Nigeria’s state oil company, NNPC, is seeking a new $2 billion oil-backed loan to boost its finances amidst rising debts and economic challenges. This loan is intended to support NNPC’s business activities, including increasing production, despite already having a $3.3 billion loan. The company is facing escalating debts to gasoline suppliers, now totaling $6 billion, due to pipeline theft, underinvestment, and the costly fuel subsidies that have drained cash reserves. President Bola Tinubu’s attempts to eliminate fuel subsidies and stabilize the naira have further strained the economy.

Earlier NNPCL had taken the African Export-Import Bank (Afreximbank) syndicated $3.3 billion crude oil loan where the state oil company would pay back 90,000 barrels of crude per day, totaling 164.25 million barrels of crude oil. The worth of the crude is about $14.6 billion going by the price of Nigeria’s Brass River and Qua Iboe grade of crude, which hovered around $89.49 per barrel.

Oppose the Loan:

1. Debt Dependency:
• Continuous Borrowing: NNPC’s repeated loans indicate a reliance on external funds rather than sustainable financial management. Borrowing more money only adds to Nigeria’s debt burden, making the country dependent on lenders and limiting financial autonomy.
2. Economic Strain:
• High Fuel Subsidies: The cost of fuel subsidies has already depleted NNPC’s cash reserves. Relying on loans to cover these costs is unsustainable and diverts funds from essential public services and infrastructure development.
3. Risk of Default:
• Potential Defaults: Increasing debt without significant revenue growth increases the risk of default. If NNPC fails to meet its repayment obligations, it could lead to severe economic repercussions, including loss of assets or higher interest rates on future loans.
4. Underinvestment in Domestic Capacity:
• Neglecting Local Resources: Relying on loans instead of investing in domestic oil production and refining capacity perpetuates underinvestment. This hampers long-term growth and self-sufficiency in the oil sector.
5. Economic Sovereignty:
• Loss of Control: Using oil as collateral for loans reduces Nigeria’s control over its natural resources. If the country cannot repay the loans, it may lose valuable oil reserves to foreign lenders, compromising national sovereignty.
6. Inflation and Living Costs:
• Increased Prices: Rising debts and economic instability can lead to higher inflation and increased living costs for Nigerians. This affects everyday life, making essentials more expensive and increasing poverty levels.
7. Historical Precedents:
• Past Failures: Previous loans have not solved NNPC’s financial issues. Instead, they have created a cycle of borrowing without addressing the underlying problems of inefficiency, corruption, and mismanagement.

Conclusion

Taking on more oil-backed loans is not a sustainable solution for NNPC or Nigeria. It perpetuates financial dependency, risks economic stability, and undermines the country’s control over its natural resources. Instead, the focus should be on improving domestic oil production, reducing theft, and phasing out unsustainable fuel subsidies to create a self-reliant and robust economy.

Most painful is the end of the loan. They loot it and do unimpactful projects with the rest.

What's comes to your mind when you hear Loan in Nigeria