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* NNPC hires Standard Chartered to advise on prepayment plan
* Vitol, Glencore and Trafigura among contenders
* Repayment over 5-7 years backed by 70,000 bpd of crude
* Nigeria weighed down by billions of dollars in old debts
LONDON, Nov 29 (Reuters) - Nigeria's state oil firm is looking to set up a $3.5-$5 billion cash-for-crude prepayment with some of the world's top commodity traders to fund oil and gas upstream projects as well as related infrastructure, sources with direct knowledge of the matter said.
Africa's biggest oil producer and OPEC member was hit hard by the sharp drop in global oil prices in 2014 that pushed it into its first recession in 25 years. The country returned to growth-mode in the second quarter.
Already cash-strapped and weighed down by billions of dollars in old debts, NNPC (Nigerian National Petroleum Corporation) has also been looking to bring in outside cash.
The sources said Standard Chartered was hired to advise on the oil prepayment and a request-for-proposal was issued a few weeks ago for a $3.5-$5 billion loan to be repaid with crude over five to seven years, the sources said.
A spokesman for Standard Chartered declined to comment. A spokesman for NNPC declined to comment.
The sources added that a decision was expected before the end of this year. Around seven trading firms were still in the running, one added, with top trading houses Glencore, Vitol and Trafigura as being among the active contenders.
The trading firms declined to comment.
The west African OPEC member is seeking three offtakers, one of the sources said, against 70,000 barrels per day of crude.
Vitol already has a major presence in Nigeria after buying petrol stations via a joint venture with local producer Oando and private equity fund Helios.
Vitol is also among a list of major traders, including Trafigura, that participate in a swap scheme to deliver refined products in exchange for crude.
Profit margins for trading firms have been slowly eroding over the last few years as transparency in oil markets has increased, reducing arbitrage opportunities, once based on privileged information.
Increasing traded volumes is one way to raise profits and competition is fierce for prepayment deals with state oil firms.
Nigeria's NNPC has had cash-flow problems for years and has been chronically behind payments for its stakes in upstream joint-ventures with Shell, Chevron, Total, Eni and ExxonMobil.
After project development began to stall following the collapse in oil prices, Oil Minister Emmanuel Ibe Kachikwu reached a deal last year with its major foreign oil-producers to repay $5.1 billion over five years, interest free.
NNPC has already leveraged over 300,000 barrels per day of crude to cover current fuel imports via a crude-for-product swap scheme as well as debts to traders dating back nearly a decade. (Additional reporting by Alexis Akwagyiram in Lagos; Editing by David Evans)