Naira-for-Crude Deal: Dangote Receives Maiden Shipment

Dangote Receives First Naira-Priced Crude

“Don't forget that this first phase of the naira-crude sale is just for six months...”

Dangote Refinery gets 450,000 barrels of crude in Naira under President Tinubu's new policy, boosting local refining & reducing import dependence.

The Dangote Petroleum Refinery has received four crude oil shipments from the Nigerian National Petroleum Company Limited (NNPCL) under the naira-for-crude oil agreement, officials confirmed on October 22.

These deliveries, made over the past three weeks, mark the initiative's beginning, where domestic refineries receive crude oil in exchange for naira.

The $20 billion Lekki refinery anticipates additional NNPCL shipments and plans to start direct sales of refined petrol (Premium Motor Spirit, PMS) to Nigerian dealers.

A Technical Subcommittee on Domestic Sale of Crude Oil in Local Currency insider, speaking anonymously, confirmed that more crude oil deliveries to Dangote Refinery are expected soon.

Highlights 

• Dangote Petroleum Refinery receives 4 crude oil shipments from NNPCL.
• Naira-for-crude oil agreement initiates domestic refinery sales.
• Lekki refinery to start direct PMS sales to Nigerian dealers.
• Additional crude deliveries expected.

A refinery senior official confirmed the development, stating that the naira-for-crude pact will run for six months, with a potential extension from the Federal Government. The official declined to disclose the exact crude oil price per barrel.

“The naira-for-crude deal has started. The Dangote refinery has received four cargoes so far and we are still expecting more. The four cargoes have been delivered to the refinery within the past three weeks. We are still expecting more cargo in the coming week.

“Don't forget that this first phase of the naira-crude sale is just for six months. The government may decide to renew it at the end of the first six months and they may decide not to. So, we don't know what will happen yet after the first six months.”

Dangote Refinery, with a 650,000-barrel-per-day capacity, faced unexpected crude oil supply challenges shortly after beginning operations.

Dangote Group President Alhaji Aliko Dangote publicly voiced concerns, accusing some international oil companies of deliberately withholding crude oil supplies to undermine the refinery's success.

The Dangote Group alleged that international oil companies (IOCs) insisted on selling crude to the refinery through foreign intermediaries, driving up prices for local buyers.

This indirect sale approach resulted in trading firms offering crude oil cargoes at a $2-$4 per barrel premium above the official price, inflating local market costs.

Furthermore, the group claimed foreign oil producers prioritized Asian markets for Nigerian crude, putting local refineries at a disadvantage.

In response, the Nigerian Upstream Petroleum Regulatory Commission (NURPC) intervened in July. However, Dangote Group asserted that IOCs continued to hinder their operations.

 

President Bola Tinubu proposed a groundbreaking solution to support local refineries during a Federal Executive Council meeting on July 29. He suggested selling crude oil to these refineries in naira, and the FEC approved the proposal, allocating 450,000 barrels of crude for domestic use to be sold in the local currency. This innovative initiative would start with the Dangote refinery as a pilot project, aiming to stabilize fuel prices and the exchange rate.

The Dangote refinery, owned by Africa's richest man, Aliko Dangote, would initially receive four cargoes from NNPC, valued at $13.5 billion annually. This move is expected to eliminate the need for international letters of credit and fix the exchange rate for the transaction's duration. Afreximbank and Nigerian settlement banks will facilitate transactions between Dangote and NNPC, reducing the country's dependency on imports and saving billions.

Bayo Onanuga, President Tinubu's media aide, confirmed in July that the exchange rate would remain fixed throughout the agreement. This development is a significant boost to the Dangote refinery, which has faced operational hurdles, running at just over 50% capacity due to challenges in sourcing crude internationally. The refinery aims to reduce Nigeria's reliance on imported fuel, potentially cutting foreign exchange expenditure by up to 30%.