President Bola Tinubu’s authorization for the sale of crude oil to the Dangote Petroleum Refinery in naira is expected to cause a significant reduction in the prices of domestically refined petroleum products, according to oil marketers, refiners, and experts who made this assertion on Monday.
Players in the downstream oil sector have expressed their approval of the President’s decision, stating that it will enhance the productivity of local refineries, bolster the foreign exchange reserves of the country, and fortify the value of the naira.
They also commended the media for consistently highlighting this issue, emphasizing that Nigerian refineries should no longer face challenges in obtaining US dollars to purchase a commodity that is available locally.
On Monday, Tinubu instructed the Nigerian National Petroleum Company Limited to conduct crude oil sales to the Dangote refinery and other upcoming refineries in naira.
The President’s Special Adviser on Information and Publicity, Bayo Onanuga, disclosed this information in a post on his official X handle.
Onanuga mentioned that the Federal Executive Council endorsed the initiative on Monday to ensure the stability of the pump prices for refined fuel and the exchange rate between the dollar and naira.
Dangote refinery has been facing challenges in the supply of crude oil from the International Oil Companies operating in Nigeria. Subsequently, it encountered issues with the country’s regulatory bodies in the midstream and downstream sectors.
The refinery, with a capacity of 650,000 barrels per day, initially received crude oil earlier this year from NNPC and a few IOCs but later encountered difficulties as IOCs were hesitant to supply crude to the plant, leading to increased crude oil imports.
The current demand of Dangote refinery stands at approximately 15 cargoes of crude oil annually, costing about $13.5 billion. While NNPC has committed to supplying four cargoes, the recent directive by the President will facilitate the supply of this product to Dangote and other local refineries in naira instead of dollars.
Onanuga also revealed that the Federal Executive Council approved the sale of 450,000 barrels designated for domestic use in naira to Nigerian refineries, using the Dangote refinery as a pilot.
In a statement on X titled “President Tinubu extends a lifeline to Dangote refinery, NNPC to sell crude in naira,” the presidential media aide stated, “In order to stabilize the pump prices of refined fuel and the dollar-naira exchange rate, the Federal Executive Council has adopted President Tinubu’s proposal to sell crude to Dangote refinery and other upcoming refineries in naira.
“The current annual requirement of crude for Dangote refinery is 15 cargoes amounting to $13.5 billion. While NNPC has undertaken to supply four cargoes, the FEC has given approval for the sale of 450,000 barrels designated for domestic consumption to Nigerian refineries in naira, with the Dangote refinery operating as a test case. The exchange rate will be fixed for the duration of this transaction.
“Afreximbank and other settlement banks in Nigeria will facilitate trade between Dangote and NNPC Limited. This transformative intervention will eliminate the need for international letters of credit and save the country billions of dollars spent on importing refined fuel.”
Commenting on the development, the President’s Special Adviser on Revenue, Mr. Zacch Adedeji, who also serves as the Chairman of the Federal Inland Revenue Service, highlighted that Monday’s decision reduces Nigeria’s heavy reliance on foreign exchange for crude oil imports, which accounts for around 30 to 40 percent of forex expenditure.
Adedeji stated that by conducting crude oil transactions in naira, the government anticipates a substantial reduction in its forex burden, with estimated annual savings of $7.3 billion. This move is projected to lower monthly forex expenses on petroleum products to $50 million from the current $660 million.
“On a monthly basis, we are spending approximately $660 million on these transactions, and upon analysis, that equates to $7.92 billion in annual savings,” he mentioned.
The presidential aide further clarified, “With this approval today, at least 90 percent of this expense will be minimized because the transactions will now be conducted in our local currency, not just with Dangote refinery but with all local refineries for domestic consumption, leading to the stabilization of pump prices.”
He added that this step would enhance economic predictability as fluctuations in forex are expected to decrease.
Enumerating the advantages of the new arrangement, Adedeji mentioned, “The decrease in foreign exchange pressure, considering that the current process utilizes $660 million monthly, totaling $7.92 billion annually.
“With the new approval, this amount will decrease to a maximum of $50 million per month, equivalent to an annual total of just $600 million. This represents a 94 percent reduction, saving us $7.32 billion.
“Additionally, this will reduce financial costs, currently standing at $79 million owing to the opening of letters of credit between these local refineries and their operations.”
Regarding implementation, the FIRS chief mentioned, “As a pilot, the council has sanctioned a settlement bank, Afrieximbank, to be the primary arranger between NNPC and Dangote refinery.
“One of the key directives from the President and the council is for Afriexim to lead the advisory work in structuring and organizing this initiative with the Associated Trade Finance Facility, in collaboration with the Central Bank of Nigeria, NNPC, the Federal Ministry of Finance, and other crucial agencies.”
Industry Reception
Oil marketers and operators of modular refineries lauded the initiative, outlining the benefits it could bring to Nigeria.
Chief Ukadike Chinedu, the National Public Relations Officer of the Independent Petroleum Marketers Association of Nigeria, expressed gratitude, stating, “We wish to thank the President for heeding the voices of the masses and marketers because we have consistently advocated that the solution to the frequent petrol shortages lies in localizing the sale of crude oil in Nigeria, particularly in Nigerian naira.
“The President has responded to this and the demands of labor by explicitly approving the N70,000 minimum wage. These approvals are highly significant for the Nigerian economy, especially the sale of crude to Dangote in naira. This initiative will strengthen the economy, and the value will appreciates in the global market. This is a remarkable development for Nigeria’s oil sector.”
On his part, Eche Idoko, the Publicity Secretary of the Crude Oil Refiners Association of Nigeria, mentioned the supply of crude to local refineries as a crucial step that would lead to positive outcomes.
Reducing the cost of petrol in naira could potentially strengthen the naira against the dollar. It was noted by Idoko that Tinubu’s responsiveness to local refiners deserved commendation, with a plea for an executive order to be issued in line with the new directive. A call was also made for a meeting with the economic team to determine a favorable exchange rate for the Nigerian market.
The proposal that crude oil be traded in naira is expected to positively impact the naira’s value against the dollar. This anticipated appreciation in the naira will result from a reduction in the number of naira competing with the dollar. Consequently, refining costs are projected to decrease, influencing the pump price of petrol.
In addition, there is a need for consultations with the economic team on pricing matters relating to petroleum products in Nigeria. It was emphasized that the implementation of the President’s order, backed by legal enforcement, is crucial to observe the desired effects.
Professor Dayo Ayoade of the University of Lagos highlighted the significance of the government’s decision to allocate crude to local refineries such as Dangote, considering their substantial investments. However, concerns were raised about the previous utilization of crude designated for domestic consumption in securing loans.
On the challenges faced by domestic refiners like Dangote regarding crude oil supply, there have been ongoing complaints. Issues have been raised about International Oil Companies (IOCs) hindering the supply chain to the Dangote refinery. Allegations have been made regarding the foreign agents through which IOCs insist on selling crude, causing price discrepancies.
DVG Edwin, the Vice President of Oil & Gas at Dangote Industries Limited, emphasized the need for strict adherence to the Domestic Crude Supply Obligation guidelines. He pointed out instances where trade premiums for crude oil presented by IOCs exceeded the official pricing standards set by regulatory bodies. Edwin urged for a reevaluation of pricing practices by regulatory commissions to ensure fairness in the market.