Uncertainty Over Naira-for-crude Policy As Federal Gov’t Fails To Release Guideline

There is widespread uncertainty over the take-off of the Naira-for-Crude Policy, which was scheduled to begin yesterday, October 1, 2024.

By the end of Tuesday, October 1, when the policy was expected to commence, the federal government had yet to release the necessary guidelines for implementation.

LEADERSHIP recalls that on September 13, 2024, the Technical Sub-Committee on Domestic Sales of Crude Oil in Local Currency announced that the Federal Executive Council, under the leadership of President Bola Tinubu, approved the sale of crude to local refineries in naira and the corresponding purchase of petroleum products in naira.

This initiative, approved by President Bola Tinubu, is expected to reduce foreign exchange demand by 40 per cent and stabilise the naira.

By that announcement, the Nigerian National Petroleum Company Limited (NNPC) was expected to begin supplying about 385 kbps (385,000 barrels per day) of crude oil to the Dangote refinery on October 1, with payment made in naira.

Under the policy, Dangote Refinery is expected to reciprocate by selling refined products to the NNPC in naira as well.

As of yesterday, LEADERSHIP could not confirm from both Dangote Refinery and the NNPC that the policy had kicked off.

LEADERSHIP sent an enquiry to the NNPC spokesman, Olufemi Soneye, on WhatsApp at 18:44 on Monday; despite reading the message, he did not respond.

A reminder was also sent to him on Tuesday at about 20:27. He had yet to respond by the time the paper went to bed. LEADERSHIP also contacted the spokesman for Dangote Refinery, Anthony Chiejina, who also failed to provide information on the take-off.

However, the technical committee set up by the federal government maintained on Monday that the supply would commence as scheduled.

The chairman of the Technical Subcommittee, Zacch Adedeji, who also serves as chairman of the Federal Inland Revenue Service (FIRS), confirmed on Sunday that the NNPC’s supply of crude in naira to the Dangote Petroleum Refinery was to begin on Tuesday, October 1, 2024.

When contacted and asked if the plan for the crude oil supply to the $20 billion Lekki-based plant is still intact, the Special Adviser on Media to the FIRS chairman, Dare Adekanmbi, responded in the affirmative.

A similar deal was scheduled for the Port Harcourt refinery to receive crude with payment in local currency. However, the state-owned refinery missed the September rollout timeline.

This means that the frustration of Nigerians regarding the democratisation of the source of locally produced petrol continues, despite the commencement of operations at Dangote Refineries, which will start buying crude oil in naira today, rather than in dollars. The failure of the Port Harcourt Refinery to come on stream has been attributed to technical challenges.

READ ALSO: Oil, Gas Suppliers Back Naira Crude Sales To Local Refiners

According to our sources, the technical problems must be resolved completely before the refinery can come on stream, perhaps by December.

The federal government prioritises the supply of naira-denominated crude oil to the Dangote Refinery in the first phase of the naira-for-crude scheme, a development expected to positively impact the domestic fuel supply chain and enhance transparency.

Oil transactions in Nigeria are often conducted in US dollars, given the international nature of the oil market and the global reliance on the dollar for such trade.

However, the Federal Executive Council recently adopted a proposal by President Bola Tinubu to sell crude to the Dangote refinery and other upcoming refineries in naira.

The federal cabinet approved that the 450,000 barrels meant for domestic consumption be offered in naira to Nigerian refineries, using the Dangote refinery as a pilot. The exchange rate will be fixed for the duration of this transaction.

The publicity secretary of CORAN, Eche Idoko, stated that the federal government had promised to supply crude oil only to the Dangote refinery as it was the “only refinery producing petrol”.

“We were present at the inaugural meeting where the federal government made it clear that they would want to start the naira sales in phases. They would start with refineries that are producing PMS first and extend it to other refineries, and that’s where they are right now. We can say the first phase of the naira sales will start in October,” Idoko told BusinessDAY.

“No other refinery (apart from Dangote refinery) is selling petrol at the moment, but I know that there are other refineries working on their plants that will be producing petroleum, like the Clairgold refinery, which intends to produce PMS.

“There is also Aradel, which is working on their PMS plant. There is also Azikel Petroleum Refineries, which is also working on producing PMS.

“The last I heard regarding that arrangement is that the October date still remains, and we have spoken with people at Dangote, who said conversations are ongoing.”

However, he noted that the details of the transactions would be announced by the federal government.

“For instance, are they going to give discounts as in the normal practice when you are selling crude to international traders? If there is going to be a discount, that is what will guarantee the reduction in price of petroleum products,” Idoko said.

“We also want to know at what rate the exchange rate is pegged. Is the federal government intending to maintain the N1,600 exchange rate?”

He added that Nigerians would know the potential price of petroleum products when all the details are unveiled.

On September 13, 2024, the Technical Sub-Committee on Domestic Sales of Crude Oil in Local Currency announced that the Federal Executive Council under the leadership of President Bola Tinubu approved the sale of crude to local refineries in naira and the corresponding purchase of petroleum products in naira.

“From October 1, NNPC will commence the supply of about 385 kbpd (385,000 barrels per day) of crude oil to the Dangote refinery, to be paid in naira,” the committee had declared.

The chairman of the Technical Subcommittee, Zacch Adedeji, who also serves as chairman of the Federal Inland Revenue Service, stated that the committee works day and night to ensure that things go according to plan.

In September, the panel explained that this initiative would help reduce pressure on the naira, eliminate unnecessary transaction costs, and improve the availability of petroleum products across the country.

“Since then, the implementation committee, chaired by the Minister of Finance, and we, the technical committee, have worked intensively with NNPC and Dangote refinery to craft the details of the modalities for the implementation of the FEC approval,” Adedeji had stated.

While stating that crude would be sold to Dangote in naira from 1 October, the committee chairman and FIRS boss said, “In return, the Dangote refinery will supply PMS (petrol) and diesel of equivalent value to the domestic market to be paid in naira.

“Diesel will be sold in naira by the Dangote refinery to any interested off-taker. PMS will only be sold to NNPC. NNPC will then sell to various marketers for now. All associated regulatory costs (NPA, NIMASA, etc.) will also be paid in naira. We are also setting up a one-stop shop that will coordinate service provision from all regulatory agencies, security agencies, and other stakeholders to ensure a smooth implementation of this initiative.”

Adedeji explained that the technical committee that worked to flesh out the initiative would transition to an implementation execution and monitoring committee, working out of Lagos for the next three to six months.

The committee, which includes Lydia Jafiya, the permanent secretary of the Federal Ministry of Finance; the FIRS boss; and representatives from NNPC, the Central Bank of Nigeria, AfreximBank, and the Nigerian Upstream Petroleum Regulatory Commission, was set up to craft a robust template that will ensure the initiative’s successful implementation.