International oil companies (IOCs) 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 (CBN).
This was revealed in a circular signed by Hassan Mahmud, the Director of Trade and Exchange at the apex bank, 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.
“The Central Bank 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 polling). 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;
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“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.”
Furthermore, the apex bank introduced rules that will guide “cash polling” by IOCs going forward. They include approval from the CBN before repatriation of funds under the cash polling framework, parent entity of IOCs will have to reach an agreement with the CBN before “cash polling.”
The bank also required IOCs to submit statement of expenditure incurred in the period prior to the cash polling. Others are- “evidence of the source of foreign exchange inflow.”
“Completion of relevant forex form(s) as required under extant regulations.”
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The CBN mandated all banks to inform their customers and comply with the regulation.
In recent times, the CBN has introduced reforms meant to increase liquidity in the foreign exchange market.
While this new policy might achieve its objectives, it risks throwing IOCs into the same pit operators in the manufacturing and aviation industry face with billions of delayed forex forward payments.
In the last interview by the Governor, he explained that the bank has successfully cleared about $2.3 billion of the estimated $7 billion owed.
The CBN’s action of clearance comes lates as some notable multinationals have exited the country citing difficulty in operating as a USD dominated entity as one of the reasons for their exit.
