Nigerian President Bola Tinubu has instructed the Nigerian National Petroleum Company (NNPC) Limited to sell crude oil to Aliko Dangote’s Dangote Refinery and other upcoming refineries in naira.
This directive, adopted by the Federal Executive Council (FEC), marks a significant shift in Nigeria’s oil trade policy.
Bayo Onanuga, special adviser on information and strategy to the president, announced the development on his X page. “To ensure the stability of the pump price of refined fuel and the dollar-naira exchange rate, the Federal Executive Council today adopted a proposal by President Tinubu to sell crude to Dangote Refinery and other upcoming refineries in naira,” Onanuga wrote.
Currently, the Dangote Refinery requires 15 cargoes of crude annually, amounting to $13.5 billion. The NNPC has committed to supplying four of these cargoes. Under the new directive, 450,000 barrels intended for domestic consumption will be sold in naira to Nigerian refineries, with the Dangote Refinery serving as the pilot project. The exchange rate for these transactions will be fixed for their duration.
This initiative is expected to eliminate the need for international letters of credit and save Nigeria billions of dollars spent on importing refined fuels. Afreximbank and other settlement banks in Nigeria will facilitate the trade between Dangote and NNPC Limited, streamlining the process and making it more cost-effective.
Dangote’s disputes with Nigerian authorities
The decision comes amid ongoing disputes between Dangote Refinery, the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), and the Nigerian Upstream Petroleum Regulatory Commission (NUPRC).
On June 4, Aliko Dangote highlighted challenges in securing crude supplies from international oil companies (IOCs), claiming they were obstructing his refinery’s access to necessary feedstock.
On July 15, Gbenga Komolafe, CEO of NUPRC, refuted Dangote’s claims, stating that the Petroleum Industry Act (PIA) supports willing buyer-willing seller transactions. However, Dangote maintained his position.
Further complicating matters, Farouk Ahmed, CEO of NMDPRA, accused Dangote’s refinery of producing inferior petroleum products compared to imports. Ahmed claimed that the sulphur content in Dangote’s diesel was higher than the required West African standard and higher than that of imported diesel.
He also accused Dangote of attempting to monopolize the oil sector and making similar moves in the steel industry, prompting Dangote to halt his planned investments in Nigeria’s steel industry.
In response, Dangote tested diesel from his refinery on July 20 in the presence of federal lawmakers, demonstrating that his fuel had a significantly lower sulphur content than imported diesel. This prompted investigations into the NMDPRA’s allegations and the IOC’s hindrance to Dangote’s operations.
On July 22, Heineken Lokpobiri, Minister of State for Petroleum Resources (Oil), convened a meeting with Aliko Dangote, Farouk Ahmed, Gbenga Komolafe, and Mele Kyari, group CEO of NNPC, to address the disputes and ensure the successful implementation of the new crude oil sale directive.
Economic implications
President Tinubu’s directive, if successfully implemented, will bring significant economic benefits to Nigeria:
- By conducting crude oil transactions in naira, the demand for foreign currency will decrease, helping to stabilize the dollar-naira exchange rate and easing pressure on Nigeria’s foreign reserves.
- Nigeria currently spends billions of dollars importing refined fuel. As a matter of fact, Analysts at S&P Global Commodity Insights revealed that Nigeria has become the largest importer of refined petrol in Africa. As such, this initiative could drastically reduce these expenditures, freeing up funds for other critical economic needs.
- Selling crude in naira will support the growth and viability of local refineries, fostering self-sufficiency in fuel production and reducing dependency on foreign refineries.
- Encouraging local refineries will contribute to economic diversification, creating jobs and stimulating industrial growth in related sectors.
- Stabilizing the pump price of refined fuel can help control inflation, making goods and services more affordable for the average Nigerian and improving overall economic stability.
