By Babajide Komolafe, Economy Editor; Victor Ahiuma-Young; Obas Esiedesa & John Alechenu
THE Naira yesterday recorded significant gain against the dollar in the parallel market and the official Investors and Exporters, I&E window even as the forex market received a major supply boost as the NNPC Limited secured a $3 billion facility from the AfreximBank aimed at stabilising the exchange rate.
Naira appreciates
Vanguard survey showed that the Naira appreciated by N28 or 3.8 per cent in the parallel market, as the exchange rate fell to N885 per dollar from N920 per dollar on Tuesday. The Naira also appreciated by N21.44 per dollar or 3.25 per cent in the official I&E window as the indicative exchange rate fell to N759.86 per dollar from N781.30 per dollar on Tuesday.
Parallel market sources who spoke to Vanguard attributed the appreciation of the Naira to the recent pronouncement of the Acting Governor, Central Bank of Nigeria, CBN, Mr. Folashodun Shonubi, which signalled that the apex bank will soon unveil measures to boost forex supply, tackle speculators in a bid to address continued depreciation of the naira.
$3bn AfreximBank loan
In line with this trend, and in a bid to support the ongoing fiscal and monetary policy reforms of the federal government, the NNPC Limited yesterday said it has signed a Commitment Letter and Term Sheet with AfreximBank for an emergency $3 billion crude oil repayment loan.
The company said the agreement was jointly signed by both parties at the bank’s headquarters in Cairo, Egypt.
NNPC Limited, in a statement made available to Vanguard, explained that the loan “will provide some immediate disbursement that will enable the NNPC Ltd to support the Federal Government in its ongoing fiscal and monetary policy reforms aimed at stabilizing the exchange rate market”.
Recall that last week, the Federal Government reported a 13.6 percent drop in daily crude oil production in the month of July, leaving the country seriously short of dollar revenues from crude oil export.
The Nigerian Upstream Petroleum Regulatory Commission, NUPRC, disclosed that production averaged 1.08 million barrels per day compared to 1.25mbpd recorded in June, latest production data from the, has indicated.
The July production figure was a major setback for the government which has a production target of 1.69 million barrels per day in the 2023 budget. The volume of production was also significantly lower than the 1.7 million barrels per day production quota allocated to the country by the Organisation of Petroleum Exporting Countries, OPEC.
How loan will be disbursed
Giving explanation on how the loan will work, Senior Special Assistant to the President on Digital/New Media, Mr. O’tega Ogra in a series of tweets said the loan “is not a crude-for-refined products swap but an upfront cash loan against proceeds from a limited amount of future crude oil production”.
He tweeted: “Is this loan risky for NNPC Ltd. or the Nigerian Treasury? No. The exposure for NNPC Ltd. is very limited, covering just a fraction of their entitlements. Additionally, there are no sovereign guarantees tied to this loan.
“What’s the benefit of this loan to Nigeria? The loan will assist NNPC Ltd. in settling taxes and royalties in advance. It will also equip the Federal Government with the necessary dollar liquidity to stabilize the Naira, with limited risk.
“How will the loan be disbursed? The funds will be released in stages or tranches based on the specific needs and requirements of the Federal Government.
Impact on naira, fuel price
“Will this affect fuel prices?A strengthened Naira as a result of this initiative will lead to a reduction in fuel costs. This means that if the Naira appreciates in value, the cost of fuel will drop and further increases will be halted.
“What about subsidies? Are they coming back? No. A stronger Naira will result in lower prices from the current level, making subsidies unnecessary. The deregulation policy remains unchanged.
“How will the loan be repaid? The loan will be repaid against a fraction of proceeds from future crude oil production. It’s a strategic move that ensures a balance between our current economic needs and future production capabilities.
“What is the difference between this and previous swap deals?
This is not a crude for refined products agreement where the government does not earn any proceeds from the swap”.
How to reduce forex pressure — NECA
Speaking against this background, Nigeria Employers’ Consultative Association, NECA, stressed the need to ramp up crude oil production to the 1.8 million barrel per day OPEC quota for the country, as a critical factor to reducing the demand pressure in the forex market and associated economic challenges.
The umbrella body for employers in the country and the voice of business in Nigeria also urged the government to pursue and eliminate crude oil theft and resume domestic refining to save forex for other productive uses.
NECA in a statement titled Ramping –up FOREX Revenue, Crude Production and Non-Oil Exports-Urgent Imperative for Economic Recovery, its Director-General, DG, Adewale -Smatt Oyerinde, said “The unification of exchange rate policy was supposed to bring into convergence the exchange rates at the official forex market and the parallel market windows. At the beginning of implementation, the policy appeared to have gained traction but has now progressively become undesirable. While the official exchange rate stood at about N781.64/US, the parallel market around N900/$ as noted by the Central Bank of Nigeria (CBN), the differential of which shows a premium of about 21 percent between the two windows.
“As observed by the CBN, illegal remittances through inappropriate channels and unlawful selling of dollars by commercial banks are the core reasons the Naira value has continued to degenerate. While agreeing with the apex bank, we want to add that the continuous existence of the parallel market, particularly in open places, is more than culpable for the ugly development. We believe that as long as the “black market” with the institutionalised name, “parallel market” persists, unruly banks in the country will continue to round-trip, notwithstanding the implication on the economy.
“The persistent wrong channelling and mismanagement of forex on organised businesses has become agonising. Business working capital, production, capacity utilisation, investment, sales, etc., have contracted significantly, while firms are forced to downsize. The grey trajectory portends tragedy for the economy if not quickly addressed. Consequently, a more stringent action that will significantly reduce the influence of economic saboteurs in the forex value chain must be implemented. We believe that if the Parallel market is not legal, then it is illegal and should be treated as such.
“In order to reduce the pressure of forex and other economic challenges associated with it, we urge the government, as a matter of urgency, to ramp up the production of crude oil to at least the 1.8 million barrel per day OPEC quota for the country; pursue and eliminate crude oil theft; resume domestic refining to save forex for other productive uses; and be fiscally disciplined in terms of dollar dealings. These measures will no doubt, avail more forex to CBN for onward intervention in the official forex market, which will enable businesses to source forex to sustain business activities.”
NNPC’s $3bn loan, FG’s dubious attempt to stabilise naira, says Atiku’s aide
Reacting to this last night, the Special Assistant on Public Communication to former Vice President, Atiku Abubakar, Mr. Phrank Shaibu, faulted the loan.
Shaibu said: “For many years, Tinubu claimed that he built the economy of Lagos from scratch. Now, he has been exposed as a charlatan. His administration detained Emefiele and vilified him for taking FX loans from JP Morgan and Goldman Sachs running into $7.5bn, which was used in defending the naira.
“Now, Tinubu’s administration claims to have done the same thing by forcing the NNPCL to take a loan of $3bn to defend the naira. We, however, have it on good authority that this is all a ruse to force the naira to appreciate at the parallel market, an action that will further affect the government’s credibility.
“The NNPCL has failed to shed the toga of an ordinary government agency. No wonder it has refused to become a public limited liability company, as stated in the Petroleum Industry Act.
“The NNPCL boss, Mele Kyari, who is also desperate to retain his job, has allowed himself to become a willing political tool just like Emefiele. If the NNPCL was a publicly listed oil firm like Aramco and Mobil, would it obtain a loan in order to ‘defend the naira’?”
He further stated that Tinubu lacked a clear economic blueprint, adding that his policy flip-flops had already begun affecting Nigerian bonds, as reported by Bloomberg.
