exchange market.

NNPC Limited secured this funding, which involves exchanging crude oil for cash, from the headquarters of the African Export-Import Bank (Afreximbank) in Cairo, Egypt.

Although specific details are limited, sources suggest that NNPC will reimburse the loan using crude oil, with an interest rate ranging from eight to eleven percent.

In a concise statement issued on Wednesday, NNPC mentioned, “The NNPC Ltd. and Afrexim Bank have jointly signed a commitment letter and Termsheet for an emergency $3 billion crude oil repayment loan.” This agreement was signed at Afrexim Bank’s headquarters in Cairo, Egypt. The purpose of this arrangement is to swiftly disburse funds that NNPC Ltd. can utilize to assist the Federal Government’s ongoing fiscal and monetary reforms, which are aimed at stabilizing the exchange rate market.

Ajuri Ngelale, the special adviser to President Bola Tinubu on media and publicity, commented on this development, explaining that the additional foreign exchange resources are meant to help NNPC Ltd. prepay taxes and royalties and offer the government a source of dollar liquidity. This, in turn, will aid in maintaining the stability of the naira through gradual disbursements aligned with the government’s requirements. Ngelale also highlighted the potential positive impact on fuel costs and the avoidance of a return to fuel subsidy policies.

This loan acquisition will circumvent the need for Nigeria to seek loans from the International Monetary Fund (IMF) and will alleviate pressure on the local currency, which had significantly depreciated against the US dollar in the preceding week. The naira had reached an unprecedented low of N950 to the dollar in the parallel market by the end of the previous week.

Earlier, President Bola Tinubu had a meeting with the acting governor of the Central Bank of Nigeria (CBN), Folashodun Shonubi, on Monday. During the meeting, Shonubi stated that the central bank would introduce strategies to stabilize the naira. As a positive outcome, the local currency rebounded on Wednesday, recovering from N950 per dollar to N890 per dollar.

In July 2023, Nigeria’s oil production averaged 1.255 million barrels per day, according to data from the Organization of the Petroleum Exporting Countries (OPEC)