'$3.5bn debt deal blockade could trigger banking crisis'

The Nigerian National Petroleum Corporation has warned that any move by politicians to block deals to finance the repayment of the $3.5bn it owed fuel traders could expose it to a sovereign credit downgrade or trigger a banking crisis.

Major oil trading houses, including Vitol, Glencore, Trafigura and Mercuria are owed millions of dollars by the corporation for fuel deliveries, according to a government-commissioned report released last year.

The NNPC accumulated the debts to traders, some of which are three years old, due to non-payment of fuel subsidies by the government, the Group Managing Director of the corporation, Mr. Andrew Yakubu, told legislators on Monday.

Yakubu had told lawmakers that NNPC was borrowing $1.56bn through a special purpose vehicle to offset part of the fuel import debts and that it had allocated 15,000 barrels per day of oil output for a period of up to five years to pay back the money.

He said the company planned to settle the remaining debts through a second such forward sales arrangement as well as internal resources.

Lawmakers had questioned the fund-raising deal, saying NNPC was not allowed to take out loans under rules set out in the Constitution.

The corporation, however, said it was not a loan, and a statement on Thursday quoted the consortium of banks as saying, 'We never granted NNPC $1.56bn loan facility.'

In a presentation at the renewed hearing of the Joint Committee of the House of Representatives on the alleged transaction, the Managing Director, Project and Export Finance, Standard Chartered Bank, Mr. Ade Adeola, who spoke on behalf of the consortium of banks, restated the fact that the said $1.56bn facility was not a loan but forward sale of crude oil with advance deposits to be made to the corporation on standard NNPC sale terms at ruling market prices.

Adeola also explained that the sales agreement, which is being brokered by four Nigerian banks namely; First Bank, UBA, Ecobank and Standard Chartered Bank; was designed to enable NNPC reduce the debts accruing from petroleum products imports.

'The key idea is to enable NNPC immediately raise the sum of $1.5bn to pay down outstanding debts. This is based on a forward sale arrangement, which allows a sale of agreed quantities of 15,000 barrels per day of crude oil for a period of five years in consideration of an advanced amount of $1.56bn paid to NNPC,' Adeola explained.

He said the sale of the crude oil by NNPC would be a true sale for which the sale price was calculated on the basis of the open market Nigerian crude oil selling price.

'The structure is the same as implemented on both international and other recent NNPC Joint Venture transactions and is, therefore, well understood by the international and local financing market,' Adeola told the House committees.

In his contribution, the Group Executive Director, Corporate Services, NNPC, Dr. Peter Nmadu, who stood in for the group managing director in Thursday's session, said as a public entity, the corporation was always willing to cooperate with the National Assembly in the execution of the constitutional prescribed over sight function.

The Chairman, House Committee on Petroleum Resources (Upstream), Mr. Muraina Ajibola, announced the indefinite adjournment of the public hearing.

The NNPC had earlier said in a statement, 'The exposure of domestic banks is about $1.5b, and a default of this magnitude of exposure could lead to another round of banking crisis.'

Yakubu had said the continued delay in finalising the deal had dire consequences ranging from a major negative impact on the corporation's sovereign credit rating to costly litigation against the Federal Government in foreign courts.

However, Reuters reported that the Ministry of Finance did not respond to calls for comments.

Trafigura, Mercuria, Vitol and Glencore, it stated, also declined comments.