Threats of Court Action Forced NNPC to Seek $1.5bn Loan

Threats of law suits, coupled with court injunctions ordering the seizure of global assets belonging to the Nigerian National Petroleum Corporation (NNPC), are the primary reasons the state-run oil firm was compelled to seek the $1.5 billion loan from foreign and local lenders to offset its indebtedness to foreign oil suppliers.

Investigations by THISDAY showed that lawyers to the oil traders had on several occasions written to the management of NNPC, threatening legal action and obtaining injunctions to freeze its assets to recover the money owed them, should the corporation fail to repay the debts within a stipulated period.

It was the threat of legal action instituted by the traders that compelled NNPC to open negotiations on the $1.5 billion five-and-a-half-year term loan, which shall be secured by 15,000 barrels per day (bpd) of its crude oil production from its exploration and production subsidiary, Nigerian Petroleum Development Company (NPDC).

Sources conversant with the deal revealed that NNPC has been in negotiations with the lenders for almost three years to offset long-standing debts owed the fuel suppliers.

The traders – Trafigura, Vitol, Mecria, Glencore and Acardia, among others – have in turn, been under intense pressure from their bankers such as BNP Paribas, Standard Chartered, Citi Bank and Napaxis, which financed the imports to repay the loan facilities granted them.

Besides, the commodity traders, some of which had been doing business with the NNPC for decades, were said to have been shut out by the banks on new loans, and were forced to mount pressure on NNPC to offset its debts some of which were incurred five years ago under the late President Umaru Musa Yar’Adua administration.

Sources said when some of the traders got desperate and could no longer secure new facilities, First Bank of Nigeria Plc (FBN) discounted a lot of the loans for the traders and assumed the debts, making the bank one of NNPC’s biggest creditors.

NNPC, according to a recent statement by the Ministry of Petroleum Resources, is indebted to oil traders to the tune of $3.5 billion.

Owing to its inability to meet its obligations to oil suppliers, the corporation in 2010, resorted to crude oil swaps in exchange for refined products with commodity traders, particularly with the Dutch-based Trafigura.

Sources also said that of all the traders, Trafigura posed the biggest problem to NNPC, “so in order to offset its debts to Trafigura, it entered into a processing contract with the trader that allows Trafigura lift 60,000 barrels of NNPC’s crude oil daily in exchange for refined products shipped from its SIR Refinery in Cote d’Ivoire.”

Other companies that handle NNPC swaps are Aiteo Oil belonging to Mr. Benny Peters; Televaras, linked to Mr. Igho Salome; Ontario Oil, whose vice-chairman, Mr. Walter Wagbatsoma, has been charged along with his firm to a Lagos High Court by the Economic and Financial Crimes Commission (EFCC) for allegedly defrauding the subsidy scheme; and Sahara Energy Limited.

Each of the companies swap an estimated 30,000 bpd in exchange for refined petroleum products on behalf of NNPC.

Sources confirmed that NNPC embarked on the crude-for-refined products deals as a means of meeting petrol supply requirements for domestic consumption, as it was cash-strapped and incapable of financing imports previously handled by foreign traders.

Sources also said the loan would now be used to offset fuel import debts to prevent the oil traders from suing the government and to ensure the corporation remains in business.
President Goodluck Jonathan was said to have given his consent to NNPC to go ahead with the loan to forestall legal action.

The General Manager, Government Relations at NNPC, Ms. Tumini Green, had told THISDAY last week that discussions on the loan had reached advanced stages.
She explained that the loan deal was a crucial measure to help the corporation pay off its debts to oil traders and stay in business.

Green, while reacting to reports that the National Assembly may kick against the loan, insisted that by taking that step, NNPC had not contravened any aspect of the law establishing it as a state-run oil company.

“If you are in business and owing somebody, you will be compelled to seek legitimate means of paying off your debts, that is exactly what we are doing and it is within the law,” she said.