Naira-for-crude deal kicks off Tuesday as expectations soar

The Federal Government’s latest decision to introduce naira-denominated crude oil sales to Dangote and other local refineries starting on October 1, is expected to bring an end to the opaque 20-year-old Domestic Crude Allocation (DCA) scheme, a development expected to positively impact the domestic fuel supply chain and enhance transparency in the sector.

For over two decades, Africa’s biggest economy has operated an arrangement that ensures that about 445,000 barrels of crude oil per day (the nameplate capacity of Nigeria’s four government-owned refineries) are set aside from the federation’s share of oil and channelled for domestic refining.

The allocation would be paid for in naira, and the defunct Petroleum Products Marketing Company would recoup proceeds via the distribution and sale of the resulting refined products within Nigeria.

The rationale behind that was that such exclusive domestic allocation of crude oil would guarantee energy security, de-link refined petroleum product prices from volatility in exchange rates and international crude oil prices, and ensure adequate supplies of refined petroleum products in the country.

Read also: FG to commence naira crude oil sales to Dangote refinery October 1

Although the scheme looks brilliant on paper, in reality, chronic financial and operational challenges in the domestic refineries often force a chunk of the 445,000 bpd to be allocated to a complex oil-for-product swap between NNPC and trading companies, an arrangement popularly called the Direct Sale Direct Purchase program.

Bayo Onanuga, special adviser on information and strategy to the president, said the African Export-Import Bank (Afreximbank) and other settlement banks in Nigeria will facilitate the trade between Dangote and NNPC.

“ To ensure the stability of the pump price of refined fuel and the dollar-Naira exchange rate, the Federal Executive Council today adopted a proposal by President Tinubu to sell crude to Dangote Refinery and other upcoming refineries in Naira,” Onanuga said on his X account on Monday.

He added, “The FEC has 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.”

Zacch Adedeji, executive chairman of the Federal Inland Revenue Service (FIRS), said the sale of byproducts from Dangote refinery to distributors will also be conducted in naira.

“And what does it mean to our economy? One, the pressure on foreign exchange will be reduced,” Adedeji said.

FG to save $7.92bn

Adedeji further said that with the new approval, the foreign exchange spent on petrol will be reduced to a maximum of $50 million per month, rounding off to $600 million annually.

“This is a total reduction of 94 percent and saving us 7.32 billion,” Adedeji said.

“So, this is a major innovation in solving Nigeria’s problem permanently. Not only will it have more employment but we will definitely be in charge of one of the mainstays of our economy.