ABUJA: Nigeria’s government is giving approval for state oil company NNPC Ltd to sell crude in the naira currency to the mega Dangote refinery effective immediately to help ease foreign exchange pressure.
The US$20bil Dangote refinery, Nigeria’s main oil refinery and billed to be the largest in Africa at full throttle, started production in January but has struggled to secure enough crude to meet its 650,000 barrels-a-day capacity.
Dangote previously had to buy oil on the international market, but it filed a complaint, saying oil majors were blocking its access to locally produced crude by selling it above market price or claiming it was unavailable, forcing the refinery to rely on expensive imports.
The cabinet gave the nod for NNPC Ltd to start selling crude to Dangote and other local refineries immediately in naira to ease pressure on foreign exchange, Zacch Adedeji, a cabinet member who is chairman of Nigeria’s Federal Inland Revenue Service (FIRS), told reporters.
“The refineries will also be able to sell refined fuels to local marketers in naira.
“With this decision, the pressure on foreign exchange rates today will be reduced,” Adedeji said.
He explained that the previous scenario exerted a burden of US$660mil in demand on foreign exchange per month, amounting to US$7.92bil annually.
The new arrangement is designed to reduce this amount to around US$50mil per month, or US$600mil annually, leading to annual savings of US$7.32bil, Adedeji said.
Africa’s most populous country has suffered chronic US dollar shortages that have forced authorities to devalue the naira twice within the past year.
Analysts said the decision to approve the crude sales in naira could reduce the need for the refineries to seek new loans from foreign lenders and help lower transportation costs.
“It is essentially a policy choice between substantial naira transactions versus Nigeria’s need for foreign currency,” said Ayodele Oni, energy lawyer and partner at Bloomfield, a Lagos-based law firm.
Local fuel marketers were worried they would be unable to pay for supplies from Dangote when it starts pumping petrol next month if priced in US dollars.
Earlier this month, Nigeria’s oil regulator struck a deal with producers to allow sales of crude oil to domestic refiners at market prices as it sought to end a supply dispute. — Reuters
