Nigerian National Petroluem Company Ltd has entered into a $5billion pact with the African Export Import Bank that would enable the latter fund major investments in the country’s upstream sector.
The deal was sealed at a meeting held between the parties in Cairo, Egypt on Wednesday. For the NNPC, the pact is a major achievement with regards to opening the doors for the recently enacted Petroleum Industry Act by the Muhammadu Buhari administration in Nigeria. The PIA was signed into law by President Muhammadu Buhari on 16th August, 2021.
Reports said that the NNPC and Afreximbank also explored the innovative idea of establishing a pan-African Energy Transition Bank and agreed to collaborate towards achieving the objective.
The repayment of the funding is expected to be done through a Forward Sale Arrangement whereby the funds provided will constitute the payment purchase of 90-120kpd of crude to be delivered to the lender over a period.
The repayment is being projected to be made within a four to eight-year period with an objective to ensure major fiscal obligations and operating expenses are discharged appropriately.
The meeting between the NNPC and Afreximbank team agreed to intensify efforts at deepening business collaboration between the two institutions, especially in the area of investments in Nigeria’s oil and gas sector.
The bank agreed to enter into a finance advisory and fundraising role to raise $5billion towards the “acquire, invest and operate energy producing assets in Nigeria as part of NNPC’s growth strategy following its incorporation as a limited liability company.”
As part of the landmark transaction, Afreximbank will also underwrite $1billion as part of forward sales base trade finance transaction. Under the NNPC Ltd funding strategy for selected upstream investments, the state oil company is expected to raise between $3.5billion and $5billion as corporate finance to fund major upstream investments.
In view of this, it is gathered that the NNPC hopes to take over ownership from non-investing partner through acquisition of pre-emption rights in the sample Joint Venture. The strategy would also see the company investing in assets to address integrity, bottlenecking and growth issues including rig-less activities, and drilling campaigns in the oil industry.
NNPC’s preference is to source lenders that can provide this funding in a ratio based on the capacity of each of the lenders. The funding would also be used to finance part of the NNPC’s investment including acquisition of interest in quality upstream oil and gas producing assets.
The acquisition is an integral part of the NNPC’s corporate strategy to rebalance its portfolio by divesting from some toxic assets to acquire choice strategic assets that will help support its long term strategic objectives.
It is believed that the PIA legislation in Nigeria has provided business opportunities that will enable the NNPC earn more revenue for the country and attract foreign direct investment into the Nigerian energy sector.
The PIA has also raised stakeholders expectations on the company, even as it has given it a wide room to stimulate investments in the oil and gas industry.
The chief executive officer of NNPC, Malam Mele Kyari, who led the NNPC team, while the chairman of the board of the bank, and President of the African Export-Import Bank( Afreximbank), Benedict Oramah led the bank’s team during the signing ceremony.
By Chibisi Ohakah, Abuja
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