By Godswill Odiong
The Central Bank of Nigeria (CBN) has introduced new directives aimed at regulating the practice of foreign currency cash pooling by International Oil Companies (IOCs) operating within the country. Concerns over the impact of repatriated export proceeds on domestic foreign exchange liquidity prompted the CBN to enforce measures ensuring easier access for IOCs while minimizing adverse effects on the Nigerian forex market.
In a directive, Dr. Hassan Mahmud, CBN’s Director Trade and Exchange Department, stated, “The Central Bank of Nigeria has 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, otherwise referred to as ‘cash pooling’. This has an impact on liquidity in the domestic foreign exchange market.”
He further elaborated, “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.”
The directives issued by the CBN include allowing banks to pool cash on behalf of IOCs, subject to a maximum of 50% of the repatriated export proceeds initially. Mahmud emphasized, “The balance of 50% may be repatriated after 90 days from the date of inflow of the export proceeds.”
To ensure compliance and transparency, Mahmud outlined the documentation requirements, stating, “Prior approval of the CBN for the repatriation of funds under the ‘Cash Pooling’ transaction, ‘Cash Pooling’ agreement with the parent entity of the IOCs operating in Nigeria, statement of expenditure incurred by the IOC in the immediate past period relating to the ‘Cash Pooling’, evidence of the source of foreign exchange inflows, and completion of relevant Forex Form(s) as required under extant regulations.”
He reiterated the CBN’s commitment to promoting transparency in the Nigerian foreign exchange market and ensuring its stability. “All banks are required to comply with this circular and inform their customers accordingly,” Mahmud emphasized.
The implementation of these regulations signifies a proactive approach by the CBN to balance the needs of IOCs for easy access to their export proceeds with the imperative of maintaining liquidity in the domestic foreign exchange market. By establishing clear guidelines and documentation requirements, the CBN aims to foster greater accountability and oversight in foreign currency cash pooling transactions involving IOCs operating in Nigeria.
