The NNPC Limited on Wednesday disclosed that it has signed a Commitment Letter and Term Sheet with AfreximBank for an emergency $3 billion crude oil repayment loan.
The company said the agreement was jointly signed by both parties at the bank's headquarters in Cairo, Egypt.
NNPC Limited, in a statement made available to Vanguard, explained that the loan "will provide some immediate disbursement that will enable the NNPC Ltd to support the Federal Government in its ongoing fiscal and monetary policy reforms aimed at stabilizing the exchange rate market".
Recall that last week, the Federal Government reported a 13.6 percent drop in daily crude oil production in the month of July, leaving the country seriously short of dollar revenues from crude oil export.
The Nigerian Upstream Petroleum Regulatory Commission, NUPRC, disclosed that production averaged 1.08 million barrels per day compared to 1.25mbpd recorded in June, latest production data from the, has indicated.
The July production figure was a major setback for the government which has a production target of 1.69 million barrels per day in the 2023 budget. The volume of production was also significantly lower than the 1.7 million barrels per day production quota allocated to the country by the Organisation of Petroleum Exporting Countries, OPEC.
Giving explanation on how the loan will work, Senior Special Assistant to the President on Digital/New Media, Mr. O'tega Ogra in a series of tweets said the loan "is not a crude-for-refined products swap but an upfront cash loan against proceeds from a limited amount of future crude oil production".
He tweeted: "Is this loan risky for NNPC Ltd. or the Nigerian Treasury? No. The exposure for NNPC Ltd. is very limited, covering just a fraction of their entitlements. Additionally, there are no sovereign guarantees tied to this loan.
"What's the benefit of this loan to Nigeria?
The loan will assist NNPC Ltd. in settling taxes and royalties in advance. It will also equip the Federal Government with the necessary dollar liquidity to stabilize the Naira, with limited risk.
"How will the loan be disbursed? The funds will be released in stages or tranches based on the specific needs and requirements of the Federal Government.
"Will this affect fuel prices?
A strengthened Naira as a result of this initiative will lead to a reduction in fuel costs. This means that if the Naira appreciates in value, the cost of fuel will drop and further increases will be halted.
"What about subsidies? Are they coming back?
No. A stronger Naira will result in lower prices from the current level, making subsidies unnecessary. The deregulation policy remains unchanged.
"How will the loan be repaid? The loan will be repaid against a fraction of proceeds from future crude oil production. It's a strategic move that ensures a balance between our current economic needs and future production capabilities.
"What is the difference between this and previous swap deals?
This is not a crude for refined products agreement where the government does not earn any proceeds from the swap".
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