The Nigerian National Petroleum Company Limited (NNPC) is considering securing another crude oil-for-cash loan to raise at least $2 billion.
The move comes as the state-backed oil company seeks to bolster its finances and invest in boosting oil production amidst mounting economic pressures.
NNPC Group Chief Executive Officer, Mele Kyari, confirmed to Reuters that the company plans to take the loan against 30,000 to 35,000 barrels per day (bpd) of crude production. However, Kyari did not disclose the exact amount of money NNPC is seeking.
The national oil company’s debts to gasoline suppliers have doubled over the past four months, reaching $6 billion. As the primary revenue generator for the Nigerian government, NNPC’s financial health is critical.
The company’s cash flow issues have been exacerbated by pipeline theft, years of underinvestment in oil infrastructure, and the high cost of gasoline subsidies.
On his part, President Bola Tinubu has advocated for economic reforms, including eliminating fuel subsidies and aligning the naira currency more closely with market levels.
Experts say the reforms are crucial for Africa’s largest oil exporter but have been challenging to implement without significantly impacting the cost of living for the Nigerian population.
Kyari stated that the funds from the loan would support all NNPC business activities, including efforts to increase oil production.
He emphasized that the loan is for normal business operations and not a desperate measure, adding that it will be a syndicated effort involving regular business partners, with a deal conclusion anticipated within the next two months.
NNPC currently has a $3.3 billion oil-backed loan through Afreximbank. However, rising fuel subsidy costs have strained the company’s cash reserves.
The new loan is intended to help alleviate these financial pressures. There is uncertainty regarding which lender will arrange the new loan, as Afreximbank might not extend its exposure to Nigeria further.
The removal of fuel subsidies by President Tinubu led to a tripling of pump prices.
However, NNPC capped average fuel prices at just above 600 naira per litre, a price increasingly misaligned with market levels due to the falling naira and rising global oil prices.
This has led to fuel shortages, with ex-depot prices in Lagos exceeding 700 naira per litre, causing stations to sell at a loss.
Oil industry experts, however, predict that the upcoming production of gasoline by the 650,000 bpd Dangote Refinery could impact the situation.
However, the refinery has loans and crude oil feedstock costs in U.S. dollars, making it unlikely to sell at a loss domestically or endure long payment delays from NNPC.
Amidst the economic strain and double-digit inflation, there is significant pressure on the Nigerian government to increase pump prices.
However, leaders are cautious, mindful of the potential for social unrest similar to recent events in Kenya.
