CBN Imposes Limits On International Oil Companies’ Outward Transfer Of Forex Proceeds

The Central Bank of Nigeria (CBN) has enacted a significant policy shift, directly impacting the operations of International Oil Companies (IOCs) within the nation. This change, detailed in a directive issued by Hassan Mahmud, the Director of Trade and Exchange at the apex bank, marks a departure from previous practices concerning the remittance of foreign exchange (forex) proceeds by IOCs to their parent companies abroad.

Under the new regulation, IOCs are now mandated to remit only 50% of their forex proceeds immediately, with the remaining 50% subject to a holding period. This holding period extends to 90 days from the date of the inflow of the export proceeds, before which the funds cannot be repatriated. Such measures form part of the broader reforms initiated by the CBN, aimed at augmenting liquidity within the domestic forex market.

Furthermore, alongside the repatriation cap, the CBN has introduced stringent guidelines pertaining to “cash polling” by IOCs. These guidelines necessitate prior approval from the CBN for the repatriation of funds under this framework. Additionally, parent entities of IOCs are required to establish agreements with the CBN before engaging in “cash polling,” with IOCs obligated to furnish a comprehensive statement detailing their expenditures leading up to the cash pooling.

The rationale behind the CBN’s action stems from concerns regarding the adverse effects of full repatriation of export proceeds on domestic forex market liquidity. The practice of transferring crude oil export proceeds offshore to fund parent accounts of IOCs, commonly referred to as “cash polling,” was identified as a contributing factor to this concern.

While the policy seeks to fortify the forex market, it also presents potential hurdles for IOCs akin to those encountered by entities in the manufacturing and aviation sectors, which have experienced delays in forex forward payments. Notably, the Governor of the CBN acknowledged in a recent interview the clearance of approximately $2.3 billion out of the estimated $7 billion owed to various entities. However, these clearance actions were deemed belated by some, as prominent multinationals had already exited Nigeria, citing challenges in operating as USD-dominated entities among their reasons for departure.

In line with its commitment to enforce the new regulations, the CBN has instructed all banks to inform their clientele and ensure compliance with the stipulated guidelines. This policy overhaul reflects the CBN’s persistent endeavors to steer the economy and stabilize the forex market, notwithstanding the potential ramifications for international oil companies and the broader business landscape in Nigeria.

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