The Nigeria National Petroleum Corporation (NNPC) has signed a $1.5 billion prepayment deal led by Standard Chartered Bank and backed by oil traders Vitol Group and Matrix Energy, according to Reuters quoting two sources close to the matter.
In the first such agreement since the coronavirus pandemic, the deal provides the Federal Government with much-needed cash after its finances were hit by the oil price crash in April as COVID-19 lockdowns erased nearly one third of global oil demand.
The financing package called Project Eagle was also backed by African Export Import Bank (Afrexim) and United Bank for Africa. Vitol and Matrix will each get 15,000 barrels per day (bpd) of crude as repayment over five years, starting in August. Nigeria’s crude production is nearly two million bpd.
TheNewsMatrics reports that the lenders will be betting that Nigeria’s crude trades above at least $30 per barrel on average over the period.
Nigerian Bonny light crude has recovered to above $40 along with other international blends in recent months.
Matrix, an oil trading and logistics group led by Abdulkabir Aliu, confirmed its participation in the deal. Vitol, the world’s biggest independent oil trader, declined to comment. A spokesman for Standard Chartered declined to comment. Afrexim did not have an immediate comment.
UBA and NNPC did not immediately respond to requests for comment.
Prepayments with traders are widely used in commodity finance as banks consider them to be one of the more secure forms of lending in countries viewed as risky.
For trading firms such as Vitol, these loans are ideal for securing long-term supplies and boosting razor-thin margins.
NNPC has been trying to raise cash through prepayments with traders for years. However, perceived issues with the firm’s finances and costly fuel subsidies have made it tough for it to secure private financing on attractive terms. Nigeria announced the end of subsidies earlier this year.
NNPC will use a large portion of the money to pay taxes owed by its subsidiary NPDC, the sources said. The remainder will go towards operational expenses and capital expenditure. One of the sources said money from the pre-payment could fund an upgrade of the Port Harcourt refinery.