FG approves crude oil sale to Dangote Refinery, others in Naira

Abuja, EPICSTORIAN – The Federal Government of Nigeria has urged the Nigerian National Petroleum Corporation Limited (NNPCL) to sell crude oil to Dangote refinery, including others  in Naira.

The chairman of the Federal Inland Revenue Service (FIRS), Mr Zacch Adedeji, while speaking on the conditions for the sale of unrefined Petroleum products to Dangote refinery and others, said that NEC has  mandated all transactions by the authorised actors in the sector to be conducted in Naira at the same fixed exchange rate..

Adedeji, who also attended  the Federal Executive Council (FEC) meeting, confirmed this during an interview with the State House correspondents on Monday.

According to the FIRS chairman, Afreximbank will serve as the approved settlement bank to facilitate both trades “by providing guarantees to NNPCL to cover the payment risk of local refineries and to Nigerian commercial banks for the payment risk of petroleum marketing companies”.

“This approach will eliminate the need for international letters of credit, saving Nigeria substantial amounts of dollars,” he said.

Adedeji said the refinery sector was approaching a steady-state of operations and required approximately 15 crude cargoes per month, translating to an annual supply cost of 13.5 billion dollars, reported NAN

“NNPC Limited (NNPCL) has committed to supplying four crude oil cargoes monthly, leaving the remainder to be sourced from international traders.

“Currently, these transactions are conducted in dollars, significantly straining Nigeria’s foreign currency liquidity,” he said.

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He said this will continue for a “minimum period of six months” as the Federal government dips its toe into the new water to ascertain ways if it can effectively help to manage the Nigeria’s exchange (FX) rates position.

“To manage the exchange (FX) foreign exchange (FX) needs for local refineries and petroleum marketers, it is proposed that local refineries’ crude oil purchases from NNPCL be denominated in naira at a fixed exchange rate for a minimum period of six months,” Adedji said.

“With the proposed scenario, expenditures are projected to decrease to 50 million dollars per month, equating to 600 million dollars annually.

“This reduction will significantly alleviate the pressure on foreign exchange reserves, leading to an annual savings of 7.32 billion dollars representing 94 per cent,” he said.

“The benefits include stabilised petroleum product prices as the forward-selling of crude oil and refined products at a fixed exchange rate unaffected by exchange rate fluctuations will stabilise pump prices.

“Stabilising petroleum prices will likely drive the appreciation of the NGN, as petroleum imports account for 30 per cent of Nigeria’s FX demand.

“Stable petroleum prices will lower transportation costs, reducing food price inflation and positively impacting interest rates and dollar/naira exchange rates,” he said.

“This model, subject to the settlement bank’s (e.g., Afreximbank) credit approvals, can be replicated for other refineries, facilitating the trade of 445,000 barrels reserved for domestic consumption and achieving energy security.

“This further ensures that strategic reserves are pegged at tolerable prices driving improved economic stability,” Adedeji said.