Nigeria to shore up foreign reserves with $15bn India oil deal

Nigeria may just be on the verge of overcoming its economic recession, which has been occasioned by a scarcity of dollars, due to dwindling oil revenues and a diminished foreign reserve.

According to the Minister of State for Petroleum, Dr. Ibe Kachikwu, the federal government is seeking to sign a cash-raising oil deal with India for $15 billion which will help shore up Nigeria’s foreign reserve.

By terms of the deal, the Indian Government is expected to make upfront payment in that amount for crude purchase to Nigeria, which is to be repaid on the basis of firm Term Crude Contracts over a number of years.

This is even as Nigeria’s crude oil output which has been adversely affected by militants’ actions in the Niger Delta area is also expected to rise by 22 per cent to 2.2 million barrels per day in the same period when oil companies lift the force majeure on fields that were shut down.

A statement by the ministry’s Director of Press, Idang Alibi, said negotiations will include consideration for Indian public sector companies collaborating in refining as well as exploration and production on a Government-to-Government basis by Indian PSU Companies.

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There is also to be long term contracts for supply of crude to Indian PSU companies from Nigeria and possibilities of executing CGD and LPG infrastructure projects by Indian PSU companies in Nigeria.

The minister who is on a three-day visit to India, also concluded talks on investments in Nigeria’s oil and gas sector in a bilateral meeting with his Indian counterpart in charge of Petroleum and Natural Gas, Shri Dharmendra Pradhan.

Speaking on the deal, Kachikwu noted, that “Nigeria has a bit of a cash flow problem right now. Our reserves are not as strong as we want them.

“The impact of that is the value of the naira (currency) is coming down. So what we are trying is to leverage on the assets we have to receive immediate cash,” Kachikwu added.

Nigeria’s external cash reserves hit an all-time low of $24.21bn in October from $25.8bn in September 2016, according to the Central Bank of Nigeria (CBN).

The reserves had its worst fall within two weeks ending Friday October 16 2016, shedding more than $600 million within the period, making the country to lose a total of $1bn in four weeks, and described by analysts as unprecedented in the country’s history.

According to the latest data from CBN, “The reserves fell from $25.8bn on August 16 to $24.8bn on September 16, and decreased by $600m from the $25.4bn recorded on August 31 to $24.8bn on September 16.”

The development means a limited amount of dollars will be available at the official interbank market, fuelling concerns over another round of depreciation of the naira.

Kachikwu, who said oil prices would rise from current levels by December, also discussed expanding energy ties between the two countries with the Indian oil minister.

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While details of the deal are yet to be made public, both countries have agreed to work on a memorandum of understanding (MoU) to be firmed up in December during the upcoming PETROTECH-2016, to facilitate investments by India in the Nigerian oil and gas sector and specifically in areas such as the term contract, participation of Indian companies in the refining sector, oil and gas marketing, upstream ventures, the development of gas infrastructure, and in the training of oil and gas personnel in Nigeria.

In the last fiscal year ended March 31, Nigeria accounted for nearly 12 per cent of all crude oil imports by India, one of the fastest growing economies and energy markets in the world.

In 2014, India took over from the United States as the largest importer of Nigerian oil, according to statistics by the Nigerian National Petroleum Corporation (NNPC).

“We agreed on significant potential for diversifying (India’s) engagement in E&P (exploration and production), refinery building and marketing in Nigeria,” Pradhan said in a tweet.

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