Nigeria’s petroleum corporation secures US$1.5bn in oil-for-loan deal to boost dwindling cash reserves

NIGERIA – The Nigerian National Petroleum Corporation has secured a US$1.5bn in an oil-for-loan deal led by Standard Chartered Bank to boost the firms dwindling cash reserves.

A report by Punch Nigeria revealed that the NNPC’s prepayment deal was backed by two oil traders: Vitol Group and Matrix Energy.

The Financing Package for Nigeria’s petroleum corporation, called Project Eagle will provide the corporation and Nigeria with much-needed cash after its finances were hit by the oil price crash in April and further worsened by COVID-19 lockdowns which erased nearly one third of global oil demand.

Apart from Standard Chartered Bank, the deal was also made successful by the backing of the African Export Import Bank and the United Bank for Africa.

Under the Project Eagle deal, Vitol and Matrix will each get 15,000 barrels per day of crude as repayment over five years, starting in August.

Prepayments with traders are widely used in commodity finance as banks consider them to be one of the more secure forms of lending in countries viewed as risky.

For trading firms such as Vitol, these loans are ideal for securing long-term supplies and boosting razor-thin margins.

Sources were quoted as saying that the NNPC would use a large portion of the money to pay taxes owed by one of its subsidiaries, the Nigerian Petroleum Development Corporation.

The remainder will go towards operational expenses and capital expenditure with some being set aside to fund an upgrade of the Port Harcourt refinery.

The NNPC has been trying to raise cash through prepayments with traders for years.

However, the firm’s opaque finances and costly petrol subsidies have made it tough for it to secure private financing on attractive terms.

The termination of petrol fuel subsidies by Nigeria’s Federal Government and reforms in the Nigeria National Petroleum Company has however greatly improved the corporation’s financial standing among private lenders.

These reforms were particularly key in enabling NNPC to secure the US$1.5 billion loan from banks led by the Standard Chartered Bank.

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