The worsening fiscal crisis facing the Nigerian government has turned the spotlight on the state-owned oil company, as new data has shown that the Nigerian National Petroleum Company Limited (NNPC) suffered a foreign exchange loss of 124 billion naira in two years.
In the past, Nigeria’s sprawling oil sector provided a steady source of foreign exchange earnings. There were big deals and the companies were making money, which meant that investors didn’t have to worry too much about currency devaluation. Not anymore.
Findings from BusinessDay showed that NNPC suffered a foreign exchange loss of 81.2 billion naira in 2021, compared to 42.8 billion naira in 2020.
“The foreign exchange loss occurred due to the conversion of foreign accounts payable transactions for domestic crude liftings during the year,” NNPC said. “The foreign exchange loss of the pre-export financing was transferred from the Nigerian Petroleum Development Company (NPDC) to the company.”
Etulan Adu, an oil and gas production engineer, said the instability of the naira against the dollar could lead to more losses for NNPC.
“The loss is due to exchange rate instability and an unstable economy prone to external shocks,” he said. “If our refineries were functional, there would be no need for these national crude lift licenses for foreign and local companies.”
With its transition to a commercial entity, other experts say there are growing fears that NNPC may face old problems as it seeks to raise capital from financial institutions to fund projects. projects and address financing gaps with joint ventures.
“The new NNPC Ltd is tied to old misfortunes; investors who are expected to bring in foreign exchange income are looking to countries with a clearer business environment,” said Kelvin Atafiri, who runs Cavazanni Human Capital Limited, an investment firm with exposure to the oil and gas sector.
Foreign investment in Nigeria’s oil and gas sector fell 82% to a new low of $1.93 million in the second quarter of 2022, according to data from the National Bureau of Statistics.
BusinessDay’s findings also showed that NNPC failed to make payments to the federation’s account for the seventh month in a row thanks to huge subsidy payments.
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“Upstream oil and gas companies are denominated in dollars due to their huge capital expenditures and large intraday cash flows. Nigeria’s currency crises will always impact all stakeholders in the energy sector,” Atafiri said.
Nigeria’s currency risks are well documented and hardly new. In 2016, several investors were fired due to a shortage of dollars which saw the naira lose more than a third of its value after the dust settled.
This time however is unique. Oil revenues have fallen despite high oil prices as Nigeria misses out on gains enjoyed by other oil peers as it exports below capacity due to oil theft and falling investment.
The impact was telling on the naira, which fell to an all-time low on the parallel market, trading at 760 naira to the dollar on October 26, around 70% below the less accessible official rate of 434. .78 naira for one dollar. That left the gap between the two rates at its highest since 2016.
Weak economic growth also leaves little cause for celebration. Although the country’s growth rate exceeded 3% this year after six consecutive years of economic growth lagging behind population growth, there are signs of an economy still reeling from the impact of two recessions.