*FG Clarifies Position, Insists No Final Decision Taken
NIGERIA and Saudi Arabian oil company, Aramco, are struggling to reach an agreement on a record $5billion oil-backed loan after a recent slide in crude prices sparked concern among banks expected to back the deal, four sources told Reuters.
The facility would be Nigeria’s largest oil-backed loan to date and Saudi Arabia’s first participation of this scale in the country, although the decline in oil price could shrink the size of the deal, the sources added.
President Bola Tinubu, two of the sources said, first broached the loan in November last year when he met with Saudi Crown Prince, Mohammed bin Salman, in Riyadh at the Saudi-African Summit.
Details and progress on the loan talks have not been previously reported. But the slow progress in discussions reflects the strain of the recent oil price drop, caused largely by a shift in OPEC+ policy to regain market share rather than curtail supply.
Brent has fallen about 20 per cent to around $65 per barrel from above $82 in January this year. A lower oil price means Nigeria could need more barrels to back the loan, but years of under-investment are complicating its ability to meet production goals.
Tinubu sought approval for $21.5billion in foreign borrowing last month to bolster the budget, and the $5billion oil-backed facility under discussion with Aramco would be part of that, sources said.
The banks involved in the talks that are expected to co-fund part of the loan with creditor. Aramco have expressed concerns about oil delivery, which has slowed discussions, sources said.
Gulf banks and at least one African lender are involved, the sources added. Reuters could not establish the banks’ identities.
“It’s hard to find anyone to underwrite it,” one source said, citing concerns over the availability of the cargoes.
Aramco declined to comment, as did the Nigeria National Petroleum Company Limited (NNPCL), or the Finance or Petroleum ministries.
Nigeria has years of experience taking out- and repaying- oil-backed loans, which the government uses for budget support, shoring up foreign reserves or to revamp state-owned refineries.
That’s expected to drive down prices and so are talks between the United States (US) and Iran, although the two countries are still negotiating.
At $5 billion, the Aramco loan would be backed by at least 100,000 barrels per day of oil, the sources said. However, it would almost double the roughly $7billion of oil-backed loans taken in the last five years.
Nigeria is using at least 300,000 bpd to repay NNPCL’s other oil-backed loans, though one facility is expected to be paid off this month. The amount of oil going towards repaying existing oil-backed loans is fixed, but when the crude price falls, it takes longer to repay them.
Additionally, lower prices mean the NNPCL has to funnel more crude oil to joint-venture partners, from international majors, such as Shell, to local producers, including Oando or Seplat, for its portion of operation costs.
“You have to either find more oil or find a way to renegotiate those deals,” another source said.
Nigerian trading firm, Oando, is expected to manage the offtake of the physical cargoes, the sources said. Oanda did not comment.
NNPCL is trying to boost output, while Tinubu issued an Executive Order aimed at cutting production costs, which would free more money from each barrel.
Africa’s largest oil exporter assumed a price of $75 per barrel in its budget, with production of 2 million bpd. But in April, it pumped just under 1.5 million bpd, according to the May OPEC market report. However, the Federal Government said it remained committed to deploying innovative and fiscally responsible financing strategies to optimise Nigeria’s oil assets, enhance external liquidity and strengthen macroeconomic stability.
In a statement issued on Wednesday, June 11, the Federal Ministry of Finance addressed the suggestion that discussions over the loan deal with Aramco may have collapsed, insisting no final decision had been taken on the matter, urging the public to disregard speculations about the status of the negotiations.
It stated: “While market speculation is not uncommon in the context of ongoing economic reforms and transactions, no final decision has been announced by the government, and commentary suggesting the collapse of any such initiative is unfounded.”
