17 January 2013

Nigeria: NNPC's Oil-for-Loan Plan

Photo: Leadership
Oil refinery


The recent announcement by the Nigerian National Petroleum Corporation (NNPC) that it planned to borrow 1.5 billion dollars to pay off its debts has naturally elicited disquiet among Nigerians.

NNPC's Group Managing Director, Mr Andrew Yakubu said that the organisation needed the money badly to remain credit worthy. The loan plan has been severely criticised. Even the government's Debt Management Office, as well as the National Assembly, have expressed strong reservations.

The NNPC plan appears to have bypassed the power of the National Assembly to authorize procurement of loans by public corporations. Under the loan agreement, the NNPC is required to put up 15,000 barrels a day as collateral. According to reports the threats of law suits, coupled with court injunctions to attach the global assets belonging to the NNPC if it failed to pay up within a stipulated period, were some of the reasons it was necessary to borrow in order to pay off debts to foreign oil suppliers. According to NNPC officials, negotiations for the loan had been going on for over three years to offset the debts, some of which were incurred over three years back.

The Ministry of Petroleum Resources said that NNPC is indebted to the tune of 3.5 billion dollars. In 2010, the corporation resorted to swapping crude oil for refined products shipped from Cote d'Ivoire as a means of meeting the petrol supply requirements for domestic consumption.

NNPC seems to have neglected its core responsibility of exploring the full potentials of Nigeria's oil and gas reserves, and is focusing more on buying and selling imported refined products, the reason such huge debts accumulated in the first place.

If members of the National Assembly had done their oversight function properly, they should have seen this coming and taken steps to prevent build-up of such debts.

The controversy surrounding the loan issue revolves around the issues of propriety and transparency. In recent months, there has been a predilection on the part of the corporation to place emphasis on the importation of refined petrol, an area that has spawned fuel subsidy crooks.

The National Assembly can do much more than expressing reservations over the deal.

Last month President Goodluck Jonathan requested the legislature to approve a supplementary budget of N161 billion "to settle accumulated fuel subsidy arrears owed local oil marketers". The President expressly stated that the additional amount was necessary because the provision for subsidy in the budget was underestimated, yet no one was held to account. The truth of the matter is that there is a growing perception that the NNPC loan deal is related to what has become Nigeria's biggest problem, namely, corruption. The country supposedly spent 1.04 trillion naira on subsidy; yet outstanding bills are over seven times more than the money that has been paid out.

It stands to reason therefore to conclude that those perpetrating and perpetuating the status quo-grounding the refineries, diminishing refining capacity, subsidy regime and continuing imports of refined petrol- are the same people active in stalling, perhaps eventually killing, the Petroleum Industry Bill that contains legal and fiscal framework for the oil and gas sector to reduce such practices. On this score too, the National Assembly has failed to rise up to the occasion, with members instead turning the PIB issue into regional, sectional and partisan political posturing.

Getting out of the fuel importation trap requires some strong political will by the executive and legislative branches, to ensure that the Petroleum Products Pricing Regulatory Agency does not fall prey to cabals bent on this scandalous business-as-usual course.

The NNPC, with certain caveats in its enabling legislation, is empowered to secure some forms of loans; the current loan plan is problematic in that respect.

How come that the corporation allowed its debts to accumulate to this when it was in a position to call up funds from its joint venture arrangements with multinationals to offset whatever debts it owed?

The proposed loan is therefore ill-advised and should be stopped.

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