The recent collapse of the naira-for-crude oil deal between the Nigerian National Petroleum Company Limited (NNPCL) and Dangote Petroleum Refinery has created tension in the downstream sector of the oil and gas industry. The implementation of the deal, signed in October 2024 for six months, which ends in March 2025, has been epileptic, but it guaranteed an unfettered supply of refined products in Nigeria’s market.
Despite an agreement to allocate 385,000 barrels per day to Dangote Refinery, reports indicated that the refinery received only about 10 per cent of its daily requirement. This forced the refinery to import over 90 per cent of its crude needs from other countries. The shortfall was linked to what is described as a “forward sale of crude.” It meant the NNPCL had committed large volumes of crude oil to forward sales agreements with international financial institutions. This left limited crude available for domestic supply.
Recently, Dangote Petroleum Refinery circulated a statement alerting the public that it would sell its petroleum products to marketers in dollars as it purchased crude oil for refining in dollars, not naira. The company said, “Dangote Petroleum Refinery has temporarily halted the sale of petroleum products in naira. This decision is necessary to avoid a mismatch between our sales proceeds and our crude oil purchase obligations, which are currently denominated in US dollars. To date, our sales of petroleum products in naira have exceeded the value of naira-denominated crude we have received. As a result, we must temporarily adjust our sales currency to align with our crude procurement currency. We remain committed to serving the Nigerian market efficiently and sustainably. As soon as we receive an allocation of naira-denominated crude cargoes from the NNPC, we will promptly resume petroleum product sales in naira.”
The announcement portends difficulties for Nigerians shortly. There are fears that the pump price of fuel would increase, against the reduction in price in the last few weeks. If marketers have to go to the Central Bank of Nigeria (CBN) or Bureaux de Change to scout for dollars to pay for the products, there would be pressure on the naira and a further devaluation of our currency. This is undesirable. Over the years, fuel importation in the dollar contributed to the depletion of naira’s foreign currency. It was estimated that Nigeria utilised about 60 per cent of its forex earnings on importation of petroleum products. This situation was altered when Dangote Petroleum Refinery started pumping refined products last year. It will be disastrous for Nigeria to return to the era of paying for fuel in dollar equivalent of our naira. Nigerians do not earn the dollar, we must not pay for fuel in dollars.
Taking a cue from other crude oil-producing countries, we call on the government to, not just renew but stipulate it as a policy that local refineries should pay for Nigeria’s crude oil in naira. In Saudi Arabia, crude oil is sold to local refineries in Saudi riyal. It is the same practice in Egypt, where crude oil is sold to local refineries in Egyptian pounds. Also, Libya typically sells crude oil to its local refineries in Libyan dinar (LYD), the country’s official currency. In the war-weary country, domestic transactions are generally conducted in the local currency to streamline operations and avoid reliance on foreign exchange. The practice in Nigeria must not be different.
It is understandable that in the years that no Nigerian refinery was healthy enough to refine products for our local consumption, crude oil sales and importation of refined products were conducted in foreign currency. The situation is different now that Dangote Petroleum Refinery and Port Harcourt Refinery have engaged in local fuel refining.
The government must liberate itself from the greed of public servants who, over the years, looted the treasury in foreign currency through oil and gas transactions in forex. Some even benefitted from the corruption-laden fuel subsidy payments. Such beneficiaries from the pains Nigerians have gone through may be reluctant to allow a positive change in the sector. Though it is apparent that other countries sell crude oil to local refineries in their local currencies, these sharks in the oil and gas bureaucracy may not want it to apply in Nigeria. This government must resist them.
We, therefore, call on President Bola Ahmed Tinubu to renew the naira-for-crude regime with Dangote. Beyond the renewal of the agreement, we reiterate that the government should make it a policy to sell crude oil to local investors in the sector in naira rather than foreign currencies. It is the practice in other climes; Nigeria must emulate it.