Economic experts have continued to reflect over the merit and demerit of the recent $1.5bn cash-for-crude prepayment loan deal recently signed between the Nigerian National Petroleum (NNPC) Corporation and the world’s top biggest independent oil traders; Vitol Group and Nigeria’s Matrix Energy.
The Financing Package for Nigeria’s petroleum corporation, called ‘Project Eagle’ is structured to provide the Corporation and Nigeria with much-needed cash after its finances were hit by the oil price crash in April and further worsened by COVID-19 lockdowns which erased nearly one third of global oil demand.
Under the Project Eagle deal, Vitol and Matrix will each get 15,000 barrels per day of crude as repayment over five years, starting from August 2020.
While some economic experts have argued that oil deal will help ease the loan burden on the Federal government, others have argued that the prepayment deal will likely weaken longer-term revenue, since Nigeria will offer its oil at a reduced price and will miss out on any future price increase.
However, the deal would provide Nigeria with upfront cash and guaranteed revenue as it expands its budget.
Prepayment agreements are often used by many oil producing countries to secure various form of lending in commodity finance. When petro-states are cash-strapped, prepayment deals are not uncommon, with banks and bond markets remaining the top source of financing for the oil and gas sector.
In 2013, Russia’s Rosneft signed a $10 billion deal with Vitol and Glencore and made a similar agreement with Trafigura around the same time.
Venezuela, Ecuador, Colombia, Libya, and Algeria have also utilised similar pre-payment structures.
This is not the first time NNPC would be entering into oil deal. In 2016, Emmanuel IbeKachikwu, then Minister of State for Petroleum Resources at the time, asked India to pay $15 billion for oil in advance.