Concerns are mounting as the global Extractive Industries Transparency Initiative (EITI) raises more questions over the details on the terms and conditions of the $3.3bn syndicated crude oil prepayment loan by a consortium of banks led by African Export-Import Bank (AFREXIMBANK) to the Nigerian National Petroleum Company (NNPC) Limited.
Since the 5-year facility was announced by the NNPC Ltd, it has attracted several criticisms from concerned Nigerians who say the terms and conditions of the loan were shrouded in mystery, especially at a time the country’s debt profile has been rising.
Apart from the suspicion that the terms and conditions of the loan are not fair, critics say the deal on the 20 percent equity holding with Dangote Refinery, which also involves a plan to allocate Nigeria’s crude oil to offset the value of shares, needed to be more open and transparent.
Members of the syndicate of lenders included AFREXIMBANK, Gunvor International BV, a Geneva-based multinational energy and commodities trading company, and Sahara Energy Resources Limited, a Nigerian energy and infrastructure conglomerate, with United Bank for Africa Plc (UBA) as the Local and Onshore Account Bank for the transaction.
Apart from the facility said to attract a margin of 6.0 percent rate per annum above the 3-month secured overnight financing rate (SOFR), its promoters say the structure of the deal has an embedded price balance mechanism where 90 percent of all excess cash from the sale of the committed barrels of the crude oil (after debt service) would be released, while the balance of 10 percent would be used to prepay the facility.
AFREXIMBANK recently announced the disbursement of the initial $2.25 billion under the facility to support Nigeria’s long-term economic stability, ease access to import financing for raw materials and essential goods, support industrialization and trade development efforts. The bank said the second and final tranche of the facility ($1.05bn) is expected to released later.
But the global EITI on Tuesday highlighted the concerns over the controversial deal as well NNPC Ltd’s acquisition of 20 percent equity holding in the 675, 000 barrels per day Dangote Refinery project.
Senior EITI officials on a post-validation review visit to Nigeria observed in Abuja that many questions remained unanswered over the two transactions.
EITI, Technical Director, Alex Gordy, described the terms and conditions of the loan and contracts as elusive, while information on the valuation, interest rate and the modalities of the payment of the loan remain limited and unclear.
“In the validation, what was clear was that NNPC had acquired a 20 percent equity interest in the Dangote refinery. However, it was not explained, especially in the public domain. What were the terms for that purchase? What was the valuation for that 20 percent equity interest in the Dangote refinery? How was it supposed to be paid for?
“We know it was supposed to be paid for in future oil deliveries, but how would that be valued at the market rate and the different rates with those supplies of petroleum? Does the refinery consist of deductions from the federal government’s oil revenues, or would it be NNPC’s production? Several questions remain unanswered around that particular transaction, but also on the other resource backed loans?”, Gordy said during a media briefing in Abuja on the purpose of the review visit.
In August 2021, the Group Chief Executive Officer of the NNPC Ltd, Mele Kyari, announced the approval of the former President Muhammadu Buhari of the company’s decision to acquire 20 percent equity in Dangote Refinery valued at about $2.76 billion.
Under the deal, the NNPC Ltd would be expected to supply 300,000 barrels of crude oil per day to Dangote Refinery, while the $3.3 billion loan from AFREXIMBANK would be repaid with crude oil allocation.
Gordy said the Nigerian public deserves to know in clear terms the various terms and conditions under which the various deals were consummated, particularly those bordering on interest rates, repayment terms and conditions, valuation and others.
“The fundamental objective of the disclosures is to inform the public about whether that is a fair deal for the government.
“Is the repayment for that loan or payment for that equity interest in line with prevailing market conditions? Or is there something you have to explain? And there may be rational reasons why we make our terms. But that has yet to be explained in the public domain. And I think just reading the press over the last couple of days, it is a subject of interest in Nigeria,” he stated.
In November 2023, the EITI announced that Nigeria, which the global transparency body in 2004, was successful in its latest final validation assessment of its implementation of the initiative in the country’s extractive industry.
The International Board of the EITI said Nigeria scored 90 points out of 100 on key assessment criteria, including the integrity of data and comprehensiveness of of its annual audit reports, outcomes and impacts, as well as contribution to economic growth and adherence to legal frameworks.
Also, the Board said Nigeria recorded an overall score of 72 points out of 100 at the end of eleven months-long global assessment exercise organised to assess the implementation of the EITI principles among its 58-member implementation countries.
