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Economists express concerns over $3bn NNPCL loan



Financial economists are worried about the three billion dollars crude oil repayment loan secured by the Nigerian National Petroleum Corporation Ltd., to prevent the Naira from slumping further.

The experts expressed their worry in separate interviews with our reporter on Wednesday in Lagos.

Some of the experts said that the loan was an unhealthy signal for investors, while others noted that it would be a source of funds that could be used to cover losses.

Ndubisi Nwokoma, Director, Centre for Economic Policy Analysis and Research, University of Lagos, Akoka, said that the loan would not have any significant impact in preventing the Naira from slumping further.

He also said that it would add to the national debt burden, thereby, putting more pressure on the debt service capacity.

“I think it is largely cosmetic. If there’s no sustained inflow of foreign currency, then, the benefits of this arrangement will be short-lived.

“What government needs to do is to remove political interference in the foreign exchange markets and create conducive environment for production and sustained foreign capital inflow,’’ Nwokoma said.

A professor of Economics at the Olabisi Onabanjo University, Ago-Iwoye, Ogun, Sherrifdeen Tella, said that the loan which was attached to fuel supply, would have no major negative implications for CBN.

“It is like secured crude oil sales, except that the country will not benefit from sudden increase in oil price from the sale to that country.

Uche Uwaleke, Director, Institute of Capital Market Studies, Nasarawa State University, Keffi, said that contracting external loans to lend to CBN would create an erroneous impression of insolvency on the part of the bank.

According to him, the borrowing would not be a healthy signal to foreign investors.

“As much as intervention in the foreign exchange market by the CBN was desirable, a more cost effective option would have been to use what was left of our external reserves as opposed to taking a loan from Afreximbank or even the International Monetary Fund.

“May I add that contracting external loans to lend to the CBN creates an erroneous impression of insolvency on the part of the CBN which is not a healthy signal to foreign investors.

“Also, if the security for the loan are some barrels of future crude oil production, at what forward contract price has this been negotiated?

“In view of the fact that all proceeds of crude oil sales are paid into the federation account, this sort of swap transactions has implications for FAAC receipts meant for the three tiers of government,’’ he said.

“By implication, the Federal Government that is already saddled with huge debt is borrowing to lend to the CBN, when it should have been the other way round.

“Ultimately, this new loan contracted by the NNPCL adds to the growing public debt and may have been contracted at non concessionary terms being an emergency loan.’’

Uwaleke urged the government to ensure that Nigerians, especially the National Assembly, were informed about the terms of the loan and the collateral security involved.

He said that the three billion dollars loan on the balance sheet of NNPCL would make the company less attractive and possibly jeopardize the ongoing plan to privatise the company by listing it on the Nigerian Exchange.

Recall that NNPC Ltd. and Afreximbank had on Aug. 5, jointly sealed a three billion dollars crude oil repayment loan deal at the bank’s headquarters in Cairo, Egypt

The signing was to provide some immediate disbursement that will enable the NNPC Ltd. to support the federal government in its ongoing fiscal and monetary policy reforms aimed at stabilising the exchange rate market.

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Lydia Ngwakwe

NEWSVERGE, published by The Verge Communications is an online community of international news portal and social advocates dedicated to bringing you commentaries, features, news reports from a Nigerian-African perspective. A unique organization, founded in the spirit of Article 19 of the Universal Declaration of Human Rights, comprising of ordinary people with an overriding commitment to seeking the truth and publishing it without fear or favour. The Verge Communications is fully registered with the Corporate Affairs Commission of the Federal Republic of Nigeria as a corporate organization.



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