Fuel Crisis Lingers as NNPC Seeks Fresh $2bn Crude-Backed Loan

The Nigerian National Petroleum Company Limited (NNPC) is negotiating another oil-backed loan to bolster its finances and invest in its operations, according to Group Chief Executive Officer Mele Kyari.

The oil firm aims to raise at least $2 billion through the proposed new loan, following its $3.3 billion emergency crude oil repayment loan secured from the African Export-Import Bank in August 2023. This move would elevate NNPC’s total crude-backed loans to $5.3 billion.

As of Tuesday, it remains unclear how much of the $3.3 billion loan has been repaid. Kyari confirmed that NNPC seeks the new loan against 30,000-35,000 barrels per day of crude production but did not specify the exact amount needed. The funds will support all NNPC’s business activities, including production growth.

Despite the new loan discussions, queues for Premium Motor Spirit (PMS) persisted in Abuja, neighboring states, and Lagos. Marketers blamed this on supply shortages from NNPC, the sole PMS importer, as other dealers struggle to access US dollars.

Marketers cautioned NNPC on the potential risks of accumulating crude-backed loans, expressing concerns about the long-term impact on Nigeria’s oil sector.

Reuters reported that NNPC’s debts to petrol suppliers have doubled to $6 billion over the last four months, a claim denied by NNPC spokesperson Olufemi Soneye. “False. Did they name the marketers they claim we supposedly owe? Let them name them,” Soneye responded.

Nigeria’s government relies heavily on oil exports for finances and foreign exchange reserves. However, pipeline theft and underinvestment have diminished oil production, while fuel subsidies have further depleted cash reserves. President Bola Tinubu has been working on reforms, including eliminating fuel subsidies and aligning the naira with market levels, without causing a severe cost-of-living crisis.

NNPC plans to syndicate the loan with regular business partners and expects to conclude the deal within two months. The company aims to use the funds for routine business activities, not as a desperate measure, Kyari noted.

NNPC already has a $3.3 billion oil-backed loan through Afreximbank. However, five sources indicated that the company’s financial strain has been exacerbated by rising fuel subsidy costs, and the new loan is necessary for covering these expenses. It’s still uncertain which lender will arrange the new loan, as sources suggest Afreximbank may be unable to extend further exposure to Nigeria.

Some oil trading houses have stopped participating in NNPC’s tenders due to overdue bills exceeding their companies’ risk thresholds. Tinubu’s removal of fuel subsidies led to a tripling of pump prices, but despite high inflation, NNPC capped average fuel prices at just above N600/litre a year ago, diverging from market levels due to the naira’s depreciation and rising global oil prices.

Fuel queues re-emerged last week in Lagos and Abuja as the ex-depot price exceeded N700/litre, leading to potential losses for stations selling at capped prices. The Dangote refinery, expected to begin producing gasoline soon, faces challenges selling at a loss domestically due to its dollar-denominated loans and crude costs.

Marketers and the Petroleum Products Retail Outlets Owners Association of Nigeria (PETROAN) President Billy Gillis-Harry expressed optimism that NNPC would resolve the fuel supply issues but stressed the importance of careful consideration regarding new loans.

In August 2023, NNPC announced a $3.3 billion loan from Afreximbank to stabilize Nigeria’s exchange rate. The loan, part of a broader $925 million disbursement to support Nigeria’s forex market, highlights the ongoing financial strategies employed by the national oil company amidst persistent economic challenges.