The Central Bank of Nigeria (CBN) has implemented new regulations prohibiting international oil companies (IOCs) operating in Nigeria from immediately transferring 100% of their foreign exchange earnings to their parent companies abroad. This decision comes as the Naira continues to decline against the US dollar in the foreign exchange market.
In a policy circular titled ‘Requirements for Foreign Currency on Behalf of International Oil Companies (IOCs) in Nigeria’, Hassan Mahmud, the Director of Trade and Exchange at CBN, revealed the directive. The apex bank justified this action by stating that cash pooling by IOCs significantly impacts liquidity in the domestic forex market.
Under the new guidelines, IOCs can only repatriate 50% of their earnings immediately, with the remaining 50% subject to a 90-day waiting period from the date of receipt. CBN’s directive reads, “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 per cent may be repatriated after 90 days from the date of inflow of export proceeds.”
Additionally, CBN introduced rules governing “cash polling” by IOCs, mandating CBN approval before fund repatriation and requiring the parent entity of IOCs to secure an agreement with CBN before engaging in “cash polling”. IOCs are also obligated to submit a statement of expenditure prior to cash polling, along with evidence of the source of foreign exchange inflow and completion of relevant forex forms as per existing regulations.
The CBN’s move seeks to address the ongoing impact of cash pooling on Nigeria’s forex market, aligning with broader reforms in the foreign exchange market. This development will likely have significant implications for IOCs operating in the country and stands as a response to the Naira’s decline.
