The bid by the House of Representatives to investigate the $1.56 billion loan being sought by the Nigeria National Petroleum Corporation (NNPC) hit a brick wall Monday and left lawmakers confused, as the corporation and the Ministry of Petroleum Resources denied taking the loan.
The Debt Management Office (DMO) and Revenue Mobilisation Allocation and Fiscal Commission (RMFAC) also gave the corporation a clean bill of health on the issue.
THISDAY had exclusively reported last month that NNPC had not obtained the $1.56 billion from a syndicate led by foreign banks, but was in the process of negotiating the loan using 15,000 barrels of crude per day to offset its legacy debts owed oil traders.
The oil corporation had been accused of obtaining the loan without seeking the approval of the National Assembly and in contravention of the Fiscal Responsibility Act.
But Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, said what some persons have termed as loan was a "forward sales arrangement" by the corporation to settle some of its outstanding "legacy liabilities" amounting to $3.5 billion.
The liabilities, she said, needed to be settled to save Nigeria from facing dire consequences.
A forward sale involves the forward sale of crude oil or any commodity to be produced in future instead of obtaining a loan facility to offset accumulated liabilities.
Under the arrangement, NNPC is expected to collateralise the loan with 15,000 barrels of crude oil per day from the operations of the Nigerian Petroleum Development Company (NPDC), the exploration and production subsidiary of NNPC, towards the settlement of its liabilities.
Alison-Madueke, who appeared before the House Joint Committee on Petroleum Resources (Upstream/Downstream), Justice, Loans, Aids and Debt Management on account of the said loan, said it was purely an internal arrangement between NNPC and her trade partners and did not involve the corporation borrowing any money.
The minister, who appeared before the investigating committee alongside the Group Managing Director of NNPC, Mr. Andrew Yakubu, said the corporation had accumulated liabilities over the years and the forward sale arrangement was an internationally accepted procedure for settling these liabilities.
In a separate presentation, the NNPC boss attributed the liabilities to decades of under-funding of the NNPC and the accumulated losses arising from crude oil and product losses, pipeline security and demurrage on products strategic reserve stock.
The NNPC, Yakubu said, has accumulated various legacy liabilities which are settled periodically from internal resources.
He said that this has created a cash flow challenge with a severe opportunity cost and complicated contradictions in corporate operations.
Yakubu explained that the non-reimbursement by the Federal Government of the petroleum products price differential to NNPC gradually led to accumulated and unpaid petroleum products invoices of about $3.5 billion.
In addition to these, he said, there were also pipeline security issues and other severe operational losses which have made NNPC to be unable to settle its obligations to the suppliers of petroleum products importers in a timely manner and in accordance with contracted terms.
"The traders (petroleum products importers) have become agitated over non-payment of their petroleum products invoices some of which are over three years old.
"The exposure of domestic banks is about $1.5 billion, and a default of this magnitude of exposure could lead to another round of banking crisis.
"Furthermore, continued delay has further dire consequences ranging from a major negative impact on the sovereign credit rating to costly litigation against FGN in foreign courts.
"Some of the importers are already in foreign courts with NNPC. This could have a negative impact on Nigeria internationally in terms of credit ratings by ratings agencies," Yakubu said.
He disclosed that under the resettlement terms, NNPC will forward the sale of 15,000 barrels of crude oil per day and raise the sum of $1.5 billion to liquidate outstanding trade bills.
The arrangement, he explained, allows a future sale of agreed quantities of 15,000 bpd of crude oil to a Special Purpose Vehicle (SPV) for a period of up to five years in consideration of the sum of $1.5 billion paid by the SPV to NNPC. The $1.5 billion will be used to offset part of the petroleum imports bills, he added.
"The forward sale of crude oil by NNPC to the SPV will be a true sale at Official Selling Price (OSP) of Nigerian crude oil ruling at the date of lifting.
"It is expected that the balance of the petroleum products outstanding invoices (after utilisation of the $1.5 billion expected proceeds of Phase 1) will be subsequently settled under a second phase of forward sales arrangement in addition to continuous repayment through the use of internal resources," he said.
The NNPC boss said that the forward sales arrangement was negotiated in consultation with the Federal Ministry of Finance after a number of traders and international banks threatened to call a default on the Federal Government of Nigeria and enter into legal action to recover about $3.5 billion, "a situation that would have embarrassed the country."
Director General, DMO, Dr. Abraham Nwankwo, who was at the investigative hearing, endorsed the explanations given by NNPC.
"They have made it very clear that they are not taking a loan. Therefore we do not need to comment on this issue. It does not fall within our jurisdiction and we do not believe we have a role to play in the matter," Nwankwo said.
However, the lawmakers appeared dissatisfied with the explanation as many of them raised more questions on the source of the crude oil that NNPC was planning to use in the forward sales deal.
Some of them said they were confused and could not tell the difference between the said internal arrangement and a loan facility.