The federal government’s plan to obtain 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 citing four sources said the recent drop in crude oil price has raised concerns among banks that were expected to back the deal.
Nigeria has in the past obtained 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 stated 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.
Nigeria has years of experience taking out and repaying oil-backed loans, which the government uses for budget support, shoring up foreign reserves or to revamp state-owned refineries.
At $5 billion, the Aramco loan would be backed by at least 100,000 barrels of oil per day, the sources said.
However, it would almost double the roughly $7 billion of oil-backed loans taken in the last five years.
Nigeria is using at least 300,000 barrels per day (bpd) to repay NNPC’s other oil-backed loans, although one facility is expected to be paid off this month.
The amount of oil going towards repaying existing oil-backed loans is fixed, but when the crude price falls, it takes longer to repay them.
Additionally, lower prices mean the NNPC has to funnel more crude oil to joint-venture partners, from international majors like Shell to local producers like Oando or Seplat, for its portion of operation costs.
“You have to either find more oil, or find a way to renegotiate those deals,” another source said.
Nigerian trading firm Oando is expected to manage the offtake of the physical cargoes, the sources said.
Oanda did not comment.
NNPC is trying to boost output, while Tinubu issued an executive order aimed at cutting production costs, which would free more money from each barrel.
The federal government in its 2025 budget assumed a price of $75 per barrel with production of two million bpd, a target described by the World Bank as overambitious.
In April, it pumped just over 1.6 million bpd, according to an oil production report by the Nigerian Upstream Petroleum Regulatory Commission, NUPRC.
