NNPC Unveils $3.3bn Loan Strategy for Operational Expenses, Upfront Payments

 NNPC Unveils $3.3bn Loan Strategy for Operational Expenses, Upfront Payments

The Nigerian National Petroleum Company (NNPC) Limited yesterday declared its plan to use the $3.3 billion loan from the African Export-Import Bank for operational requirements and to make upfront payments for taxes and royalties owed to Nigeria. 

This information was disclosed in a document named ‘Frequently Asked Questions – Project Gazelle,’ issued by Olufemi Soneye, the Chief Corporate Communications Officer.

According to the NNPC, the loan will also be used to help stabilise the foreign exchange market by increasing the foreign reserves. 

It explained that forward contracts like this provide a more immediate solution to the federal government’s foreign exchange liquidity needs.  

“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.” 

In addition, the NNPC said that it used a benchmark oil price of $65 per barrel to repay the loan, citing the need to protect the repayment plan from the fluctuations in the international oil market.  

“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 result in faster loan repayment, and vice versa. 

In addition, the oil giant stated that it had set aside 90,000 barrels of crude oil for the payment process to ensure adequate cash flow.  

According to the NNPCL, the loan arrangement will have no significant impact on future government oil sales earnings.  

In August, the NNPC and the African Export-Import Bank (Afreximbank) announced a $3 billion emergency crude repayment loan as part of their efforts to strengthen the naira. 

The federal government said that the loan would be repaid with a portion of the proceeds from future crude oil production. 

In December, various reports verified that the federal government received the initial instalment of the $2.5 billion loan, arranged by the local bank UBA. 

The main purpose of this loan is to mitigate the impacts of President Tinubu’s reforms, specifically the removal of fuel subsidies and the unification of the foreign exchange market.

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