EXPLAINER… What the $3 billion emergency crude repayment loan from NNPC means in a nutshell.  

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EXPLAINER… What the $3 billion emergency crude repayment loan from NNPC means in a nutshell.  

By: Peace Adisa

On Wednesday, it was announced that the Nigerian National Petroleum business limited (NNPCL), the country’s state-owned oil business, had inked a $3 billion loan arrangement with the African Export-Import Bank (Afrexim bank) under the name Emergency Crude Repayment Loan. 

What you need to know about the loan agreement and how it will affect Nigeria’s economy and naira, the country’s currency, is provided below.

1. The crude repayment loan is an upfront cash loan secured by the proceeds from a small portion of future crude oil output, not a crude swap or a crude for refined products arrangement.
2. Because the exposure for NNPCL is so little and only covers a portion of their rights, the loan is not problematic for NNPC Ltd. nor the Nigerian Treasury. Additionally, this loan is not backed by any sovereign assurances.
3. The loan will help NNPCL make advance tax and royalty payments. Additionally, it will provide the Federal Government with the risk-free dollar liquidity it needs to support the Naira.
4. Depending on the specific demands and requirements of the Federal Government, the monies will be released in stages or tranches.
5. The loan program will result in a decrease in fuel costs since there is a chance of improving dollar liquidity, which strengthens the naira. This is due to the fact that a stronger naira would lower fuel prices and prevent additional price increases.
6. Subsidies won’t be reinstated since lower costs due to a stronger naira will eliminate the need for them. The deregulation strategy has not changed.
7. A portion of the revenue from upcoming crude oil production will be used to repay the loan. It’s a calculated action that maintains equilibrium between the nation’s present economic requirements and its potential for future production.