Dangote Refinery's Naira-for-Crude Deal Hits Snag

NNPCL-Dangote Crude Swap Stall

“...Dangote refinery to fashion out the details of the modalities for the implementation of the FEC approval...”

Nigeria's naira-for-crude initiative - NNPCL to supply Dangote Refinery with naira-denominated crude oil, enhancing transparency and domestic fuel supply. Latest updates on implementation, benefits, and stakeholders' expectations.

The highly anticipated supply of crude oil in naira by the Nigerian National Petroleum Company Limited (NNPCL) to the Dangote Petroleum Refinery, scheduled to start on October 1, 2024, has yet to commence as of Thursday, October 3. This delay has left many wondering what's causing the holdup.

The Technical Sub-Committee on Domestic Sales of Crude Oil in Local Currency initially confirmed that the supply would begin on October 1. However, officials from the Dangote Refinery, Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Federal Ministry of Finance, and NNPCL have remained tight-lipped about the status of the naira-for-crude agreement.

NNPCL's naira-denominated crude oil supply to Dangote Refinery is a crucial aspect of its efforts to enhance transparency and transform Nigeria's domestic fuel supply chain. Nevertheless, the lack of updates on this groundbreaking partnership has created uncertainty, with stakeholders and industry experts eagerly awaiting further information.

Key Stakeholders:

1. Dangote Petroleum Refinery
2. Nigerian National Petroleum Company Limited (NNPCL)
3. Nigerian Upstream Petroleum Regulatory Commission (NUPRC)
4. Federal Ministry of Finance

Next Steps:

The situation demands timely updates from involved parties to prevent speculation and ensure transparency. Stakeholders eagerly await clarification on the naira-for-crude agreement's status and the refined commencement date for crude oil supply.

The Nigerian government took a significant step towards boosting the country's refining capacity and economy by approving the sale of crude oil to local refineries in naira. On September 13, 2024, the Technical Sub-Committee on Domestic Sales of Crude Oil in Local Currency announced that the Federal Executive Council, led by President Bola Tinubu, had given the green light for this initiative.

As part of this agreement, the Nigerian National Petroleum Company (NNPC) would supply about 385,000 barrels per day of crude oil to the Dangote Refinery, with payment to be made in naira starting October 1, 2024. This move is expected to reduce pressure on the naira, eliminate unnecessary transaction costs, and improve the availability of petroleum products across the country.

“From October 1, NNPCL will commence the supply of about 385kbpd (385,000 barrels per day) of crude oil to the Dangote refinery to be paid for in naira,” the committee had declared.

Zacch Adedeji, Chairman of the Technical Sub-Committee and Federal Inland Revenue Service (FIRS), is leading the team overseeing the crude oil supply deal between the Nigerian National Petroleum Company Limited (NNPCL) and the $20 billion Dangote Refinery. When queried about the status of the planned crude oil supply, Dare Adekanmbi, Special Adviser on Media to the FIRS Chairman, assured that the arrangement is still on course.

The crude oil supply deal, approved by President Bola Tinubu and the Federal Executive Council, is set to commence with NNPCL supplying about 385,000 barrels per day of crude oil to the Dangote Refinery, paid for in naira. This initiative aims to reduce pressure on the naira, eliminate unnecessary transaction costs, and improve the availability of petroleum products across the country.

Key Benefits of the Initiative:

Reduced Pressure on Naira: By selling crude oil in naira, the government aims to reduce the demand for US dollars and alleviate pressure on the local currency.

Improved Petroleum Product Availability: The initiative is expected to increase the availability of petroleum products, benefiting Nigerians nationwide.

Economic Growth: This move is poised to stimulate economic growth by enhancing Nigeria's refining capacity and promoting self-reliance in the energy sector.

The Technical Sub-Committee, chaired by Adedeji, has worked closely with NNPC, Dangote Refinery, and other stakeholders to ensure the successful implementation of the initiative. With the supply deal on track, Nigerians can expect improved energy security and economic benefits in the coming months.

“I can confirm that the Chairman of the Sub-Technical Committee, Zacch Adedeji, is working day and night to ensure that things go according to plans. He knows how important it is to have the agreement implemented as has been planned for the benefit of Nigerians,” Adekanmbi had stated.

It appears that the highly anticipated naira-for-crude deal between the Nigerian National Petroleum Company Limited (NNPCL) and the Dangote Refinery has hit a snag. As of October 3, reliable sources from three domestic refineries confirmed they were still in the dark about the deal's commencement. A senior official from one of the refineries revealed that crude oil refiners, including Dangote, are still waiting on the Federal Government to initiate the supply of crude oil in naira.

The Technical Sub-Committee on Domestic Sales of Crude Oil in Local Currency had initially announced that the supply would start on October 1. However, it seems that the implementation has been delayed. The committee, chaired by Zacch Adedeji, had stated that the NNPC would supply about 385,000 barrels per day of crude oil to the Dangote refinery, paid for in naira. This move aims to reduce pressure on the naira, eliminate unnecessary transaction costs, and improve the availability of petroleum products across the country.

The government's crude-for-naira committee has given industry operators the thumbs up, confirming that everything's in motion to put the naira-for-crude agreement into action. This reassurance from the committee means that the Nigerian National Petroleum Company's (NNPC) plan to supply naira-denominated crude oil to the Dangote Refinery is moving forward. The goal is to strengthen the naira, improve fiscal management, and boost Nigeria's economic resilience by localizing crude oil transactions. With the October 1 start date already passed, all eyes are on how the implementation will unfold and its impact on Nigeria's refining capabilities and economy.

“You know that said it was to start on October 1, the technical committee is the one in charge now and they are working on it. They are supposed to arrive at a particular agreement and communicate it to us.

“But I can tell you that as of this moment, we haven't received that communication yet. We are still waiting for them,” the operator stated.

A source from a major modular refinery, familiar with the naira-for-crude deal, has shed light on the current status. “The crude oil refiners' body in Nigeria hasn't been communicated yet on the deal,” the source revealed. “So we await the official communication because up till last week, we spoke with them (the government) and they assured us that the deal was still on course.”

This update indicates that the Nigerian crude oil refiners' association is still awaiting official word from the government regarding the agreement. Despite last week's assurance, the refiners remain in limbo, awaiting the green light.

Background:

The government's crude-for-naira committee, led by Zacch Adedeji, Chairman of the Federal Inland Revenue Service (FIRS), is driving this initiative. Once finalized, it will enable the Nigerian National Petroleum Company (NNPC) to supply crude oil to Dangote Refinery and other local refineries in naira.

Expected Benefits:

1. Boost transparency
2. Reduce pressure on the naira
3. Increase availability of petroleum products nationwide 
4. Save around $7.92 billion
5. Positively impact domestic fuel supply chain.

“However, I'd like to state that deals of this nature take a while before they are completed. There are a lot of things to be sorted before a final decision is reached. So we have to wait for them.”

The federal government unveiled the naira-for-crude initiative in September, citing its potential to reduce the naira's vulnerability, streamline transaction costs, and enhance the domestic supply of petroleum products.

“Since then, the implementation committee chaired by the Minister of Finance and we, the technical committee, have worked intensely with NNPC and Dangote refinery to fashion out the details of the modalities for the implementation of the FEC approval,” Adedeji had stated.

Starting October 1, the Nigerian National Petroleum Company (NNPC) will supply crude oil to Dangote Refinery in exchange for petrol and diesel of equivalent value, with all transactions conducted in naira . This initiative, approved by President Bola Tinubu and the Federal Executive Council, aims to reduce pressure on the naira, eliminate unnecessary transaction costs, and improve the availability of petroleum products across the country.

Transaction Details:

• The NNPC will supply about 385,000 barrels per day of crude oil to the Dangote refinery, paid for in naira.
• The Dangote refinery will supply petrol and diesel of equivalent value to the domestic market, with payments also made in naira.
• Diesel will be sold in naira by the Dangote refinery to any interested off-taker, while petrol will only be sold to NNPC, which will then sell to various marketers.

“Diesel will be sold in naira by the Dangote refinery to any interested off- taker. PMS will only be sold to NNPC. NNPC will then sell to various marketers for now. All associated regulatory costs (NPA, NIMASA, etc.) will also be paid in naira. We are also setting up a one-stop shop that will coordinate service provision from all regulatory agencies, security agencies, and other stakeholders to ensure a smooth implementation of this initiative.”

Adedeji revealed that the technical committee behind the naira-for-crude initiative will transform into an implementation and monitoring committee, operating from Lagos for the next three to six months. This strategic shift aims to ensure a seamless transition from planning to execution, with the committee's focus now on overseeing the initiative's progress and addressing any challenges that may arise.

The new committee, comprising key stakeholders, including Lydia Jafiya, the permanent secretary of the Federal Ministry of Finance, and representatives from NNPC, Central Bank of Nigeria, AfreximBank, and the Nigerian Upstream Petroleum Regulatory Commission, will work tirelessly to guarantee the initiative's success. By establishing a one-stop shop to coordinate service provision from regulatory agencies, security agencies, and other stakeholders, the committee seeks to facilitate a smooth implementation process.

This development is a significant step towards achieving the federal government's objective of enhancing Nigeria's refining capacity, promoting economic growth, and reducing pressure on the naira. With the Dangote Refinery at the forefront of this initiative, Nigeria is poised to witness a significant boost in its energy sector.

The Nigerian National Petroleum Company Limited (NNPCL) is prioritizing the supply of naira-denominated crude oil to the Dangote Refinery as a key component of its broader strategy to:

1. Boost transparency in the energy sector
2. Improve the domestic fuel supply chain

However, despite the significance of this partnership, updates have been scarce, leaving industry players and stakeholders in a state of uncertainty, eagerly awaiting clarity on the initiative's progress.