In a development that underscores its financial struggles, the Nigerian National Petroleum Corporation (NNPC) is seeking to borrow an additional $2 billion through crude oil-backed loans from international creditors.
This move, confirmed to Reuters by sources familiar with the matter, has sparked significant concerns about the company’s financial health and ability to manage resources efficiently.
In a statement to Reuters, NNPC’s Group Chief Executive Officer (GCEO), Mele Kyari, revealed that the national oil company is in talks with international creditors to secure an oil-backed credit facility. This move comes on the heels of a recent report that NNPC is struggling with a backlog of $6 billion owed to international oil traders following the removal of fuel subsidies.
Kyari explained that the credit facility is intended to boost the company’s finances and support investments in the oil and gas sector. He added that the cash raised would be used for all of NNPC’s business activities, including efforts to increase production growth.
However, he refrained from disclosing the specific international financial institutions involved or the exact amount NNPC aims to raise.
“We have no problem covering our gasoline payments. This is just money for normal business and not a desperate act. It will be a syndication with critical but regular partners who have been in business with our company to forward the cash,” Kyari stated.
The company’s financial burden has increased due to the need to cover the landing cost of petrol while maintaining price stability at the pump.
NNPC’s current financial predicament is not new. The company already holds a $3.3 billion oil-backed loan from Afreximbank, secured in August 2023. This loan was intended to shore up the country’s foreign exchange reserves following the removal of fuel subsidies and the unification of the forex market, which significantly weakened the naira.
The loan, set against crude oil valued at $65 per barrel, earmarked approximately 90,000 barrels of crude oil for repayment.
Despite this substantial loan, NNPC’s financial challenges have only deepened. Rising fuel subsidy costs and the need to maintain price stability amid fluctuating international crude oil prices and a weakening naira have further strained the company’s finances.
According to five sources cited by Reuters, the new $2 billion loan under discussion is deemed essential for NNPC to manage and pay off these escalating subsidy expenses.
Debt to Oil Traders
NNPC’s debt to international oil suppliers stands at a staggering $6 billion. This has led to a situation where some traders have withdrawn their refined products due to delayed payments.
The company has failed to pay for some imports dating back to January, with traders indicating that the overdue payments now range between $4 billion and $5 billion. Under the terms of their contracts, NNPC is required to settle these debts within 90 days of delivery, a deadline it has repeatedly failed to meet.
Underinvestment and Production Challenges
Nigeria’s oil and gas sector, which is the primary revenue source for the federal government, is plagued by significant underinvestment. Major oil companies are increasingly reluctant to explore Nigeria’s shores due to rampant oil theft and a hostile economic climate.
This reluctance has severely hindered efforts to increase crude oil production to an estimated 2 million barrels per day, a target crucial for leveraging international oil prices and securing sufficient foreign exchange earnings.
In a telling move, TotalEnergies redirected a $6 billion investment to Angola instead of Nigeria, citing these persistent issues. This decision highlights the broader challenges facing Nigeria’s oil and gas sector and the urgent need for a more conducive investment environment.
Comparison with Saudi Aramco
In stark contrast, Saudi Aramco, Saudi Arabia’s national oil company, has consistently reported record-breaking profits. In March, Aramco announced a profit of $121 billion for the previous year, following a historic $161 billion profit in 2022.
These figures likely represent the largest profits ever reported by a publicly traded company. Aramco’s success is attributed to its efficient management, strategic investments, and ability to capitalize on global oil market dynamics, particularly during the price surge driven by the Russian-Ukraine war.
Analysts noted that NNPC’s inability to leverage the same oil windfall highlights significant inefficiencies in its operations and management. While Saudi Aramco thrived amid global market fluctuations, NNPC struggled to maintain financial stability, manage debts, and attract investment.
The contrast between the two companies is said to underline the management failures within NNPC, particularly in its handling of financial resources, investment strategies, and operational efficiency.
