In a groundbreaking move, Nigeria has finalized a $3.3 billion “pre-export finance facility” (PxF) with a significant interest rate of 11.85 percent per annum. The loan, facilitated by the Nigerian National Petroleum Company (NNPC) and arranged by Afrexim Bank, spans five years and comes with a unique repayment structure.
The details of this financial arrangement, which involves Project Gazelle Funding Ltd (PGFL) as the borrowing entity and an orphan special purpose vehicle (SPV) incorporated in the Bahamas, have been revealed by BusinessInsider Africa.
Notably, Nigeria has committed 164.25 million barrels of crude oil, equivalent to 90,000 barrels per day, as collateral for the loan. This constitutes 38.58 percent of the country’s five years’ worth of tax and royalty oil, a move aimed at securing the substantial funding.
Oil Pledge Valued at Over $12 Billion
As of the beginning of 2024, the price of Nigerian oil on the international market stood at $77.93 per barrel, according to data from the Central Bank of Nigeria. The pledged 164.25 million barrels thus equate to a staggering $12.8 billion, approximately three times the value of the loan.
This financial commitment underscores the scale of Nigeria’s efforts to address economic challenges and secure funding in an evolving global market.
NNPC’s Unprecedented Repayment Mechanism
Project Gazelle Funding Ltd (PGFL) serves as the borrower in this transaction, while NNPC acts as the “sponsor.” NNPC will repay the loan with oil, forward-selling 90,000 barrels per day of Nigeria’s share of offshore crude oil under existing production sharing contracts (PSCs) with oil companies.
Under normal circumstances, revenues from these contracts are directed to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Federal Inland Revenue Service (FIRS). However, under the PxF, the revenue generated from 90,000 barrels per day will be utilized exclusively to service the loan over the next five years.
In a move that raises eyebrows, loan arrangers will receive a commission of $66 million or 2 percent of the facility. Additionally, any default on Nigeria’s part will incur a 2 percent penalty per annum.
Dollar Liquidity for Naira Stability
The NNPC announced this pre-export finance facility in August 2023, emphasizing its role in supporting the federal government’s fiscal and monetary policy reforms to stabilize the exchange rate market. The move was portrayed as a “crude oil repayment” initiative, providing upfront cash against future crude oil production.
The NNPC’s intention was to bolster dollar liquidity, stabilizing the Naira and potentially reducing fuel costs. With Nigeria’s outstanding forex liabilities exceeding $7 billion, this loan was seen as a strategic move to navigate economic challenges.
Critics, however, questioned the wisdom of the NNPC obtaining loans to boost forex reserves instead of focusing on increasing oil revenues. There were also concerns about pledging tax and royalty oil that belongs to the entire federation to secure the loan, prompting analysts to question the lack of transparency in the deal’s disclosure.
Nigeria’s $3.3 billion loan agreement, with its high interest rate and oil collateral, marks a significant financial maneuver to address economic challenges and stabilize the Naira. As the nation embarks on this unique financial venture, scrutiny and debates over the transparency and long-term implications of the deal are likely to persist, shaping the future discourse on Nigeria’s economic strategies.
