CBN regulates offshore funding for IOCs
By Sodiq Adelakun
The Central Bank of Nigeria (CBN) has issued new directives to International Oil Companies (IOCs) operating within the country, aimed at regulating the repatriation of export proceeds to their offshore accounts.
In a bid to maintain liquidity in the domestic foreign exchange market, the CBN has taken a step to control the ‘cash pooling’ activities of these oil giants. In a circular released on February 14, 2024, and signed by Hassan Mahmud, the Director of the Trade and Exchange Department, the CBN outlined the new funding requirements.
The circular highlighted the bank’s observation of the significant impact that the transfer of crude oil export proceeds offshore has on the domestic forex market.
The CBN has mandated that banks can now pool cash on behalf of IOCs but with a cap set at 50 percent of the repatriated export proceeds initially.
The remaining 50 percent can only be repatriated after a period of 90 days from the date of the inflow of the export proceeds.
The circular, entitled ‘Requirements for foreign currency cash pooling on behalf of International Oil Companies (IOCs) in Nigeria,’ specifies that the repatriation of funds under the ‘cash pooling’ transaction will require prior approval from the CBN.
Additionally, the ‘cash pooling’ agreements with the parent entities of the IOCs operating in Nigeria must be clearly defined and approved.
This move is part of the ongoing reforms in the foreign exchange market by the Nigerian apex bank, which aims to stabilise the market and ensure a more balanced economic environment.
The CBN’s directive is expected to have significant implications for the operations of IOCs in Nigeria, particularly in their financial management and planning strategies.
“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 percent of the repatriated export proceeds in the first instance.
“The balance 50 percent may be repatriated after 90 days from the date of inflow of export proceeds,” according to the circular.
