Nigeria’s Push To Attract Investments May Be Frustrated By CBN’s Cash Repatriation Restriction- Analyst

Regulatory authorities in the Nigerian oil and gas sector have up their games in scouting for new investors in the country’s oil-rich economy but the Central Bank of Nigeria’s cash pool policies for International Oil Companies may be counterproductive for the country, according to the Partner and Senior Economist at SPM Professional.

The CBN obstructed the oil and gas industry in a circular dated February 14, 2024, when it directed banks to pool cash on behalf of IOC subject to a maximum of 50 per cent of export proceeds while the balance may be repatriated after 90 days from the date of inflow.

To further clarify, the CBN released another circular dated May 31, 2024 that the 50 per cent balance of the repatriated export proceeds may be sold to authorised users of foreign exchange where the IOC does not have any financial obligation to settle with the fund during the 90 days.

The new CBN rule came when the Nigerian government began hunting for investors that will take up its 12 new oil blocks and seven old blocks.

On March 6, 2024, the presidency announced the signing of three executive orders by President Bola Ahmed Tinibu to improve the investment climate and position Nigeria as the preferred investment destination for the oil & gas sector in Africa.

In this spirit of ‘free entry, free exit’ the Nigerian Upstream Petroleum Regulatory Commission, has set up some regulations to open up the sector including the ease of divestment of assets of divesting IOCs as allowed by the Petroleum Industry Act (PIA) 2021.

The Commission’s Chief Executive, Gbenga Komolafe said in a recent meeting with stakeholders that, “Divestment is a free decision that an investor will take and for us, we believe in the principle, the doctrine of free entry and free exit.

“We should not do anything that will stifle investment because that will not be in the interest of the Nigerian state. In our regulatory activities, we believe that there should be the principle of free entry and free exit. It is purely within the right of an investor to choose to divest. It is about the ordering of the portfolio.”

Experts believe that ease of divestment and removing some other regulatory bottlenecks would open up the industry.

However, some of them are doubtful that the cash pool policy of the central bank may hurt oil and gas investment in Nigeria.

Alaje told THE WHISTLER that “It may serve as a disincentive to IOCs who want to invest and repatriate their funds with ease. That may be the immediate impact. This is with regards to the oil and gas sector and potential organisations that may want to invest in that sector, especially foreigners.

“If the investor is an indigenous player, the investor will not be impacted because they are expected to have their funds within the country but for those who are not Nigerians and are bringing in their funds when they see bottlenecks to the ease with which they can repatriate their funds, it certainly may serve as a disincentive to investment.

“That is, it may serve as a discouragement to those who want to invest in Nigeria. If people invest, certainly, someday, they will want to repatriate their funds out of the country.”

The Minister of State Petroleum (Oil), Heineken Lokpobiri last month at the sideline of the Offshore Technology Conference (OTC) in Houston, Texas USA revealed that the ministry is engaging the CBN to relax the policy.

Alaje added, “But also understand what the central bank is doing. When such funds are repatriated, it means that the demand side for our foreign reserves will shoot up. That means, there may be some shortage of foreign currency that may have a direct impact on what the exchange rate will be.

“For some time, we have been faced with a lot of fluctuations and imbalances in the foreign exchange market. So, it is a way to delay the rate of foreign exchange is leaving the country. It can be spread over time so that the impact of repatriation on the foreign reserves will not be felt so much.”

The Managing Director of Omiti Engineering Limited, Engr. Ndduka Nwosu, is of the view that the CBN policy on cash pooling of repatriated oil and gas export proceeds by the IOCs would improve the forex liquidity.

Nwosu whose company is an indigenous oil & gas services company said, “From my point of view, this would positively give an investor better visibility on their cash flow plan to enable them make firm financial investment decision as this would as well ensure better Liquidity risk management hence the foreign investment in the Oil and Gas would not be negatively affected.”

According to him, IOCs operating in a region would want to operate in a stable economic environment.

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