A new crude-for-loan deal between the Federal Government and Saudi Arabian oil company Aramco, worth $5bn, has stalled and is struggling to reach an agreement following the recent decline in crude prices.
A report by Reuters quoting four sources on Tuesday stated that the deal hit a brick wall after fresh market indices and a recent decline in crude prices sparked concern among banks that were expected to back the deal.
It said the facility would be Nigeria’s largest oil-backed loan to date and Saudi Arabia’s first participation of this scale in the country, although the decline in oil price could shrink the size of the deal, the report stated.
Major oil benchmarks continue to hover above the $60 range after a significant selloff in early April, over OPEC+’s announcement to increase the unwinding of voluntary production cuts totalling 2.2 million barrels per day, and renewed concerns over President Donald Trump’s trade war rhetoric impacting hydrocarbon markets.
Eight OPEC+ countries have agreed to steadily increase output through at least July, at a pace of 410,000 barrels per month. However, Nigeria’s oil revenue is currently on the rise as market data revealed that Nigeria’s crude oil blend, Bonny Light, traded at $78 per barrel.
According to two sources, President Bola Tinubu initiated discussion on the loan in November when he met with Saudi Crown Prince Mohammed bin Salman in Riyadh at the Saudi-African Summit.
The slow progress in discussions reflects the strain of the recent oil price drop, caused largely by a shift in OPEC+ policy to regain market share rather than curtail supply. Brent has fallen about 20 per cent to around $65 per barrel from above $82 in January.
It stated that a lower oil price means Nigeria could need more barrels to back the loan, but years of under-investment are complicating its ability to meet production goals. The latest development comes weeks after Tinubu sought approval for $21.5bn in foreign borrowing last month to bolster the budget.
It said the $5bn oil-backed facility under discussion with Aramco would be part of the borrowing plan. The banks involved in the talks that are expected to co-fund part of the loan with creditor Aramco have expressed concerns about oil delivery, which has slowed discussions, sources said.
Gulf banks and at least one African lender are involved, they added. Reuters could not establish the banks’ identities. “It’s hard to find anyone to underwrite it,” one source said, citing concerns over the availability of the cargoes.
In recent years, Nigeria has years of experience taking out, and repaying oil-backed loans, which the government uses for budget support, shoring up foreign reserves or to revamp state-owned refineries.
At $5bn, the Aramco loan would be backed by at least 100,000 barrels per day of oil, the sources said. However, it would almost double the roughly $7bn of oil-backed loans taken in the last five years.
Nigeria is using at least 300,000 bpd to repay NNPC’s other oil-backed loans, though one facility is expected to be paid off this month. The amount of oil going towards repaying existing oil-backed loans is fixed, but when the crude price falls, it takes longer to repay them.
Additionally, lower prices mean the NNPC has to funnel more crude oil to joint-venture partners, from international majors like Shell to local producers like Oando or Seplat, for its portion of operation costs.
“You have to either find more oil or find a way to renegotiate those deals,” another source said. An oil firm, Oando, is expected to manage the offtake of the physical cargoes, the sources said. Oando did not comment.
NNPC is trying to boost output, while Tinubu issued an executive order aimed at cutting production costs, which would free more money from each barrel. Africa’s largest oil exporter assumed a price of $75 per barrel in its budget, with production of 2 million bpd.
But in April, it pumped just under 1.5 million bpd, according to the May OPEC market report. When contacted, Saudi Aramco declined to comment.
The NNPCL spokesperson, Femi Soneye, simply said, “We are not the government. You can ask the ministry or NUPRC.” But the finance or petroleum ministries didn’t respond.
