Nigerian National Petroleum Corporation’s (NNPC’s ) debt overhang in cash calls to multinational and indigenous oil companies it operates Joint Venture (JV) project with, has reached about $7billion, it was learnt at the weekend.
Cash calls is the counterpart funding the NNPC pays yearly for the 60 per cent equity shareholding it owns in various oil and gas fields operated by International Oil Companies (IOCs) and indigenous oil firms (independents).
The Corporation has over the years been battling to clear the cash call arrears, which have been revolving around $5 billion. The Federal Government is determined to settle the arrears to the operators of the various JVs the Minister of State for Petroleum Resources and NNPC Group Managing Director, Dr Ibe Kachikwu, has said.
However, it is feared that the prevailing low oil price regime, which has reduced the nation’s revenue from oil, may prevent the government from accomplishing its desire to settle the $7billion debt .
It was learnt that as at January this year, NNPC owed the IOCs cash call arrears of $5.5 billion, while their indigenous counterparts are being owed $1.1 billion, and an estimated $400 million that would have accrued between January and now.
The Federal Government said it is considering the adoption of zero funding model for the JV operations from next year to halt the growth of the cash call arrears but there are still concerns about the model.
The zero JV funding seeks to empower the operators not to wait for the NNPC counterpart funding before going on with operations and projects implementation. Therefore, the operators will source funds and go ahead with projects’ implementations, while the NNPC’s bureaucratic processes of approval including endorsement by the National Assembly continue. The operators of the JVs will deduct costs at the end and remit what is due to NNPC at the end of the deal.
An industry source told The Nation that the zero funding model being contemplated by the state-run oil firm will cost it more as the operators will source funding from banks, and interests paid on such loans secured by the oil firms will be factored into the cost of production.
The source said if the government lacks capacity to pay its cash calls, let it choose from some alternative options including divesting some of its equity holdings to indigenous firms, adopt crude for cash calls or privatise the NNPC. According to the source, NNPC has only been able to meet only 30 per cent of the 60 per cent cash call it is supposed to pay. “As long as the funding issues exist, production will adversely be impacted,” the source said, warning that JV oil production has since dropped to one million barrels per day (bpd) as against about 2.5 million bpd in the past due to JV budget delay.