In a bid to bolster its financial inflow and revitalize the economy, the Nigerian government is in talks to obtain a $2 billion crude oil-backed loan from international creditors, as revealed by sources familiar with the matter. This move comes on the heels of the revelation that the Nigerian National Petroleum Corporation (NNPC) is grappling with a backlog of $6 billion owed to international oil traders following the removal of fuel subsidies.

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Mele Kyari, the Group Chief Executive Officer of NNPC, disclosed that discussions are underway with international creditors to secure an oil-backed credit facility that will not only strengthen the corporation’s finances but also pave the way for investments in the oil and gas sector. While specific details of the financial body involved and the loan amount remain undisclosed, Kyari emphasized that the funds raised would support NNPC’s business activities and aid in production growth.

It is noteworthy that NNPC already holds a $3.3 billion oil-backed loan from Afreximbank, secured in August 2023 to address liquidity challenges exacerbated by the removal of fuel subsidies and forex market fluctuations. However, the existing loan has proven insufficient in light of escalating fuel subsidy costs, necessitating the pursuit of an additional financial boost to manage mounting expenses effectively.

The repayment of NNPC’s debts, notably the $6 billion owed to oil traders, underscores the financial strain faced by the corporation amid efforts to stabilize fuel prices post-subsidy removal. Despite NNPC’s denials of such debts, sources have confirmed the arrears owed to international oil suppliers, with late payments accumulating to between $4 billion and $5 billion for January imports. The situation has been further compounded by the obligation to settle payments within 90 days of delivery, putting additional pressure on NNPC’s financial obligations.

The underinvestment plaguing Nigeria’s oil and gas sector presents a significant hurdle to revenue generation for the government, with major oil companies exhibiting reluctance to invest due to challenges like oil theft and an unfavorable economic climate. This reluctance was exemplified by TotalEnergies redirecting a $6 billion deal from Nigeria to Angola, citing operational concerns. Moreover, Nigeria’s struggle to ramp up crude oil production to the desired level of 2 million barrels per day hampers its capacity to capitalize on international oil prices and secure substantial foreign exchange earnings.

Nigeria’s pursuit of a fresh $2 billion crude oil-backed loan signals a proactive effort to address financial bottlenecks and sustainably boost the economy amidst ongoing challenges in the oil and gas sector. As the government navigates the complexities of debt management and investment priorities, strategic partnerships with international creditors are poised to play a pivotal role in driving economic recovery and reinforcing Nigeria’s position in the global energy landscape.