Afreximbank Taps Oil Traders to Finance $3bn Cash-for-crude Loan to NNPC

Emmanuel Addeh and Peter Uzoho with agency report

The African Export-Import Bank (Afreximbank) is currently tapping some oil traders to enable the financing of the $3 billion emergency cash-for-crude oil repayment loan to the Nigerian National Petroleum Company Limited (NNPC), a loan that was adjudged central to the country’s efforts to support the falling naira.

Nigeria’s currency has continued its downward spiral with the naira hitting an all-time low of N1,000 to the dollar on the black market on Tuesday.

NNPC had on August 16, 2023 announced that it had secured a $3 billion emergency crude oil repayment loan from the Afreximbank with both parties signing a commitment letter and term sheet for the loan to help in stabilising the country’s volatile foreign exchange market.

At the signing, which took place at the bank’s headquarters in Cairo, Egypt, NNPC had stated that the deal would provide some immediate disbursement that would enable the company to support the federal government in its ongoing fiscal and monetary policy reforms aimed at stabilising the exchange rate market.

The deal was expected to boost foreign exchange liquidity into the country and prop up the value of the naira against the dollar.

However, one month after the deal, Reuters quoted three anonymous sources to have revealed that Afreximbank approached traders in recent weeks seeking their interest in funding the oil-backed loan to the NNPC.

The sources said the bank was working to craft terms to offer to the trading houses.

“There is a lot of interest, but they need to see terms,” Reuters quoted one oil executive close to the talks as saying, noting that the executive, who could not be named because he was not authorised to speak publicly on the issue, added that oil prices climbing past $90 per barrel would help drive interest.

According to another Reuters’ source, traders who put up cash would be repaid in physical cargoes of oil, even as the bank was working to determine how much oil to offer those traders in exchange for the financing.

An NNPC spokesman did not respond to a request for comment. Afreximbank did not immediately comment.

During his confirmation hearing on Tuesday, Governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso, had said clearing unsettled foreign exchange obligations to local lenders, which could be as high as $7 billion, was his top priority.

Experts believe that the backlog was limiting the availability of dollars on the official market, forcing businesses and individuals to seek them on the black market.

Shortly after taking office on May 29, 2023, President Bola Tinubu had announced long-sought reforms that allowed the official naira rate to fall versus the dollar, while fuel prices roughly tripled. In June, the naira was close to the black market level, but the gap has widened.

Tinubu also allowed petrol pump prices to more than triple, which cut fuel smuggling and relieved pressure on the NNPC to import petrol.

But NNPC is still using oil cargoes to repay some of the oil trading firms that had contracts to supply petrol in exchange for crude, otherwise known as the Direct-Sale-Direct-Purchase (DSDP) arrangement, which is limiting its immediate access to oil.

THISDAY understands that the new emergency cash-for-crude oil deal between Afreximbank and NNPC came over a year after the national oil company similarly secured a $5 billion corporate finance commitment from the bank to fund major investments in Nigeria’s upstream sector.

The previous agreement was to be funded through a Forward Sale Arrangement with the delivery of 90,000 to 120,000 barrels per day to be delivered to the lender over  a four to eight-year period.