By Uche Uwaleke

The decision of the National Economic Council (NEC) to approve the refinancing of the US$3.3 billion Project Gazelle Pre-Export Finance Facility through a new US$4.5 billion facility, christened Project Gazelle 2, marks an important development in Nigeria’s public finance management.

If properly implemented, the restructuring has the potential to reduce financing costs, improve liquidity, strengthen the country’s external reserves and create additional fiscal space for government priorities. These are commendable objectives.

However, while the improved financial terms deserve recognition, they should not overshadow the equally important issues of transparency, accountability and legislative oversight that have trailed Project Gazelle since its inception.

Refinancing an opaque arrangement on better commercial terms is certainly an improvement, but it is not a substitute for full public disclosure. A better deal must also be a more transparent deal.

To appreciate the significance of the recent decision, it is necessary to understand what Project Gazelle represents.

Project Gazelle is a crude oil pre-export finance facility originally arranged by the Nigerian National Petroleum Company Limited (NNPCL) in 2022 and concluded in 2023. Under the arrangement, NNPCL secured a US$3.3 billion loan from Afreximbank backed by future crude oil production. To repay the facility, Nigeria committed 90,000 barrels of crude oil per day between 2024 and 2029, amounting to 164.25 million barrels over the repayment period.

The loan reportedly carried an annual interest rate of about 11.85 percent and was collateralized by future crude oil sales.

From the outset, the transaction generated widespread concerns not least because of the structure of the transaction itself.

One of the major issues was the limited public disclosure surrounding the agreement. Important details regarding the loan documentation, repayment structure, crude oil collateral arrangements, revenue flows and the precise obligations assumed by the country were not readily available for public scrutiny.

The involvement of an offshore Special Purpose Vehicle (SPV), Project Gazelle Funding Limited, reportedly incorporated in the Bahamas, further heightened concerns regarding transparency, accountability and the possibility of revenue leakages.

These concerns were reinforced by the Central Bank of Nigeria’s Q4 2023 Economic Report, which indicated that NNPCL’s remittances to the Federation Account had declined significantly due to prior financial obligations, including crude-backed financing arrangements.

Since revenues accruing to the Federation Account belong to the Federal Government, the thirty-six states and the 774 local governments, any financing arrangement that directly affects those inflows inevitably raises important constitutional and fiscal questions.

Against this backdrop, the recent announcement by the Federal Government that the refinancing has been negotiated on considerably more favourable terms represents a significant improvement.

According to the FG, the volume of pledged crude oil has been reduced from 90,000 barrels per day to 78,750 barrels per day- a reduction of 12.5 percent. Consequently, an additional 11,250 barrels per day will now be available to the Federation, thereby improving future revenue inflows while still providing access to an additional US$3 billion in liquidity.

This is a sensible and pragmatic outcome. Reducing the amount of future crude production tied up as collateral while simultaneously lowering financing costs reflects stronger financial negotiation.

It demonstrates that the present administration recognizes the importance of balancing immediate financing needs with the long-term protection of Nigeria’s oil revenues.
Nevertheless, better pricing alone cannot resolve the fundamental governance issues associated with crude-backed borrowing.

The first and perhaps most urgent requirement is complete transparency. Nigerians deserve to know the full details of Project Gazelle 2. The FG should publish the principal terms of the refinancing arrangement, including the loan agreements, crude oil collateral schedules, repayment timelines, interest obligations, security arrangements, revenue flow mechanisms and the identities of all entities involved in the transaction.

Transparency strengthens public confidence, improves investor credibility and reduces unnecessary speculation.

Secondly, the FG should commission an independent forensic audit of Project Gazelle and all other crude-backed financing arrangements entered into over the years. Such an audit should determine the actual proceeds received, the utilization of the funds, the outstanding obligations, compliance with contractual terms and the overall fiscal impact on the Federation Account.

Independent verification would provide clarity and help establish stronger standards for future resource-backed financing.

Thirdly, NNPCL should institute regular monthly public reporting on the utilization of proceeds and the current repayment status of all crude-backed loans. Such reporting should disclose the volume of crude delivered, outstanding balances, repayments made and the impact on Federation Account inflows. Continuous disclosure is essential for accountability and prudent fiscal management.

Equally important is the constitutional role of the National Assembly. It goes without saying that any borrowing arrangement that commits future national oil production and materially affects revenues accruing to the Federation Account should be subjected to legislative scrutiny and approval.

The National Assembly must have the opportunity to examine the repayment obligations, evaluate the fiscal implications for all three tiers of government and ensure that the transaction represents value for money.

Such oversight is not an unnecessary bureaucratic hurdle; it is an essential safeguard against excessive encumbrance of national assets and future public revenues.

Finally, Nigeria must address the underlying challenge that makes crude-backed borrowing a recurring financing option in the first place notably inadequate crude oil production.

The country’s oil reserves are substantial. Nigeria possesses about 37 billion barrels of proven crude oil reserves compared to the United States’ estimated 50 billion barrels.

Yet while the United States currently produces about 13 million barrels per day, Nigeria’s production has hovered around 1.5 million barrels per day, often below its OPEC allocation. In effect, Nigeria possesses roughly three-quarters of America’s proven reserves but produces only about one-eighth of America’s daily output.

This striking disparity underscores the urgent need to increase crude oil production. Tackling oil theft, securing critical infrastructure, attracting fresh upstream investment, streamlining regulatory processes and improving operational efficiency should remain national priorities.

It is a no-brainer that higher production would generate additional revenues, reduce pressure to rely on crude-backed borrowing and strengthen the country’s overall fiscal resilience.

Undoubtedly, Project Gazelle 2 represents an improvement over its predecessor. Lower pledged crude volumes, improved financing terms and additional liquidity constitute meaningful gains for the Nigerian economy. These achievements deserve recognition.

However, the true measure of success will not be the size of the facility or the attractiveness of its commercial terms alone.

It will depend on whether the Government seizes this opportunity to institutionalize transparency, strengthen legislative oversight, improve public accountability and ensure that Nigeria’s petroleum resources are managed openly and prudently for the benefit of all citizens.

All said, a better deal should also be a more transparent deal. Only then can Project Gazelle 2 become not merely a refinancing exercise, but a defining example of responsible and accountable resource-backed financing in Nigeria.

Prof Uche Uwaleke, a Financial Economist, is the Director of the Institute of Capital Market Studies at the Nasarawa State University Keffi and President of the Capital Market Academics of Nigeria