NNPC Ltd. $3.3 Billion Crude Oil Pre-Payment Loan: How Oramah Exposed Atiku’s Ignorance -By Adewole Kehinde

Former Vice President Atiku Abubakar, through a statement on January 25, 2024, asked President Bola Tinubu to account for the Nigerian National Petroleum Company Limited’s $3.3 billion emergency crude repayment loan....READ FULL ARTICLE

Atiku insisted that there were questions to be answered about the integrity of this deal and charged the federal government to talk directly about the details behind the deal.

The financing arrangement that the NNPC Limited was able to obtain to prepay future royalties and taxes to the federal government is a forward-sale structured finance facility backed by crude oil and sponsored by the National Oil Company, which serves as both the sponsor and the seller.

The facility entails the advance sale of a predetermined quantity of crude oil barrels to a Special Purpose Vehicle (SPV), which has applied for the necessary finance from foreign financial institutions.

To receive upfront funding from a special purpose vehicle (SPV) supported by foreign financial institutions, NNPC Limited undertakes to sell a set number of future barrels of crude oil production in advance.

On Sunday, Benedict Oramah, president of the African Export-Import Bank (Afreximbank), addressed the oil-for-cash loan agreement with the Nigerian National Petroleum Company (NNPC) Limited, which further brought out the ignorance of Atiku, who was the 2023 presidential candidate of the Peoples Democratic Party.

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In an interview with Arise News posted on Sunday on X, Oramah said the $3.3 billion crude oil pre-payment loan obtained by NNPC Limited will not be repaid with $12 billion, as publicised by Atiku Abubakar.

In his remark, Atiku further asserted that a 12 per cent interest rate was used to secure the financing. “It is unthinkable that the federal government will lead the nation to accept a $3.3 billion loan with an interest rate not to exceed 12 per cent and an estimated $12 billion in repayment,” he stated.

However, given that the loan has a five-year term and bears a margin of 6.0% annually over the three-month secured overnight financing rate (SOFR), the former vice president’s assertion appears to be false.

Oramah, who doubles as Afreximbank board chairman, also said the loan has a 6 per cent margin, which makes it one of the best-priced loans.

According to him, the loan will significantly reduce the foreign exchange (FX) shortage and help stabilise the financial sector.

“Well, the interest rate on the loan is, so far, the base rate that governs the cost of funds, so to speak. The facility is a 5-year loan,” he said.

“We’re not talking about three years ago or four years ago. We’re talking about today, where interest rates have gone up, and we’re just hoping that inflation will go down globally so that rates can start going down,” Oramah said.

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“And in fact, if those rates start going down, the interest rate on this loan will also start going down. So that’s what I thought about it—about the pricing of the loan.”

He said the facility is transparent, adding that there is nothing to hide about it.

The Afreximbank president said anybody who wants to “compare it can compare it against the yields on the Nigerian bonds trading today.”.

“What are the yields for a seven-year Nigerian bond? Most likely to be about 15%, if not more. That is where the treasure is,” Oramah said.

Oramah said the loan is effective, as it helps with the acute foreign exchange shortage in the country and stabilises the financial system.

“And you know there are things people do not know; maybe the government will not be saying it, but I’m at liberty because we have a justification for doing what we did. It helps us stabilise the financial system,” he said.

“It’s the job of the government to do what they know is right actually. Of course, it’s good for people to criticise, ask questions, and all that.

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“But I just think that sometimes people who are criticising also have to be reasonable.”

Oramah added that the international institution is not the only lender of the $3.3 billion facility.

With Project Gazelle, an innovative financial plan from NNPC Limited, future crude oil revenues will be used to pay current operations, improve liquidity, and add to Nigeria’s foreign exchange reserves—all while balancing the country’s requirements with its larger economic objectives.

This project ensures immediate cash, minimises the impact on future earnings, and may improve Nigeria’s credit rating while showcasing the operational independence and financial expertise of NNPC Limited. Repayments are calculated and linked to future oil sales; risk-averse pricing in oil sales contracts reduces the impact of fluctuations in oil prices.

Project Gazelle mixes short-term funding needs with long-term viability in accordance with the terms of the most recent PIA and NNPC Limited’s path towards operational excellence and economic contribution as a Limited Liability Company.

It is more fruitful for comments from a distinguished statesman like Atiku to be directed towards nation-building rather than just undermining the government or an institution.…READ FULL ARTICLE

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