IN this second issue of this serial on “Five more tactical errors Tinubu must clear” that, I would like to focus on one of the most disturbing discoveries – that rather than being an asset to the nation, NNPC Limited has become a liability that has plunged the nation into deeper debt.
As I was saying, Brazil’s Petrobras reported a net profit of $25 billion in 2023, Petronas in Malaysia reported $19 billion, Russia’s Gazprom reported $14 billion, while the NNPCL reported a paltry $2 billion at the current ₦1,600/$ exchange rate used by the NNPCL in December 2023.” ~ Source: SBM Intelligence
Yet NNPCL is acquiring more debt than its revenues and thus the world’s only national oil company that is operating at a loss.
RECOMMENDATION
Shockingly, the Governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso, has called for an urgent increase in oil production and a broader economic diversification strategy to stabilise the country’s volatile exchange rate while addressing journalists at the end of a two-day Monetary Policy Committee (MPC) meeting in Abuja.
The bank chief emphasised that while efforts to boost foreign exchange inflows through various initiatives, including liberalising diaspora remittances, have shown promise, these measures cannot substitute for addressing the fundamental structural issues in the Nigerian economy.
“We must recognise that without resolving the underlying economic fundamentals, we will continue to sub-optimise.
“Oil production must be ramped up to levels that can support the economy, and we need to diversify beyond our current status as a monolithic economy reliant on oil. Until this happens, the strong exchange rate we all desire will remain out of reach,” he said.
The question now is, if he was aware of this as the only solution to the naira being one of the worst performing currencies in the world, why did FGN borrow $10 Billion to “defend the naira”? More importantly where is the $10 Billion now?
I advised on Diaspora Day 2023 thus, “Disruption of Diaspora $22Billion Remittances
I am concerned at recent policy reversals that threaten to negatively impact Diaspora remittances which have become a staple stabilizer of the Naira value.
As stated in my prior letter to you, “Nigerians in Diaspora have in recent times remitted more money to the national economy than Nigeria’s oil production.
Besides that, the Diaspora’s multi-billion dollar annual remittances have historically been a stabilizing factor that mitigates the capital flight induced by corruption over the years. In short, our forex remittances are the life blood transfusion that have stemmed the financial haemorhaging by lootocrats…
Similarly the (Buhari) regime in which you serve introduced a policy to incentivize more forex influx from Diaspora by CBN paying five naira for each dollar sent. This temporary policy was so lucrative that the Central Bank extended it indefinitely and remittances even exceeded oil export revenues. In February 2022, Central Bank of Nigeria claimed that diaspora remittances surged by 1,566.6%, accounting for a sizable portion of the CBN’s daily dollar receipts, from $6 million weekly to $100 million since the launch of the Naira-to-dollar promo.
Yet Tinubu administration CANCELLED the CBNs Naira-for-dollar incentivization policy effective July 1, 2023.
If Diaspora remitted $21.9 Billion in 2022, that means our recipients in Nigeria received roughly N100Billion ($65million) based on the 5Naira-for-1dollar incentive programme.
If CBN spent less than N80Billlion on Diaspora incentive in 2021 to generate $20Billion but Nigerian National Petroleum Company spent N788.7bilion on administrative expenses in 2021 to remit less than $1.5B to CBN, then Diaspora is a better investment for Nigeria than investment in NNPC.
This is an increase from N648.6 billion reported in 2020, bringing NNPC’s total expenses to over N1.4 trillion in two years to produce about 15% of the forex that Diaspora generates while Nigeria only spent 15% of what NNPC consumes on Diaspora incentive.
This is exactly why CBN spending five Naira to attract $1 from Diaspora remittances is even a better investment than the $25 Billion purportedly spent on refineries producing nothing.
To simplify this, the FGN should:
A. simply have paid N100B ($65 million) to attract $20 Billion from Diaspora remittance to stabilize the naira then to borrow $10 Billion (15 Trillion) which will be repaid back with over 100% interest (30 Trillion) without improving the exchange rate. In fact Zenith Bank alone made $66 million signature fee on a $3Billion foreign loan – more than the $65 million the entire Diaspora would have made to bring in $20 Billion into the economy!
B. Invested the $10 Billion in acquiring profitable assets if taking the loan was a must. Mobil and others are selling oil assets. Why acquire liabilities instead of profitable assets?
Trials & Tinubunation: Why NNPC is world’s most unfruitful national oil company
How NNPC borrowed $3Billion for self disguised as “naira defence”
In this second installment of my independence special report of FGN’s five tactical blunders, I am focusing on one of the most disturbing discoveries – that rather than asset to the nation, NNPC has become a liability putting the nation into deeper debt aggressively.
To recap, the CBN Governor recently said:
“Oil production must be ramped up to levels that can support the economy, and we need to diversify beyond our current status as a monolithic economy reliant on oil. Until this happens, the strong exchange rate we all desire will remain out of reach.”
The question now is, if CBN’s Governor Cardoso was aware of this as the only solution to the naira being one of the worst’s most performing currencies in the world, why did FGN borrow $10 Billion to “defend the naira”? More important, where is the $10 billion now?
Oil-exporting (production) and people-exporting (migration) are two major foreign exchange sources for Nigeria via NNPCL and Diaspora remittances respectively. Brazil’s Petrobras reported a net profit of $25 billion in 2023, Petronas in Malaysia reported $19 billion and Russia’s Gazprom reported $14 billion even under Ukraine war economic sanctions but NNPCL reported a paltry $2 billion in December 2023. Curiously, the same NNPCL disclosed that it is owing a whopping $6 billion.
Yet NNPCL is acquiring more debt than its revenues and thus the world’s only insolvent national oil company that is operating at a loss.
In an article titled, “Crude-for-loans: NNPCL votes 8 million barrels monthly for $8.8bn debt, Punch newspaper reports.
“Firm repays $2.61bn, owes $6.25bn as Nigeria loses N264m crude barrels to theft, others.”
Out of the list of mostly opaque loans, of great interest to me was the mystery $3 Billion borrowed last year tied to no known project.
According to a report, “More recently, there was the Project Gazelle deal, which aimed to stabilise Nigeria’s foreign exchange market.
In December 2023, NNPC secured a $3bn forward sale agreement, pledging 90,000bpd from Production Sharing Contract assets to cover future tax and royalty obligations.
As of the end of 2023, $2.25bn had been drawn from this facility, with repayments scheduled to begin by mid-2024.
These crude-for-loan deals come at a time when Nigeria is struggling to boost its oil production…”
Basically, NNPC borrowed $3 billion and utilized $2.25 billion in December to “stabilize the naira.” What does that even mean?
“On August 17, 2023, The PUNCH reported that the NNPCL announced that it had secured a $3.3bn emergency crude oil repayment loan from the African Export-Import Bank.
It explained at the time that the oil company would use the loan to support the Federal Government in stabilising Nigeria’s exchange rate…
The facility, among other things, would help the Federal Government attend to some of its dollar obligations, assist the Central Bank of Nigeria in stabilising the foreign exchange market, and provide funding for NNPC.”
We discover here in black and white that the billions borrowed to stabilise the naira was actually used to fund the NNPC “among other things!” Not only is Nigeria borrowing to pay debt but NNPC has joined the league of borrowers club.
“Providing details about the deal in the document titled, “Everything you need to know about the NNPC Limited’s $3.3bn loan, also known as Project Gazelle,” NNPC said, “This is a financing agreement secured by NNPC Limited to prepay future royalties and taxes to the Federal Government.”
The company also stated that it adopted a lower price benchmark for the $3.3bn crude-for-cash loan to reduce the risk of default and ensure financial stability.”
All of a sudden here, we see a discrepancy between the $3 billion borrowed versus $3.3 billion borrowed! That’s a $300 million unexplained difference.
“Giving details on the benchmark oil price, the company said the facility used a conservative crude price of $65/barrel to calculate the allocated crude to be produced and sold.
NNPC also said repayments were strategically planned and tied to future oil sales, with conservative pricing in oil sales contracts mitigating the risks associated with oil price volatility.” “
The loan repayment is pegged at $65pb but the oil value today is $78pb and expected to hit $100 due to the Mideast conflict. Based on the current price at 90,000 bp, the creditor will gain an extra and Nigeria loses an additional $1million daily apart from the other loan repayment terms!
But the “all you need to know” about the amorphous Gazelle project doesn’t really tell us anything because “stabilization of the naira” is an intangible non-entity. But funding the NNPC, that’s something that can be tracked.
NNPC administrative expenses included N13 Billion on staff entertainment, N20 Billion for telephone calls and Postage within a two-year period. NNPC Ltd spent an average of N561.125 million every month (N18.447 million was spent daily) on entertainment between 2020 and 2021 and N768,664 hourly.
NNPC spent N788.7bilion on administrative expenses in 2021.
This is an increase from N648.6 billion reported in 2020, bringing NNPC’s total administrative expenses to over N1.4 trillion in two years.
We looked extensively at oil-exporting so let’s turn briefly to people-exporting for comparative analysis.
Unlike NNPC, Diaspora Remittance is organically self-driven. However the CBN introduced a 5 Naira-to-$1 incentive which increased weekly forex inflows by over 1500%!
Diaspora remitted $21.9 Billion in 2022 costing CBN roughly N100Billion in contrast to almost N800Billion NNPC administrative costs and $1.5Billion remittance!
That’s only about 15% of the forex that Diaspora generates while Nigeria only spent 15% of what NNPC consumes on Diaspora incentive that brought in tens of billions of dollars!
Nigeria’s human capital is more valuable than its oil minerals.
CBN should simply have paid N100B ($65 million) to attract $20 Billion from Diaspora remittance to stabilize the naira instead of NNPC to borrow $10 Billion (15 Trillion), which will be repaid with over 100% interest (30 trillion) without improving the exchange rate.
In fact, Zenith Bank alone made $66 million signature fee on the $3 billion AFREXIM foreign loan – more than the $65 million the entire Diaspora would have made to bring in $20 billion into the economy.
GUEST COLUMNIST: Emmanuel Ogebe is a US-based lawyer and Nigeria international affairs expert with the U.S. Nigeria Law Group, Washington
- Oloja is former editor of The Guardian newspaper and his column, Inside Stuff, runs on the back page of the newspaper on Sundays. The column appears on News Point Nigeria newspaper on Mondays.