In a groundbreaking move to stabilize the nation’s fuel prices and strengthen the Naira, President Bola Tinubu’s administration has unveiled a new initiative to sell crude oil to Dangote Refinery and other emerging refineries in Nigeria using the local currency. This significant policy shift, endorsed by the Federal Executive Council (FEC), aims to alleviate pressure on the dollar-Naira exchange rate and ensure more predictable pump prices for refined fuel products.
Currently, the Dangote Refinery, a key player in Nigeria’s refining sector, requires approximately 15 cargoes of crude annually, amounting to an estimated cost of $13.5 billion. The Nigerian National Petroleum Corporation (NNPC) has committed to supplying four of these cargoes. Under the new FEC-approved arrangement, 450,000 barrels of crude oil per day, originally earmarked for domestic consumption, will now be sold to Nigerian refineries in Naira, with Dangote Refinery serving as the pilot project for this initiative. To maintain financial stability, the exchange rate will be fixed for the duration of the transactions.
The implementation of this policy involves collaboration with Afreximbank and other local settlement banks, which will facilitate the trade between Dangote Refinery and NNPC Limited. This innovative approach eliminates the need for international letters of credit, thus simplifying the transaction process and reducing costs. The FEC believes that this initiative will save Nigeria billions of dollars currently spent on importing refined petroleum products, while also boosting the local economy.
This initiative marks a pivotal moment in Nigeria’s economic strategy, as it seeks to leverage its own resources to gain greater control over domestic fuel pricing and foreign exchange dynamics. By denominating crude oil transactions in Naira, the government not only aims to enhance the refinery’s operational efficiency but also to bolster the local currency against external economic shocks. The success of this policy could set a precedent for future economic reforms and energy sector strategies in the country.
