The recent directive by President Bola Ahmed Tinubu, sequel to a deliberation by the Federal Executive Council (FEC), that the Nigerian National Petroleum Company (NNPC) Limited should begin to sell crude oil to Dangote Refinery and other upcoming refineries in naira bodes well for the Nigerian economy. FEC had to adopt a proposal to this effect, following the raucous prevarications and mudslinging that attended the buildup to Dangote Refinery’s commencement of rolling out of fuel (Petroleum Motor Spirit, PMS) from its plants at Lekki, in Lagos.
Seemingly, the closer the Dangote Refinery got to its definitive commencement of PMS production date (in August 2024), the more heated the brouhaha and ding dong between top executives of the company and the Federal Government — represented by the leadership of relevant oil industry regulatory agencies. This unwholesome situation apparently has led to the Dangote Refinery, since it began the refining of diesel earlier in the year, to resort to importation of crude from such far-flung places as the United States and Brazil. And the company has been paying heavily in dollar terms.
Against this backdrop, the presidential order for crude oil in Nigeria to now be sold to Dangote Refinery and other local refineries is most auspicious and could be a game changer in the economic turnaround efforts of the federal government. This is because for several years now, Nigeria has been depending on almost one hundred percent imported PMS for all its local needs. This has ensured not only the continued ‘death’ of existing refineries in the country, but also constituted a huge drain on the public till — in dollar terms.
Under the emerging arrangement, AfreximBank and other settlement banks in Nigeria will facilitate the trade between Dangote and NNPC Limited. This intervention will eliminate the need for international letters of credit and save Nigeria billions of dollars annually spent on importing refined fuel.
Specifically, the executive chairman of the Federal Inland Revenue Services (FIRS), Zach Adedeji, who was at the FEC meeting, said: “The sale of crude oil to Dangote Refinery in Naira will reduce pressure on local refineries,” adding that “about $660 million (about N7.92 billion) is spent to procure crude, which pressures the nation’s foreign exchange reserves. The new measures aim to reduce this by 90 percent,” he said.
Before this crucial decision by Mr. President who is also the substantive minister of petroleum resources, there has been a lot of throwing of brickbats and uncertainty about what will become of the Dangote Refinery. Although former President Muhammadu Buhari commissioned the refinery in May 2023, it only began refining diesel and other products early in 2024. However, it needed a steady and larger supply of crude oil input to commence the production and supply of PMS.
Unfortunately, the efforts of the company to reach a deal with Nigerian producers of crude oil was hardly yielding any results, leading to several rescheduling of supply of PMS from the refinery. Neither the Nigerian National Petroleum Company (NNPC) Limited nor the international oil companies (IOCs) showed eagerness to supply Dangote Refinery the badly needed feedstock (crude oil). This situation got so bad that the management of Dangote Refinery had to accuse the IOCs in the country of organised sabotage.
Specifically, Devakumar Edwin, vice-president, oil and gas, at Dangote Industries Limited (DIL) reportedly accused the IOCs in Nigeria of “doing everything to frustrate the survival of Dangote Oil Refinery and Petrochemicals.” Edwin said the IOCs were deliberately frustrating the refinery’s efforts to buy local crude by jerking up crude oil prices above the market price, thereby forcing it (the refinery) to import crude from countries as far as the United States, with attendant huge costs.
In addition to this, Edwin also lamented the activity of the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), which he accused of “granting licences indiscriminately to marketers to import dirty refined products into the country.” He further lamented that “the federal government issued 25 licences to build refineries and we are the only one that delivered on promise,” saying “in effect, we deserve every support from the government.”
The DIL chief further said: “The IOCs are keen on exporting the raw materials (crude oil) to their home countries, creating employment and wealth for their countries, adding to their GDP, and dumping the expensive refined products into Nigeria, thus making us depend on imported products.” He regretted this scenario, saying that “unfortunately, Nigeria also plays into the hands of the IOCs by continuing to issue import licences at the expense of our economy.”
It is against this backdrop that the presidential order for the NNPC to begin to sell crude to Dangote Refinery and other local refineries in naira could be seen to have come at the nick of time. This is also because a large chunk of Nigeria’s scarce foreign exchange (FX), about a third of what is supplied to the market, usually goes to importation of refined products.
Truly, it has been the near-total dependence on importation of these (refined) products, sustained by the licensing of more importers that exacerbated the unintended negative effects of fuel subsidy removal since May 2023. The cumulative demand for FX by PMS importers has steadily ensured that demand for forex far outstripped the supply in the FX market. This leads to further crashing of the naira against the dollar ceaselessly.
The continued upsurge in the prices of crude oil in the international market in several months had usually driven up prices of the refined products. This, in turn, resulted in higher landing cost of the imported PMS into Nigeria — leading to consistent pressure for increases in the pump price of the product. And this has led to either shortage or scarcity of fuel or hiking of its prices in various locations across the country.
This really has since sparked and sustained suspicion in the mind of the Nigerian public that somehow the federal government had recommenced paying ‘subsidy’ to the PMS importers/marketers. Even with this, the pump price of PMS has kept rising, ranging from N700 per litre to over N1000 per litre in different parts of the country. This has continued to sustain rising costs of intra- and inter-city transportation.
The trend has also fed into rising costs of foodstuffs, goods and services. All these have been reflecting in the subsisting hyperinflationary trend in the country — evidently, largely driven by the high and rising prices of food.
As Dangote Refinery begins to get steady supply of crude from within Nigeria, and pays in naira, it is most likely that this will lower its cost of operation. Sequel to this, the Dangote Refinery producing and supplying PMS cheaper than hitherto would very likely begin to cause a drop in the cost of transportation; prices of food; and cost of living generally.
It must however be stated that the presidential order for the sale of crude in naira to local refineries has also saved the country from avoidable embarrassment in the comity of oil producing countries. Specifically, given Nigeria’s ranking among African crude producers and the Organisation of Petroleum Exporting Countries (OPEC), it is infra dig for the country to be unable to meet the crude input needs of just a few local refineries. And Dangote Refinery is the only one of notable capacity; others are small modular refineries.
Indeed, Dangote Refinery’s resort to importing crude from abroad had unfortunately put a huge question mark on the country’s long-hyped crude oil production and export capacity. This lack of capacity has somewhat also exposed the precarious state of the oil sector in Nigeria. In recent times, the oil exploration and production (E & P) business has been buffeted by a myriad of challenges, including the bizarre phenomenon of massive oil theft.
Barring unexpected glitches (administrative or technical), the support and encouragement of the federal government (which the crude sales in naira connotes) to Dangote Refinery has the capacity to jumpstart the country’s economic turnaround. This support also challenges the government and its bureaucracy to promptly restream the existing refineries in Warri, Kaduna and Port Harcourt. This will not only checkmate the emergence of any monopoly in the refined products market but also meaningfully drive the economic progress of the country.
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