Dangote Refinery and other local refineries will henceforth pay naira to access crude from the Nigerian National Petroleum Corporation Limited (NNPCL) following yesterday’s directive by President Bola Ahmed Tinubu.
The Presidential order followed an approval by the Federal Executive Council (FEC) at its Ninth meeting this year in Abuja yesterday, the Executive Chairman of the Federal Inland Revenue Service (FIRS), Mr. Zacch Adedeji told reporters at the State House.
Beside the adoption of the naira as currency trading for the local operators, the President also directed the NNPCL to immediately commence engagement with local refineries in in naira-denominated transactions.
Briefing reporters after the FEC meeting, the FIRS boss said the directive also affects the sale of products from Dangote and other refineries. The transactions must be conducted in naira.
He said the decision aims to mitigate the heavy reliance on foreign exchange for crude imports, which currently accounts to between 30 and 40 per cent of Nigeria’s foreign exchange (forex) expenditure.
Adedeji further explained that by denominating transactions in naira, the federal government expects to significantly reduce this forex burden, estimating annual savings of around $7.3 billion.
Adedeji emphasized that this shift will stabilize crude oil prices domestically by minimising the impact of forex fluctuations.
He said the new policy is anticipated to ease the pressure on forex reserves, reducing monthly forex expenditure on petroleum products to $50 million from approximately $660 million.
As part of the implementation, AFREXIM Bank has been selected as the pilot settlement bank to facilitate these transactions.
He said: “Today, at the Federal Executive Council, there was a memo by Mr. President, which is to promote the sale of crude oil within local refineries and Nigeria National Petroleum Corporation (NNPC), to deal in our local currency.
“The attitude of Mr. President is thinking outside the box to solve Nigeria’s problem and actually to localised the solutions to Nigeria’s problem.
“He has approved through the Council that effective immediately, that NNPC get engaged with local refineries and we are starting that with Dangote Refinery. That the sales of crude oil to Dangote Refinery be denominated in naria and also the sales of byproducts from Dangote Refinery to distributors also be conducted in naira.
“What does it mean to our economy? One, the pressure on foreign exchange will be reduced.”
Adedeji said Nigeria currently spends between 30% to 40% of its foreign exchange on importation of PMS that it consumes, adding “monthly, we spend roughly $660 million in these exercise and if you analyze that will give us $7.92 billion annually.”
The FIRS boss added: “With this approval today through FEC, led by Mr. President, this has reduced by minimum of 90% because what we have today, will mean transaction is now done in our local currency, not only with Dangote Refinery, but to all local refineries for all our local consumptions and this will actually stabilise the pump price.
“This will also make economic predictability a reality because we will no longer rely on the fluctuations that happen in forex. This is an innovation to solving our problems as a country today.”
“This will also reduce finance costs, which today stands at $79 million, when you consider opening letter of credit between those local refineries and what happens.
“So, this is a major innovation in solving Nigeria’s problem permanently. Not only will we have more employment, but we will definitely be in charge of one of the mainstay of our economy.
“I congratulate the Council members, Mr. President and also congratulate the operators; the NNPC and Dangote Refinery and also the lead arranger AFREXIM Bank because kudos should go to the President of the AFREXIM Bank, Prof. Benedict Oramah, for this initiative because these are people that work behind the scenes to make sure that what we witnessed today happened.”
“One of the major directives of Mr. President and the Council in general, is that AFREXIM leads the advisory work of structuring and arranging this initiative with the Associated Trade Finance Facility (ATFF), in collaboration with the Central Bank of Nigeria (CBN), the NNPCL and Federal Ministry of Finance and other critical agencies.”
Billionaire businessman Femi Otedola agreed with Adedeji’s explanation in his reaction posted on his X account.
Otedola, who lauded President Tinubu’s directive for the adoption of the local currency in crude oil trading within Nigeria, said: “It a game-changing intervention that will significantly reduce the country’s reliance on foreign exchange.”
In the post on his X account, Otedola said the step adopted by the FEC, aims to stabilise both the pump price of refined fuel and the dollar-naira exchange rate by selling crude oil to Dangote Refinery and other upcoming refineries.
Otedola said: “Dangote Refinery currently requires 15 cargoes of crude at a cost of $13.5 billion yearly. NNPCL has committed to supply four.
“But 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.”
Otedola highlighted the importance of the move in streamlining the process, ensuring smoother transactions and reducing reliance on forex.
“This initiative is crucial for our economy. It will ensure the stability of fuel prices and the Naira, ultimately benefiting the Nigerian populace,” Otedola said.
Credit: Thenation
