Local Producers Seek CBN’s Intervention as Oil Price Plunges

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Abiodun Adesanya

Fred Ojeh

The recent fall in oil prices has increased concerns among indigenous oil and gas producers over the need to involve the Central Bank of Nigeria (CBN), as Indigenous Oil Companies (IOCs) may not be able to meet their debt to commercial banks at the current oil prices.

Speaking in Lagos on the issue, a former President of the Nigerian Association of Petroleum Explorationists (NAPE), Mr. Abiodun Adesanya, disclosed that the collapse in global oil prices having been triggered by the COVID-19 pandemic accounts for the current liquidity of the indigenous players, making the repayment of loan obligations which were secured before the current turmoil in the market near impossible.

Adesanya stressed that the oil and gas industry would need to be rescued from this current situation by the direct intervention by the federal government through the
CBN.

Given that this exposure represents approximately 25 percent of Nigerian banks’ overall bad loan portfolio, Adesanya warned that without direct CBN intervention, this could lead to structural shocks within the Nigerian banking system affecting depositors’ money and restricting banks’ ability to support vital economic sectors as Nigeria prepares to emerge from the economic crisis.

He also added that if the developing scenario is not ameliorated through a policy measure which gives short-medium term respite until the oil market rebounds, there will be significant job losses in the oil and gas industry, as the current shock may not be withstood by a number of indigenous players.

“If the current situation is unchecked, it threatens to wipe out this administration’s achievements and successive achievements in enforcing the Local Content Act that gave indigenous companies the opportunity to play significantly in the oil and gas sector,” Adesanya further enthused.

Aside from the position of Adesanya, other experts who spoke on the same issue, believed that there has to be an agreement between the banks and the indigenous oil companies which needs to facilitate a policy pronouncement of the CBN, acting on behalf of the federal government on the way out of the quagmire given the fact that over a fourth of the total loan exposure of the banking industry is to the indigenous upstream companies.