Business a.m.
President Bola Tinubu has approved the sale of crude oil to indigenous refineries including Dangote Refinery in the nation’s local currency, the Naira.
The crucial decision was revealed by Zacch Adedeji, the executive chairman of the Federal Inland Revenue Service (FIRS) and special adviser on revenue to the president, following the conclusion of the Federal Executive Council (FEC) meeting, presided over by President Tinubu.
According to Adedeji, Tinubu issued a direct mandate to the Nigerian National Petroleum Company (NNPC) Limited to ensure the sale of crude oil to domestic refineries in naira with immediate effect.
Adedeji stated: “Today, at the Federal Executive Council, there was a memo by Mr. President, which is to promote the sale of crude oil within local refineries and Nigerian National Petroleum Company (NNPC), to deal in our local currency.
“The attitude of Mr. President is thinking outside the box to solve Nigeria’s problem and actually to localise the solutions to Nigeria’s problem.
“He has approved through the Council that effective immediately, that NNPC get engaged with local refineries and we are starting that with Dangote Refinery. That the sales of crude oil to Dangote Refinery be denominated in naira and also the sales of byproducts from Dangote Refinery to distributors also be conducted in naira.
“And what does it mean to our economy? One, the pressure on foreign exchange will be reduced.”
According to Adedeji’s assessment, Nigeria currently expends between 30 percent and 40 percent of its foreign exchange on the importation of premium motor spirit (PMS), representing $660 million monthly expenditure, or $7.92 billion annually.
The FIRS chairman stated further, “With this approval today through FEC led by Mr. President, this has reduced by minimum of 90 percent. Because what we have today, the transaction will now be down in our local currency not only to Dangote Refinery but to all local refineries for all our local consumption and this will actually stabilise the pump price.
“This will also make economic stability a reality, because it will no longer rely on the fluctuation in forex. Once again, this is an innovation of solving our problem as a country today.
“Just to be specific in terms of benefits are one which is major, is the reduction in foreign exchange pressure, utilise $660 million per month, total $7.92 billion annually. With the new approval that we have, this will reduce to maximum of $50 million per month, which is annnualised to be only $600 million. This is total reduction of 94% and saving us $7.32 billion.
“This will also reduce finance costs, which today stands at $79 million. When you consider opening letter of credit between those local refineries and what happens.
“And also, Council has approved the settling bank to be Afriximbank. It will be the lead arranger between NNPC and Dangote Refinery.
“So, this is a major innovation in solving Nigeria’s problem permanently. Not only will we have more employment but we will definitely be in charge of one of our main stay of our economy.
“So I congratulate the council members, Mr. President, and also congratulate the operator, the NNPC and Dangote Refinery and also the lead arranger, Afreximbank, because kudos should go to the President of the African Export-Import Bank (Afreximbank), Prof. Benedict Oramah, because these are people that work behind the scenes to make sure that what we witnessed today, happened.”
In elaborating on the recently-approved deal, Adedeji explained that the Dangote Refinery is approaching steady-state operations, meaning that it will soon be fully operational and capable of producing fuel to meet Nigeria’s domestic demands.
He further disclosed that the NNPC Limited (NNPCL) has committed to providing four crude oil cargoes to the refinery each month, with the remainder to be sourced from international traders. These transactions are typically conducted in US Dollars, placing significant strain on Nigeria’s foreign currency liquidity.
The FIRS chairman highlighted the importance of managing the foreign exchange demands of local refineries and petroleum marketers, which he noted, could be accomplished by implementing the following measures:
- Local refineries’ crude oil purchases from NNPCL denominated in NGN, at a fixed exchange rate, for a period of at least six months.
- Approved local petroleum marketing companies conducting refined product sales in NGN at the same fixed exchange rate as crude oil purchases.
