Nigeria Breaks Dollar Dominance: Crude Oil Sold in Naira

Nigeria Sells Crude in Naira

“The Minister of Finance and Coordinating Minister of the Economy announced that in line with the Federal Executive Council (FEC) directive, the sale of crude oil...”

Nigeria's top oil & gas stakeholders, including Minister Heineken Lokpobiri & Dangote Group reps, meet to discuss industry growth & development.

The Federal Government has taken a significant step towards boosting the local economy by selling crude oil and refined products in naira. This initiative, which began on October 1, 2024, is aimed at promoting domestic economic activities and strengthening the naira.

The Ministry of Finance broke the news on its X account on Saturday, October 5, but didn't provide details on contractual agreements or pricing. However, it's been revealed that the Nigerian National Petroleum Company (NNPC) will supply crude oil to Dangote Refinery and other local refineries in naira, with the exchange rate fixed for the duration of the transaction.

Benefits of the Naira-for-Crude Initiative:

Reduced Pressure on Foreign Exchange: The move is expected to reduce the pressure on foreign exchange by about 90% and save the country billions of dollars used in importing refined fuel.

Increased Economic Predictability: The new policy will make economic predictability a reality, according to Zacch Adedeji, chairman of the Federal Inland Revenue Service (FIRS).

End to Opaque Supply Market: The naira-denominated crude oil sales are expected to bring an end to the opaque 20-year-old Domestic Crude Allocation (DCA) scheme, enhancing transparency in the domestic fuel supply chain.

The Federal Government's decision is seen as a game-changer, eliminating the need for international letters of credit and saving the country millions of dollars in finance costs. With Dangote Refinery requiring 15 cargoes of crude yearly, valued at $13.5 billion, this move is set to have a significant impact on the economy.

The statement read, “The Minister of Finance and Coordinating Minister of the Economy announced that in line with the Federal Executive Council (FEC) directive, the sale of crude oil and refined petroleum products in naira has officially commenced as of October 1, 2024.

“Following a meeting of the Implementation Committee chaired by the Minister of Finance on October 3, 2024, to conduct a post-commencement review of the Crude Oil and Refined Products Sales in Naira initiative, the commencement of this strategic initiative was affirmed by key stakeholders.”

President Bola Tinubu's Federal Executive Council has given the green light to sell crude oil to local refineries, including Dangote Refinery, in Nigerian naira, and purchase petroleum products in the same currency. This move is expected to stabilize pump prices and the dollar-naira exchange rate. Dangote Refinery alone requires 15 cargoes of crude, valued at $13.5 billion annually.

The decision also aims to end the opaque 20-year-old Domestic Crude Allocation (DCA) scheme, increasing transparency in the domestic fuel supply chain. With this new policy, the Federal Government is projected to save around $7.92 billion.

Key Benefits:

Stabilized Pump Prices: The naira-denominated sales will help maintain stable pump prices for refined fuel.

Enhanced Transparency: The end of the DCA scheme will bring more transparency to the domestic fuel supply chain.

Economic Savings: The government is expected to save billions of dollars with this new policy.

“From October 1, NNPC 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.

Dare Adekanbi, Special Adviser on Media to the Chairman of the Federal Inland Revenue Service (FIRS), has confirmed that the plan to supply crude oil to the $20 billion Lekki-based Dangote Refinery remains unchanged. This comes after representatives from Dangote and other refineries expressed uncertainty about the deal's status on Thursday, October 2.

The Nigerian National Petroleum Company (NNPC) began supplying crude oil to Dangote Refinery in naira on October 1, 2024, as part of a larger initiative to promote domestic economic activities and strengthen the naira. The refinery will receive about 385,000 barrels per day, which will be paid for in naira, and in return, supply equivalent volumes of refined diesel and petrol to the domestic market.

The naira-for-crude agreement between NNPC and Dangote Refinery has officially kicked off, but officials from Dangote Refinery, NUPRC, Federal Ministry of Finance, and NNPC are keeping mum about the details. This initiative, launched on October 1, 2024, aims to reduce pressure on the naira, eliminate unnecessary transaction costs, and increase the availability of petroleum products nationwide.

The Federal Government's decision to sell crude oil to local refineries, including Dangote Refinery, in naira is expected to boost the local currency and promote domestic economic activities. With this move, NNPC will supply about 385,000 barrels of crude oil per day to Dangote Refinery, which will be paid for in naira. In return, Dangote Refinery will supply equivalent volumes of refined diesel and petrol to the domestic market, also in naira.

 

While modular refineries have called on the government to work out modalities for the supply of crude to their plants, the Technical Sub-Committee on Domestic Sales of Crude Oil in Local Currency has assured that the implementation committee is working to ensure a smooth execution of the initiative.

“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,” Adekanbi had stated.

The Executive Chairman of the Federal Inland Revenue Service, Dr Zacch Adedeji, also confirmed that the first PMS delivery from Dangote is expected next month under existing agreements. This initiative aims to reduce pressure on foreign exchange, eliminate unnecessary transaction costs, and enhance the availability of petroleum products nationwide.

He stated that, “in return, the Dangote refinery will supply PMS (petrol) and diesel of equivalent value to the domestic market to be paid in naira.

“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.”

Top stakeholders in Nigeria's oil and gas industry gathered for a crucial meeting, including Minister of State for Petroleum Heineken Lokpobiri, President's Special Adviser on Revenue Zaccheus Adedeji, and President's Special Adviser on Energy Olu Verheijen.

Key Attendees:

• Heineken Lokpobiri, Minister of State for Petroleum, responsible for implementing President Bola Ahmed Tinubu's Renewed Hope Agenda 
• Zaccheus Adedeji, President's Special Adviser on Revenue
• Olu Verheijen, President's Special Adviser on Energy
• Engr. Farouk Ahmed, Chief Executive of the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA)

Dangote Group Representatives:

• A representative from the Chairman

The Vice Presiden NNPC Management Team:

 

• Mele Kyari, Group Chief Executive Officer (CEO)
• Umar Ajiy, Chief Financial Officer (CFO) 
• Adeyemi Adetunj, Executive Vice President for Downstream

This meeting brought together influential figures to discuss the future of Nigeria's oil and gas sector.