The Federal Executive Council (FEC) has adopted President Bola Tinubu’s proposal to sell crude oil to Dangote Refinery and other emerging refineries in Naira.
This decision, announced Monday by the president’s team on X.com, marks a pivotal shift in Nigeria’s approach to crude oil transactions and domestic refining.
This development comes amidst controversy surrounding Dangote Refinery and its business practices.
Dangote, Africa’s richest man, has been embroiled in a squabble with the Nigerian National Petroleum Corporation Limited (NNPCL) and other oil regulators.
Reports circulating online, including statements from Farouk Ahmed, CEO of the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), suggested that local refineries, including the Dangote refinery, were producing inferior products compared to imports.
These reports, coupled with allegations of high-sulfur diesel production, have been met with strong rebuttals from Dangote’s spokesperson, Anthony Chiejina, who dismissed the claims as misleading.
Chiejina, later labelled the reports of producing high-sulfur diesel as “mischievous and aimed at tarnishing our reputation.”
Currently, Dangote Refinery, one of the largest in Africa, requires 15 cargoes of crude oil annually, at an estimated cost of $13.5 billion.
In response to this substantial demand, the Nigerian National Petroleum Company Limited (NNPC) has committed to supplying four cargoes.
However, in a strategic move to enhance domestic refining capabilities and stabilize the local economy, the FEC has approved a plan for selling 450,000 barrels of crude, initially allocated for domestic consumption, in Naira to Nigerian refineries, starting with Dangote Refinery as the pilot.
This new arrangement will fix the exchange rate for the duration of the transaction, a measure designed to shield the refinery from the volatility of international currency fluctuations.
By facilitating the trade in Naira, the policy aims to streamline transactions and reduce reliance on international letters of credit, a process that has historically added complexity and cost to crude oil transactions.
To support this initiative, Afreximbank and other settlement banks in Nigeria will oversee the trade between Dangote Refinery and NNPC Limited.
This intervention is expected to not only simplify the transaction process but also result in significant cost savings for Nigeria by reducing the need for costly imports of refined fuel.
The move represents a game-changing development for Nigeria’s oil sector, addressing multiple challenges simultaneously.
By providing a stable and predictable framework for crude oil transactions, the policy is poised to enhance the viability of domestic refineries, reduce foreign exchange expenditure, and potentially lower fuel prices at the pump.
President Akinwunmi Adesina of the African Development Bank had voiced strong support for Dangote, criticising the disparagement of the refinery as detrimental to Nigeria’s investment climate.
Adesina argued that the negative focus on Dangote’s operations undermines Nigeria’s reputation and discourages potential investors.
He pointed out that monopolies in industries with high capital costs, such as large-scale refineries, are common and should not be viewed as anti-competitive without evidence.
Adesina emphasised that supporting local industries like Dangote Refineries is crucial for economic stability, job creation, and reducing foreign exchange expenditure.
