President Bola Tinubu’s recent approval for the sale of crude oil to Dangote Petroleum Refinery in naira is set to significantly impact the pricing of domestically refined petroleum products, according to industry experts and oil marketers.
The move, announced by Tinubu on Monday, directs the Nigerian National Petroleum Company Limited (NNPC) to sell crude to Dangote and other refineries in naira. This decision is expected to enhance domestic refining, bolster Nigeria’s foreign exchange reserves, and strengthen the naira.
Bayo Onanuga, Special Adviser to the President on Information and Publicity, confirmed that the Federal Executive Council (FEC) approved this measure to stabilize both the pump price of refined fuel and the dollar-naira exchange rate. The new directive is also expected to alleviate the crude oil supply issues previously faced by Dangote refinery.
Currently, Dangote’s 650,000 barrels per day refinery relies heavily on imported crude oil due to supply challenges with international oil companies (IOCs). The FEC’s approval will see crude oil meant for domestic consumption sold in naira, starting with Dangote refinery as a pilot project.
The change aims to reduce Nigeria’s reliance on foreign exchange for crude oil transactions, potentially saving the country up to $7.3 billion annually. It also promises to cut monthly forex expenditure on petroleum products from approximately $660 million to $50 million.
Zacch Adedeji, President Tinubu’s Special Adviser on Revenue and Chairman of the Federal Inland Revenue Service, highlighted that this shift will substantially decrease Nigeria’s forex burden and reduce finance costs associated with international letters of credit.
The initiative has been praised by oil marketers and refinery operators, who view it as a significant boost for Nigeria’s oil sector. The Independent Petroleum Marketers Association of Nigeria and the Crude Oil Refiners Association of Nigeria have lauded the decision, noting its potential to lower petrol prices and strengthen the naira.
However, concerns remain about the implementation and potential challenges. Dangote Group has previously reported difficulties with crude oil supply, alleging that IOCs prioritize sales to foreign agents and offer crude at higher-than-official prices.
The new policy will involve Afreximbank and other settlement banks to facilitate transactions, aiming to simplify the process and reduce the need for international letters of credit. The implementation will be closely monitored to ensure it meets the intended economic benefits.
