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In other words, upon receiving a cargo of oil, BPOI will deduct from the contractual price and pay to the banks an instalment covering the reimbursement of the pre-payment (except during the grace period) plus interest and other financing costs.
Equally importantly, however, it provided additional earnings to the largest funding banks which were offered, for an additional fee, a share in the payment risk on BPOI under the letter of credit.
In any case, one may ask whether or not the elimination of the payment risk on BPOI was an important feature of the transaction or if, on the contrary, banks participating in the funding of this Angolan transaction would have a fortiori felt comfortable with the payment risk on BPOI.
And, obviously the letter of credit fees are an additional charge to Sonangol which, under normal circumstances, would sell crude oil to BPOI as simply cash against documents.
More importantly, BPOI will have "first-in-the-queue" nomination rights (save for a few cargoes a quarter reserved under a separate trust) in respect of Sonangol's quarterly crude oil entitlement.
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