Central bank restricts company transfers of oil export revenues abroad

The Central Bank of Nigeria (CBN) has decided to control the migration of export proceeds by international oil companies (IOCs) to their parent accounts offshore, saying the practice harms the liquidity of the domestic foreign exchange market.

“While the CBN strongly supports the need for IOCs to have easy access to their export proceeds, particularly to meet their offshore obligations, this must be done with minimal negative impact on liquidity in the Nigerian foreign exchange market”, it said in a circular issued to dealer banks about the practice known as cash pooling.

The central bank said cash pooling harms the liquidity of the domestic forex market.

“In line with the ongoing reforms in the foreign exchange market, it has become necessary to take measures to address this trend”, the national bank said referring to its campaign to liberalize the West African country’s forex market.

Now, Nigerian banks are only allowed to pool cash worth up to 50 per cent of repatriated proceeds in the first instance. “The balance of 50 per cent may be repatriated after 90 days from the date of inflow of the export proceeds”, read the circular accessible on the CBN website.

Dealer banks need to have a cash pooling agreement with the parent company of an oil operator before such a transaction, as well as obtain prior approval of the CBN for fund repatriation, according to the circular.

IOCs are allowed to obtain currency abroad to exchange in Nigeria to meet their local expenses, according to credit guidelines on the bank’s website. On October 12 the CBN lifted a 2015 ban on the importers of 43 items to buy foreign currency in Nigeria.

In its latest assessment published November 3 Fitch Ratings said foreign currency shortages continued “to weigh on economic activity and further FX liberalization, and deter foreign capital”.

Reuters reported October 9 citing Nigerian National Petroleum Co. Ltd. (NNPC) chief executive Mele Kyari that the national oil and gas company has again become the only importer of petrol because private firms could not obtain foreign currency. In June Kyari told the news organization NNPC has started paying cash for gasoline imports in lieu of crude swap contracts.

NNPC had been repaying gasoline imported from consortiums of foreign and local trading firms through crude oil under direct contracts since 2016 because the company did not have enough cash to pay for petroleum imports, Reuters said June 4 citing “data and trading sources”.

On January 18 the CBN said it had paid $2 billion in foreign exchange liabilities across various sectors including petroleum, aviation and manufacturing.

“The Bank has also cleared up the entire liability of 14 banks and started settlements with foreign airlines”, it said in a statement on social media platform X, formerly Twitter.

CBN acting director for corporate communications Hakama Sidi Ali said in the post the CBN would continue to settle foreign exchange backlogs as it has done over the last three months.

Earlier this month the CBN announced it has removed caps on the spread—or the pricing difference between buyer and seller rates—of interbank foreign exchange transactions, as well as restrictions on the sale of interbank proceeds. “A key objective of the ongoing foreign exchange market reforms by the Central Bank of Nigeria is to promote a market-based price discovery system”, it said in a circular to banks February 8.

On January 31 the CBN told banks it has removed limits on rate quotations by international money transfer operators.