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Financial Times: Abuja eyes banks for oil deal funds

By Matthew Green in Abuja and Dino Mahtani in London
Published: November 8 2007 02:00 | Last updated: November 8 2007 02:00

Nigeria will tackle a chronic lack of funding for its joint ventures with oil companies by raising billions of dollars a year from the country’s fast-growing banks.

The plan, revealed to the Financial Times, forms part of an energy sector review by Umaru Yar’Adua, the president,at a time when oil prices are at record highs.

The latest proposals aim to end wrangling between the government, Shell, ExxonMobil, Chevron, Total and other oil companies over funding for joint ventures undertaken since the 1970s. The projects account for about 80 per cent of production in Africa’s biggest crude oil exporter.

Companies complain that the government routinely fails to pay its share of investment costs for Nigeria’s five main joint ventures, leading to delays and lost production. The -government says it sees the companies’ annual call for investment as a drain on resources and wants to divert the money to areas such as health and education.

Odein Ajumogobia, minister of state for oil, yesterday said that the government had started talks with Nigerian banks about raising loans to finance the joint ventures, initially to help meet next year’s needs.

“There’s a trend that we’ve never been able to quite meet our cash obligations and the gap is widening. That’s the reality that has brought us to the point where we’re looking at -alternative funding options,” Mr Ajumogobia said in an interview.

“Fortunately, this is -coming at a time when there’s been a successful reform of the local banking industry, so banks have the capacity now to support the oil industry.”

Mr Ajumogobia said he hoped to raise $4.3bn (€2.9bn, £2bn) from banks next year to add to the $4.5bn the government has budgeted for joint ventures in 2008.

Ultimately, the state wants to reduce its share of joint venture financing to zero but Mr Ajumogobia declined to give a timeframe.

A lack of funding for the ventures is a serious problem for Nigeria’s oil industry, where attacks by militants have shut a fifth of production since early 2006. Resolving these issues could help the government achieve its aim to double production – at present about 2.2m barrels a day – by 2010.

Nigerian officials said they wanted to increase their take from the industry given record oil prices but Mr -Ajumogobia said energy companies were willing to consider changing the financing arrangements for joint ventures, which are mainly onshore or in -shallow water in the Niger Delta.

“I think they recognise there is a mutual benefit in having a sustained, sustainable funding regime for this, and the existing funding regime is simply not working,” he said.

Nigeria’s banks have historically been too small to raise the amounts of money needed for vast oil and gas projects but many have grown exponentially in the past few years after the -government launched a consolidation exercise.

Some of Nigeria’s biggest banks, including United Bank for Africa and First Bank, are now vying to form partnerships with international lenders to raise joint venture funding. UBA in September signed a deal with China Development Bank to help it find opportunities to fund Nigerian energy projects .

“We’re solving the problem of the oil industry by harnessing the new financial muscle of the banking sector,” a senior manager at one Nigerian bank said.

Analysts warned that the reform could take several years. Changes in the law would also be required.

Financing woes

Images of machinegun- toting militants in speedboats have come to symbolise the woes of oil majors in Nigeria, but problems financing joint ventures with the government have also been a headache.

Typically, the state owns 60 per cent of each joint venture for oil exploration, with partners including Shell, ExxonMobil, Chevron, Total and Agip.

The idea is that the companies and government share the costs through an annual fundraising exercise known as the “cash call”, then split the profits.

In practice, the state-run Nigerian National Petroleum Corporation rarely provides what the companies want. Now Nigeria wants to allow each joint venture to approach the capital markets as a separate entity to raise funds on the basis of its assets and production prospects.

The government would retain its stake but the funding needs would, in theory, be met by local and foreign investors.

Copyright The Financial Times Limited 2007 and its also non-profit sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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