In a move aimed at stabilizing fuel prices and bolstering the naira, President Bola Tinubu has directed the Nigerian National Petroleum Company Limited (NNPC) to sell crude oil to the Dangote Petroleum Refinery and other domestic refineries in naira, rather than US dollars.
The decision, approved by the Federal Executive Council on Monday, is expected to boost the output of local refineries, shore up Nigeria’s foreign exchange reserves, and strengthen the value of the national currency.
Operators in the downstream oil sector have welcomed the president’s directive, stating that it will eliminate the need for refineries to procure scarce dollars to purchase a commodity produced within the country.
“The sheer fact that the crude will be sold in naira will give the naira a lot of leverage against the dollar, and by implication, the naira will appreciate against the dollar,” said Eche Idoko, Publicity Secretary of the Crude Oil Refiners Association of Nigeria.
Zacch Adedeji, the President’s Special Adviser on Revenue and Chairman of the Federal Inland Revenue Service, estimated that the move could save Nigeria up to $7.32 billion annually in foreign exchange expenditure. Currently, the country spends around $660 million per month on importing refined fuel, a burden that is expected to be significantly reduced under the new arrangement.
The Dangote refinery, which has been grappling with a crude oil supply crisis, is expected to be the pilot project for the naira-denominated crude sales. The 650,000 barrels per day facility currently requires about 15 cargoes of crude oil annually, valued at $13.5 billion.
Afreximbank and other local settlement banks will facilitate the trade between NNPC and the Dangote refinery, eliminating the need for international letters of credit and further reducing transaction costs.
Operators in the industry, including independent petroleum marketers and modular refinery owners, have praised the president’s decision, stating that it will strengthen the naira, stabilize fuel prices, and boost the viability of domestic refining operations.
The government is planning to meet with the Nigerian Midstream and Downstream Petroleum Regulatory Authority and the economic team to discuss fees, rates, and pricing of petroleum products. The goal is to have a robust program that gives price advantages to local consumers within Nigeria.
The government has agreed to supply crude oil to Dangote and other domestic refineries, such as BUA and NNPC’s own refineries. This will amount to over 1 million barrels per day of crude for domestic consumption.
Dangote and other domestic refiners have been complaining about difficulties in accessing crude oil. They allege that international oil companies (IOCs) are frustrating crude supply by insisting on selling through their foreign agents at prices $2-$4 per barrel above the official price set by the regulator.
Dangote says the IOCs seem to be prioritizing Asian countries in selling the crude they produce in Nigeria. Dangote wants the Domestic Crude Supply Obligation guidelines to be diligently implemented so they can deal directly with the crude producers in Nigeria.
The passage suggests the government needs to be serious about addressing crude oil theft to ramp up production to around 2.5 million barrels per day to meet the domestic demand from the refineries.
