FG’s plan for fresh $5bn oil-backed loan hindered by low price – Report

The federal government’s plan to secure a $5 billion oil-backed loan from Saudi Arabian oil company, Aramco has been hampered by low oil prices in the international market.

A report by Reuters referencing four sources said the recent decline in crude oil price has led to concerns among banks that were expected to back the deal.

Nigeria has in the past secured about $7 billion loans from Afreximbank ($3.3 billion) and other financial institutions using forward sale of its oil production.

The Aramco deal, if it goes through, 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 sources said.

Two of the sources said President Bola Tinubu first broached the loan in November when he met with Saudi Crown Prince Mohammed bin Salman in Riyadh at the Saudi-African Summit.

The report noted that details and progress on the loan talks have not been previously reported, adding that 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% to around $65 per barrel from above $82 in January. 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.

Last month, President Tinubu sought approval for $21.5 billion in foreign borrowing last month to bolster the budget, and the $5 billion oil-backed facility under discussion with Aramco would be part of that, sources said.

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.

The report disclosed that Gulf banks and at least one African lender are involved in the deal.

“It’s hard to find anyone to underwrite it,” one source said, citing concerns over the availability of the cargoes.

Saudi Aramco declined to comment. Nigeria’s state-owned oil company NNPC did not comment, and neither did the finance or petroleum ministries.