Why NNPC prioritises Dangote for first phase of naira crude sale

The Nigerian National Petroleum Company (NNPC) is prioritising supplying naira-denominated crude oil to the Dangote Refinery in the first phase of a 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 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.

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

“We were present at the inaugural meeting where the federal government did make us understand that they would want to start the naira sales in phases. That they would start with refineries that are producing PMS first and extend it to other refineries and that’s where they are right now and we can say the first phase of the naira sales will start in October,” Idoko said.

Read also: NNPC prioritises Dangote for naira crude sales – CORAN

“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 would 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 with respect to that arrangement, the October date still remains and we have spoken with people at Dangote and they said conversations are ongoing.”

However, he said the details of the transactions would be made known when the federal government makes the announcement.

“For instance, are they going to discounts as in the normal practice when you are selling crude to the 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 is the exchange rate pegged. Is the federal government intending to maintain the N1,600 exchange rate?”

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

Read also: Marketers face pricing hurdles over direct Dangote petrol purchase

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 385kbpd (385,000 barrels per day) of crude oil to the Dangote refinery to be paid for in naira,” the committee had declared.

The chairman of the Technical Sub-Committee is Zacch Adedeji, who doubles as chairman of the Federal Inland Revenue Service.

Dare Adekanmbi, the special adviser on media to the FIRS Chairman told Journalists that the committee is working day and night to ensure that things go according to plans.

The panel explained in September 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 intensely with NNPC and Dangote refinery to fashion out 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 October 1, 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, as well as representatives from NNPC, Central Bank of Nigeria, AfreximBank, and the Nigerian Upstream Petroleum Regulatory Commission, was set up to craft a robust template that will ensure the successful implementation of the initiative.