Afrexim Bank has turned to oil traders to secure a crucial $3 billion loan for the state oil company NNPC LTD, sources close to the matter have revealed.
As the naira hit an all-time low of 1,000 to the dollar on the black market, Afrexim Bank’s initiative aims to provide much-needed relief to the country’s economic woes.
Afrexim Bank, Africa’s foremost export-import bank, has been actively seeking interest from traders over the past few weeks to back the loan, which will be secured against the country’s oil reserves. The bank is now in the process of finalizing the loan terms to present to potential trading partners.
One oil executive privy to the discussions commented, “There is a lot of interest, but they need to see terms.” The executive also noted that the recent surge in oil prices, which have climbed past $90 per barrel, is expected to fuel even greater interest in the deal.
Under the proposed arrangement, traders who provide funding will be reimbursed with physical cargoes of oil. Afrexim Bank is diligently calculating the precise volume of oil that will be offered to these traders in exchange for their financial support, according to one of the sources.
NNPC LTD, Nigeria’s state oil company, announced the $3 billion loan in August as part of its concerted efforts to bolster the weakening naira. The devaluation of the currency and the resulting gap between official and black market exchange rates have prompted individuals and businesses to turn to the unofficial market to obtain dollars, further exacerbating the country’s economic challenges.
The central bank of Nigeria is grappling with a substantial backlog of nearly $7 billion in naira forwards, constraining the availability of dollars in the official market. This has necessitated creative solutions, such as Afrexim Bank’s partnership with oil traders, to mitigate the currency crisis.
President Bola Tinubu, who assumed office in May, initiated reforms that allowed the official naira exchange rate to decline against the dollar.
This policy shift, accompanied by a nearly triple increase in fuel prices, was intended to align market dynamics. While initially successful in narrowing the gap between the official and black market rates, the discrepancy has since widened.
In another move to curtail fuel smuggling and reduce pressure on NNPC to import petrol, President Tinubu authorized a more than threefold increase in pump prices. Despite these measures, NNPC is still fulfilling its obligations to oil trading firms with crude oil, limiting its immediate access to oil resources.
As Nigeria navigates the challenging economic terrain, the collaboration between Afrexim Bank and oil traders presents a unique opportunity to strengthen the naira and stabilize the country’s financial outlook. However, the success of this innovative financing arrangement will depend on the final terms agreed upon and the willingness of traders to participate in the venture.
NNPC has yet to comment on the development, and Afrexim Bank has not issued an immediate statement regarding this initiative. Nevertheless, all eyes are on this groundbreaking partnership as Nigeria seeks to restore stability to its currency and economy.
