In a bid to address liquidity concerns in the domestic foreign exchange market, the Central Bank of Nigeria (CBN) has announced a significant shift in the repatriation process for international oil companies (IOCs) operating within the country.
in a circular signed by Hassan Mahmud, the Director of Trade and Exchange at the CBN, the apex bank highlighted the new regulation, stating, “The Central Bank has observed that proceeds of crude oil exports by International Oil Companies (IOCs) operating in Nigeria are transferred offshore to fund parent accounts of the IOCs (otherwise referred to as cash pooling). This has an impact on liquidity in the domestic foreign exchange market.”
Under the new guidelines, IOCs will only be permitted to repatriate 50% of their proceeds immediately, with the remaining 50% to be repatriated 90 days from the date of inflow.
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“Banks are allowed to pool cash on behalf of IOCS, subject to a maximum of 50% of the repatriated export proceeds in the first instance. The Balance 50% may be repatriated after 90 days from the date of inflow of export proceeds,” the circular further said.
The decision to implement these measures stems from the CBN’s commitment to ongoing reforms in the foreign exchange market.
“In line with the ongoing reforms in the foreign exchange market, it has become necessary to take measures to address this trend,” it noted.
Furthermore, the CBN introduced specific rules governing cash pooling by IOCs, including the requirement for CBN approval before fund repatriation and agreements between parent entities of IOCs and the CBN before cash pooling. Additional documentation such as expenditure statements and evidence of the source of foreign exchange inflow will also be mandated.
While the CBN aims to enhance liquidity in the forex market through these measures, concerns have been raised regarding their potential implications. Some analysts fear that IOCs might face similar challenges experienced by operators in other sectors due to delayed forex forward payments.
The CBN recently disclosed that it has successfully cleared about $2.3 billion of the estimated $7 billion owed. However, this was accomplished against the backdrop of adverse effects of delays, which have led to the exit of notable multinationals citing difficulties in operating as USD-dominated entities.
As the CBN races against time to implement these new regulations, their negative implications keep unfolding. While measures to stabilize domestic forex markets are crucial, experts have advocated the need to ensure a balance that doesn’t deter foreign investment or disrupt business operations.
Transparency, consistency, and clear communication have been mentioned as key elements to maintain investor confidence and sustain a conducive business environment.
Although the CBN’s implementation of new forex regulations for IOCs reflects its commitment to addressing liquidity challenges in the domestic market, careful monitoring and evaluation of its impact on both domestic and international stakeholders have been advocated to ensure a smooth transition and mitigate any adverse effects on the economy.