On Sunday, the Nigerian National Petroleum Company Limited announced its intention to utilize the $3.3 billion loan obtained from the African Export-Import Bank to meet its operational needs and pay upfront tax and royalties accruable to Nigeria.
This was revealed in a document titled ‘Frequently Asked Questions – Project Gazelle,’ which was released by the Chief Corporate Communications Officer, Olufemi Soneye.
According to the NNPCL, the loan will also be used to stabilise the foreign exchange market by increasing the foreign reserve. It explained that forward contracts such as this provide a more immediate solution to the FX liquidity needs of the federal government.
- It stated, “This project provides immediate USD financing for NNPC Limited’s operational needs, including paying its tax and royalty obligations to Nigeria upfront.
- “By using the upfront funding, Nigeria can maintain the stability of its currency, the Naira, and increase its foreign exchange reserves.”
Oil benchmark price of $65 per barrel
Furthermore, the NNPCL explained it had adopted a benchmark oil price of $65 per barrel for repaying the loan stating that it used that figure to insulate the repayment plan from the vagaries of oil price in the international oil market.
- It stated, “Project Gazelle uses a conservative crude price of $65 per barrel to calculate the allocated crude to be produced and sold in the future. This provides a safety margin for price fluctuations in future.”
However, it explained that higher oil prices mean faster payment for the loan and vice versa.
Also, the oil giant noted that it had earmarked 90,000 barrels of crude oil for the payment process to ensure sufficient cash flow.
The NNPCL noted that future government earnings from oil sales will not be significantly affected by the loan arrangement.
What you should know
- In August, the NNPCL and the African Export-Import Bank (Afreximbank) announced a $3 billion emergency crude repayment loan as part of efforts to boost the naira. The federal government explained that the loan would be repaid against a fraction of proceeds from future crude oil production.
- In December, multiple reports confirmed that the first tranche of the loan at $2.5 billion has been received by the federal government with local bank UBA serving as the arranger.
- The primary objective of the loan is to absorb the shocks occasioned by the reforms instituted by President Tinubu- fuel subsidy removal and unification of the FX market.
