The Federal Executive Council (FEC) has directed the Nigerian National Petroleum Company (NNPC) Limited to sell crude oil to Dangote Refinery and other local refineries in naira and not in foreign currencies.
The Special Adviser to the President on Revenue, Zack Adedeji disclosed this after FEC meeting presided over by President Bola Tinubin at the State House, in Abuja.
Adedeji said the development is aimed ro stabilize fuel pump prices and the dollar-Naira exchange rate.
According to to him, FEC directed that NNPC Limited should immediately begin the full implementation of the directive to boost local production of refined petroleum products in Nigeria.
This new directive by FEC will ensure the 450,000 barrels of crude earmarked for domestic consumption is sold to Nigerian refineries in Naira, with Dangote Refinery serving as the pilot for this initiative.
This implies that the exchange rate will be fixed for the duration of this transaction.
The S.A on Revenue also explained that the sale of refined products from Dangote Refinery to oil marketers and distributors will now be done in naira and not in United States dollar.
Expected Macroeconomic Benefits:
Reduction in foreign exchange pressure, as the previous scenario utilized USD 660 million per month, totaling USD 7.92 billion annually. With the proposed scenario, expenditures are projected to decrease to USD 50 million per month, equating to USD 600 million annually. This reduction will significantly alleviate the pressure on foreign exchange reserves, leading to an annual savings of USD 7.32 billion representing 94%.
Reduced trade finance costs with annual savings of USD 79 million in LC costs through Afreximbank’s payment undertakings for bilateral trades.
Stabilized petroleum product prices as the forward-selling of crude oil and refined products at a fixed exchange rate unaffected by exchange rate fluctuations will stabilize pump prices.
Stabilizing petroleum prices will likely drive the appreciation of the NGN, as petroleum imports account for 30% of Nigeria’s FX demand.
Stable petroleum prices will lower transportation costs, reducing food price inflation and positively impacting interest rates and USD/NGN exchange rates.
Will eliminate government control and drive independence of the market as it aims to eliminate government intervention in the management of domestic petroleum prices, further facilitating competitiveness and allowing for greater market predictability and stability.
This model, subject to the settlement bank’s (e.g., Afreximbank) credit approvals, can be replicated for other refineries, facilitating the trade of 445,000 barrels reserved for domestic consumption and achieving energy security. This further ensures that strategic reserves are pegged at tolerable prices driving improved economic stability.
