International oil companies who operate in Nigeria are no longer allowed to send 100% of their foreign exchange earnings to their parent business right away, according to a directive from the Central Bank of Nigeria.
According to Nairametrics, this was revealed in a circular signed by the Director of Trade and Exchange at the apex bank, Hassan Mahmud, which said that the “cash polling practice affects the liquidity of the local foreign exchange market.”
The new standards state that IOCs can only repatriate half of their revenues right away, the remaining half must be returned to the source within ninety days after the day of intake.
According to the CBN, as a result of the continuous reforms being implemented in the foreign exchange market, action must now be taken to reverse this pattern. As a result, the CBN now 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 50% may be repatriated after 90 days from the date of inflow of export proceeds.”
Additionally, the apex bank established guidelines that will regulate “cash pooling” by IOCs going forward. They include approval from the CBN before repatriation of funds under the cash pooling framework, parent entity of IOCs will have to reach an agreement with the CBN before “cash pooling.”
Additionally, the bank demanded that IOCs provide a record detailing all of the expenses they had incurred before the cash polling.
All banks were required by the CBN to notify their clients and abide by the rule.
The CBN has recently implemented changes aimed at boosting market liquidity for foreign exchange.
Although this new policy may accomplish its goals, it runs the risk of placing IOCs in the same situation as manufacturers and aircraft operators who deal with billions of dollars’ worth of missed FX forward payments.
The Governor clarified in his most recent interview that the bank had effectively paid off roughly $2.3 billion of the projected $7 billion in debt.
The CBN’s clearance comes a little later than expected since a few major multinational corporations have left the country, citing among other things the challenge of conducting business as a USD-dominated organization.
