In this article we be talking about how CBN stops international oil companies from remitting 100% of forex proceeds abroad.
In other to stabilizing the naira, the Central Bank of Nigeria (CBN) has announced a new policy restricting international oil companies (IOCs) from repatriating 100 percent of their foreign exchange proceeds abroad immediately. This decision comes amidst ongoing pressure on the naira, which has seen its value fluctuate against major currencies in recent weeks. The Bank’s governor Cardoso argued that the foreign exchange market was facing increased demand pressures, causing a continuous decline in the value of the naira.
Read on: Trademark Registration For Lubricant and Fuel (Oil and Gas Products)
According to him, factors contributing to this situation include speculative forex demand, inadequate forex due to low remittance of crude oil earnings to the CBN, increased capital outflows, and excess liquidity from fiscal activities. To address exchange rate volatility, he said a comprehensive strategy had been initiated to enhance liquidity in the forex market.
The policy, which takes effect immediately, limits IOCs to repatriate only 50 percent of their proceeds immediately while the other 50 percent will be repatriated 90 days from the day of inflow. The Director of Trade and Exchange Department at the apex bank, Hassan Mahmud, made this known in a circular dated February 14, 2024. The CBN said it observed that proceeds of crude oil exports by International Oil Companies (IOCs) operating in Nigeria are transferred offshore to fund parent accounts of the IOCs in a phenomenon described as “cash pooling”. This has an impact on liquidity in the domestic foreign exchange market.
“In line with the ongoing reforms in the foreign exchange market, it has become necessary to take measures to address this trend. Consequently, the CBN hereby directs as follows; Banks are allowed to pool cash on behalf of IOCs, subject to a maximum of 50% of the repatriated export proceeds in the first instance. The Balance of 50% may be repatriated after 90 days from the date of inflow of export proceeds.” The central bank also required IOCs to submit statements of expenditure incurred in the period before the cash polling. Other requirements include “evidence of the source of foreign exchange inflow and completion of relevant forex form(s) as required under extant regulations.
Read on: Petrol landing cost hits N1,000/litre on FX crisis
The new policy has drawn mixed reactions from stakeholders. While some industry experts commend the CBN’s efforts to manage the foreign exchange market, others express concerns about the potential impact on investor confidence and the overall business environment in the oil and gas sector. “So, at face value, it’s a 90-day delay in part repatriation. If what is written is all there is to it, it’s just a waste of time by the CBN and the oil companies shouldn’t panic,” a senior executive in the oil sector said.
He added: “The benefit will only accrue for the first 90 days (slow foreign currency outflow) but after that it’s useless. The real issue is that this is how bad habits start. When they try this, and it works momentarily or doesn’t work, who knows what else they’ll do? They are essentially implementing capital control measures and can’t predict where it will stop. It’s a worrying sign.” Calculates an estimate of $1.5 billion to $2 billion per month could be retained locally as a result of this decision by the apex bank.