NNPCL seeks $2bn oil-backed loan amid financial strains

The Nigerian National Petroleum Company Limited (NNPCL) is negotiating a $2 billion oil-backed loan to bolster its finances and invest in its operations, Chief Executive Officer Mele Kyari revealed in an interview with Reuters.

This move comes as NNPCL’s debts to Premium Motor Spirit (PMS) suppliers have surged to $6 billion over the past four months.

Nigeria heavily relies on NNPCL’s oil exports for revenue and funding capital projects. However, crude oil theft has significantly reduced production, affecting government revenue. Additionally, the cost of gasoline subsidies has drained the company’s cash reserves.

President Bola Tinubu has been pushing for economic reforms, including the removal of fuel subsidies and allowing the naira to trade closer to market levels, without overwhelming the populace with high living costs.

Kyari stated that the company is seeking a loan backed by 30,000-35,000 barrels per day of crude production.

While he did not disclose the exact amount being sought, he mentioned that the funds would support NNPCL’s various business activities, including production growth.

“We have no problem covering our gasoline payments. This is just money for normal business and not a desperate act,” Kyari told Reuters.

The loan will be syndicated with long-standing partners, and Kyari expects the deal to be finalized within the next two months.

Currently, NNPCL holds a $3.3 billion oil-backed loan through Afreximbank.

However, sources indicate that the rising costs of fuel subsidies have exacerbated the company’s cash flow issues, necessitating the new loan to cover these expenses.

It remains unclear which lender will arrange the loan, as Afreximbank may not be able to extend its exposure to Nigeria further.

Some oil trading houses have already ceased participating in NNPCL’s gasoline tenders due to overdue payments, increasing their exposure to Nigeria beyond allowable limits.

Shortly after taking office last year, Tinubu announced the removal of costly fuel subsidies, causing pump prices to triple. Critics argue that subsidies primarily benefit urban car owners and have long strained Nigeria’s finances.

Despite high inflation, NNPCL capped average fuel prices at just above N600 per litre last year. This cap has diverged from market levels as the naira depreciated and global oil prices rose.

Fuel queues have started forming in Lagos as Abuja petrol marketers ceased selling. Reports indicate that the ex-depot price in Lagos exceeds N700 per litre, leading to potential losses for stations selling at capped prices.

The 650,000 barrel-per-day Dangote refinery, located on the outskirts of Lagos, is expected to commence petrol production soon. However, the refinery, burdened with loans and crude oil feedstock costs in U.S. dollars, may be reluctant to sell at a loss domestically or wait months for payments from NNPCL.

Pressure is mounting on the government to increase pump prices, but leaders are cautious, mindful of the deadly riots in Kenya over tax hikes. The government is expected to approach any price increases carefully to avoid similar unrest.

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