Nigeria and Saudi Arabia are struggling to reach an agreement on a record $5 billion crude oil-backed loan, Reuters is reporting.
According to four sources which spoke with the publication, there were concerns among banks which would finance the deal due to recent decline in crude prices, which is trading around $67 per barrel.
At $5 billion, the Aramco loan would be backed by at least 100,000 barrels per day of oil, the sources said.
The facility would be Nigeria’s largest oil-backed loan to date and Saudi Arabia’s first participation of this scale in the country.
The decline in oil price could shrink the size of the deal, the sources said.
According to two of the sources, President Bola Tinubu broached the loan when he met with Saudi Crown Prince Mohammed bin Salman in Riyadh at the Saudi-African Summit in November 2023.
However, this is the first time that such conversation have been made public as the federal government didn’t announce any plans to the public.
According to Reuters, the slow progress in discussions reflects the strain of the recent oil price drop, caused largely by a shift in policy by the Organisation of the Petroleum Exporting Countries and allies, OPEC+ to regain market share rather than curtail supply.
The banks involved in the talks that are expected to co-fund part of the loan with Aramco, the state oil company of Saudi Arabia, have expressed concerns about oil delivery, which has slowed discussions.
It is believed that Gulf banks and at least one African lender are involved.
“It’s hard to find anyone to underwrite it,” one source said, citing concerns over the availability of the cargoes.
The report claimed that Nigeria is using at least 300,000 barrels per day to repay NNPC’s other oil-backed loans, adding that if the Saudi deal is reached, it would almost double the roughly $7 billion of loans taken in the last five years.
The amount of oil going towards repaying the loans is fixed, but when the crude price falls, it takes longer to repay them.
So when prices are lower, the Nigerian National Petroleum Company (NNPC) Limited has to funnel more crude oil to joint-venture partners like to Shell, Oando, and Seplat for its portion of operation costs.
Nigeria is having difficulties increasing its crude production to its set target of 2.5 million barrels per day and with prices lower than $70 per barrel at the international market, the country is finding it difficult to make enough revenue.