The Nigerian National Petroleum Company Limited (NNPCL) is facing significant challenges in maintaining its naira-for-crude deal with Dangote Petroleum Refinery due to large volumes of crude oil allocated to its foreign creditors for loan settlements.
This shift in crude oil allocation has made it increasingly difficult for NNPCL to meet the supply demands of domestic refiners, including Dangote Refinery, which has recently suspended the sale of petroleum products in naira.
Sources familiar with the matter have revealed that the NNPCL’s allocation of crude to foreign creditors has caused an imbalance in the supply of crude oil under the naira-for-crude policy. As a result, Dangote Refinery has struggled to align its sales in naira with the crude oil it has received, which is necessary for the refinery’s operations.
On Thursday, officials from the Federal Ministry of Finance and the Federal Ministry of Petroleum Resources confirmed that the Technical Sub-Committee on the Naira-for-Crude Policy would reconvene on Monday to address the issue. The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has been tasked with proposing potential solutions to restore balance to the arrangement.
Despite these challenges, a source within the Technical Sub-Committee emphasized that the naira-for-crude policy would not be completely abandoned, noting that the primary sticking point is the availability of crude. NNPCL has reported that it has pre-sold substantial amounts of crude oil, which has impacted its ability to meet domestic refining commitments.
In light of the situation, oil marketers are exploring alternatives to ensure continued supply following Dangote Refinery’s suspension of naira-based petroleum product sales. The decision, announced on Wednesday, was prompted by a mismatch between the refinery’s sales proceeds in naira and its crude procurement obligations, which are currently denominated in US dollars. The refinery stated that its sales of petroleum products in naira had surpassed the value of crude oil it had received under the agreement.
Following this announcement, the cost of loading petrol at private depots in Lagos increased significantly, rising from about N850/litre to approximately N900/litre. Marketers, including the National President of the Petroleum Products Retail Outlet Owners Association of Nigeria (PETROAN), Billy Gillis-Harry, indicated that efforts are underway to secure alternative sources of fuel, which could include NNPC and other local refineries, as well as increased fuel imports.
Gillis-Harry also expressed concern about the potential impact of a dollar-denominated pricing structure on consumers, stating that PETROAN would resist any attempts to exploit the situation for profit. He highlighted the need for diversification in the downstream sector to ensure a stable and affordable supply of petroleum products.
The NNPC has not confirmed or denied Dangote Refinery’s claim regarding crude oil purchases in US dollars but reiterated its commitment to supplying crude oil for local refining under mutually agreed terms. In response to the ongoing concerns, the Vice President of the Independent Petroleum Marketers Association of Nigeria (IPMAN), Hammed Fashola, urged the federal government to revisit the agreement with Dangote Refinery to prevent further disruptions in the petroleum product supply chain.
Fashola cautioned that disruptions to the naira-for-crude arrangement could lead to a reversal in the recent drop in petrol prices, which had been welcomed by consumers. He stressed the importance of maintaining a stable supply of crude oil to Dangote Refinery and other local refiners to ensure continued stability in the market.
As the Technical Sub-Committee prepares to reconvene, stakeholders are hopeful that a viable solution can be found to address the issues surrounding crude supply and the sustainability of the naira-for-crude deal, which has played a key role in the country’s domestic refining efforts.
