Nigeria has raised the prospect of selling equity in its joint ventures, as part of its 2018 budget. The proposal is intended to raise 710 billion naira (US$1.99 billion), the country’s Debt Management Office (DMO) said in a statement on November 9.
The agency said the plan, which it described as “restructuring of the government’s equity”, was intended to increase private sector participation. This, it continued, would “improve efficiencies in the sector and also provides revenue to the government which will be deployed solely and exclusively for creating new assets in Nigeria”.
Nigerian National Petroleum Corp. (NNPC) works through joint ventures with foreign majors. NNPC has 60% stakes in them, apart from the arrangement with Royal Dutch Shell, where it has a 55% stake. The joint ventures tend to be onshore and shallow-water concessions.
The state has struggled to finance its share of spending in the joint ventures and has been forced to find new ways in which to pay its way. In 2015, for instance, NNPC struck a deal with Chevron securing a US$1.2 billion financing package from a number of local and international lenders.
A deal was reached in 2016, with NNPC committing to paying off its arrears and attempting to put the joint ventures on a more sustainable basis. Despite the commitment, payments have taken a long time coming. The agreement said that the cost of operations would be taken from the revenues before they were transmitted to the federal account.
The DMO statement came in response to Moody’s Ratings agency, which downgraded the West African state to B2 stable, from B1 stable. The agency said it strongly disagreed with the rationale behind the decision.
Moody’s picked out two reasons for its decision to downgrade. Nigeria’s efforts to broaden the non-oil revenue base had been “largely unsuccessful”, it said, and as a result, the balance sheet has been exposed to further economic or financial shocks. In particular, it noted high interest payments relative to revenues. Moody’s decision could make future bonds even more expensive for Nigeria.
Nigeria’s 2018 budget sets the oil price benchmark at US$45 and production at 2.3 million bpd. While the price seems conservative, the output seems optimistic, given it is currently around 1.86 million bpd, according to OPEC. There may be some wriggle room, though, given the addition of condensate volumes to this accounting.