The Nigerian National Petroleum Corp (NNPC) has told lawmakers at the National Assembly that any move to block its deals to finance payment of $3.5 billion owed to fuel traders could expose the country’s economy to a sovereign credit downgrade or a banking crisis.
Major oil trading houses including Vitol, Glencore, Trafigura and Mercuria are owed millions of dollars by Nigeria for fuel deliveries, according to a government-commissioned report released last year.
The report showed that Glencore was owed $138 million, Vitol $198 million and Trafigura $53 million.
NNPC accumulated the debts to traders, some of which are three years old, due to non-payment of fuel subsidies by the government, the head of the company told parliament.
But NNPC has explained that the financial facility it is seeking is not a loan warning that “the exposure of domestic banks is about $1.5 billion, and a default of this magnitude of exposure could lead to another round of banking crisis,” NNPC said in a statement.
NNPC’s Group Managing Director; Andrew Yakubu stated that “the continued delay has dire consequences ranging from a major negative impact on the sovereign credit rating to costly litigation against the federal government in foreign courts,” it added.
The House of Representatives committee asked to see NNPC’s documents and said it would investigate.
According to Reuters News agency, the Ministry of Finance Ministry did not respond to calls for comment as well as Trafigura, Mercuria, Vitol and Glencore all declined comment.
Engineer Yakubu also explained to the lawmakers that NNPC was borrowing $1.56 billion through a special purpose vehicle to offset part of the fuel import debts and that it had allocated 15,000 barrels per day of oil output for a period of up to five years to pay back the money, the company said in a statement.
Engineer Yakubu said the company planned to settle the remaining debts through a second such forward sales arrangement as well as internal resources.
Lawmakers have questioned the fund-raising deal, saying NNPC is not allowed to take out loans under rules set out in the constitution.
Standard Chartered, which managed the banking deal, also reportedly declined official comment.
Credit rating agency Standard and Poor’s upgraded Nigeria in November, citing improved financial stability and optimism over banking and electricity reforms.
Its ratings from the three major agencies are still in junk territory, however, at BB- from S&P and Fitch and Ba3 from Moody’s.
Nigeria’s banking crisis ended with a sharp recovery in bank earnings last year after a 2009 credit crisis led to the near collapse of nine lenders.
President Goodluck Jonathan attempted to end fuel subsidies a year ago but backed down after it sparked widespread protests.
Decades of mismanagement and corruption have left NNPC heavily indebted, several audits have shown.
Trading companies have been battling for months to recoup the money, and some have stopped supplying Nigeria with fuel. Most have remained in the West African country, however, partly because of the huge opportunities it presents in the trading of crude oil.