4 months ago
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Oil and gas experts have said that President Bola Ahmed Tinubu’s recent order to the Nigerian National Petroleum Company Limited on sale of crude oil in Naira to Dangote Refinery and other local refineries will not end the 650,000 barrel per day refinery’s challenges in the sector.
DAILY POST reports that in a major decision on Monday at the Federal Executive Council, Tinubu approved NNPCL to sell crude oil to Dangote Refinery and other local refineries in Naira.
The move was aimed at ending the crude crisis being experienced by local refineries.
Recall in the last months, Dangote Refinery has continued to lament the crude oil supply crisis and other challenges experienced in Nigeria’s oil sector.
This is as it approached the US and Brazil for crude import despite Nigeria being Africa’s largest crude producer.
Dangote Refinery had accused International Oil Companies in Nigeria of sabotage over the supply crisis. The company later had a dispute with the Nigerian Midstream and Downstream Petroleum Regulatory Authority over regulatory compliance.
As the crisis raged, the Chairman of Dangote Group, Aliko Dangote, alleged that NNPCL officials own a blending plant in Malta, a southern European island.
However, on Monday, Tinubu ordered NNPCL to sell crude in Naira to Dangote Refinery and other local refineries.
The Special Adviser to the President on Information and Publicity, Bayo Onanuga disclosed this in a statement on his X account.
Onanuga said the move was to ensure the stability of the pump price of refined fuel and the dollar-naira exchange rate.
Accordingly, he said the country’s 450,000 barrels of crude meant for domestic consumption should be sold in Naira to Nigerian refineries with Dangote Refinery as a pilot.
This becomes expedited as “Dangote refinery currently requires about 15 cargoes of crude oil at about $13.5bn yearly. NNPC has committed to supply four”, he said.
In a further analysis of the development, the President’s Special Adviser on Revenue, Mr. Zacch Adedeji, who also serves as Chairman of the Federal Inland Revenue Service, said Monday’s move mitigates Nigeria’s heavy reliance on foreign exchange for crude oil imports, accounting for roughly 30 to 40 percent of its forex expenditure.
According to him, the decision will save the country an estimated annual savings of $7.3 billion and will reduce monthly forex expenditure on petroleum products by an estimated $660 million.
“Monthly, we spend roughly $660m in these exercises, and if you analyze that, that will give us $7.92bn savings annually,” he stated
Meanwhile, experts within the oil sector have expressed divergent views on the implications of Tinubu’s order and its impact on the Nigerian economy.
Experts React
The Managing Partner, BBH Consulting and Convener, Public Interest Advocacy Network, PIAN, Barr. Ameh Madaki believes that Tinubu’s order on crude oil sale in Naira will not solve Dangote Refinery’s crisis.
He said this was because the country had no spare crude oil to sell to any refinery.
According to him, the crude oil forward sale contracts secured for Nigeria by NNPCL meant that there was barely any production from the current 1.2 million barrels per day to sell to local refineries.
Ameh said the best way out was to sell the crude oil for domestic consumption at the wellhead cost of production.
“It will not solve the Dangote Refinery’s crisis. Because the country had no spare crude oil to sell to any refinery. With all their forward sale contracts, there is barely any production from the current 1.2 million barrels a day to sell to anyone.
“The only policy which will make some sense is to sell the crude oil for domestic consumption at the wellhead cost of production.
“Otherwise, we will be chasing shadows and people will be pocketing millions of dollars in fraudulent subsidy payments”, he told DAILY POST.
Similarly, an energy expert, Joseph Eleojo said: “Where is NNPCL getting the crude to sell to Dangote and other refineries from? This goes to tell Nigerians why the local refineries have not worked for 35 years.
“The decision to sell crude to Dangote in Naira is a wonderful decision as it will lessen the pressure on Dangote and the other refineries from sourcing FX to buy crude.
“Nigerians should not expect drastic price discounts because crude oil is sold to the local refineries in Naira”.
Meanwhile, Group Chairman of International Energy Services Limited, Dr Diran Fawibe said Tinubu’s decision to allow crude oil sale in Naira to Dangote Refinery will help the refinery to price its product properly.
He said that the indirect impact of the decision will reduce pressure on the Naira and importation of fuel.
“It is a good decision on the part of the Federal Executive Council and the President.
“About 3000 to 4000 bpd has been allocated to domestic, which has been the case for many years based on the capacity of Nigeria’s refineries. It makes a lot of sense to approve crude oil sales to Dangote Refinery and other local refineries in Naira.
“This will assist the refinery to price its product properly for the benefit of Nigeria. Hitherto, crude has not been sold in Naira.
“The indirect benefit is that petrol import with the operation of Dangote Refinery will be reduced. Similarly, the FX used for fuel import will be reduced to a reasonable extent.
“This will benefit the FX market. You can imagine if there is no fuel in the country, even the queue we are currently experiencing may reduce. I expect that a Naira crude oil price regime will impact sustainable product pricing in Nigeria and stem the importation of fuel”, he said.
On his part, the Centre for the Promotion of Private Enterprise, CPPE, said the decision will ease the current pressure on petroleum products pricing in Nigeria.
However, Muda noted that the major challenge may be the capacity of NNPCL to supply the crude.
“This is surely a welcome development and will go a long way to easing the current pressure of pricing of Petroleum products in Nigeria, especially given the capacity of Dangote Refinery.
“The major challenge now is the capacity of NNPCL to supply the crude. It is one thing to give a liberal payment condition (that is paying for the crude in Naira), it is another thing to make the crude available.
“I think this remains a major challenge. If the NNPCL can make the crude available for Dangote refinery and other local refineries, it will be a great idea.
“The benefits will be transmitted to the citizens in terms of more supply of petroleum products, and moderation in the price of the product.
“Because we are in a situation where we worry about the cost of living, social stability, economic development, and the issue of production; in all these things, access to energy is central. It is paramount that NNPCL can provide the crude”, he told DAILY POST.
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