NNPC $1.56 billion loan is actually forward sales arrangement
Nigeria’s Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, said what some persons have termed as loan was a “forward sales arrangement” by the corporation to settle some of its outstanding “legacy liabilities” amounting to $3.5 billion. The liabilities, she said, needed to be settled to save Nigeria from facing dire consequences.
A forward sale involves the forward sale of crude oil or any commodity to be produced in future instead of obtaining a loan facility to offset accumulated liabilities.
Under the arrangement, NNPC is expected to collateralise the loan with 15,000 barrels of crude oil per day from the operations of the Nigerian Petroleum Development Company (NPDC), the exploration and production subsidiary of NNPC, towards the settlement of its liabilities.
Alison-Madueke, who appeared before the House Joint Committee on Petroleum Resources (Upstream/Downstream), Justice, Loans, Aids and Debt Management on account of the said loan, said it was purely an internal arrangement between NNPC and her trade partners and did not involve the corporation borrowing any money.
The minister, who appeared before the investigating committee alongside the Group Managing Director of NNPC, Mr. Andrew Yakubu, said the corporation had accumulated liabilities over the years and the forward sale arrangement was an internationally accepted procedure for settling these liabilities.
Mr. Andrew Yakubu added that the forward sales arrangement was negotiated in consultation with the Federal Ministry of Finance after a number of traders and international banks threatened to call a default on the Federal Government of Nigeria and enter into legal action to recover about $3.5 billion, “a situation that would have embarrassed the country.”
He further stated, “The traders (petroleum products importers) have become agitated over non-payment of their petroleum products invoices some of which are over three years old.
“The exposure of domestic banks is about $1.5 billion, and a default of this magnitude of exposure could lead to another round of banking crisis.
“Furthermore, continued delay has further dire consequences ranging from a major negative impact on the sovereign credit rating to costly litigation against FGN in foreign courts.
“The forward sale of crude oil by NNPC to the SPV will be a true sale at Official Selling Price (OSP) of Nigerian crude oil ruling at the date of lifting. “It is expected that the balance of the petroleum products outstanding invoices (after utilisation of the $1.5 billion expected proceeds of Phase 1) will be subsequently settled under a second phase of forward sales arrangement in addition to continuous repayment through the use of internal resources,” he said.
NNPC had been accused of obtaining the loan without seeking the approval of the National Assembly and in contravention of the Fiscal Responsibility Act.
Source: various News agencies