In a bold move aimed at bolstering the local economy and conserving foreign exchange, the Nigerian government has mandated the Nigerian National Petroleum Company (NNPC) to sell crude oil to domestic refineries exclusively in Naira.
The decision, announced on Tuesday by Special Adviser to the President on Information and Publicity, Bayo Onanuga, was approved by the Federal Executive Council (FEC). The policy targets the Dangote Refinery as a pilot, with plans to extend it to other upcoming refineries.
Dangote Refinery to Benefit from Naira-Denominated Crude Oil
According to Onanuga, the Dangote Refinery currently requires 15 cargoes of crude oil annually, amounting to a staggering $13.5 billion. While the NNPC has committed to supplying four cargoes, the FEC has greenlit the sale of the remaining 450,000 barrels meant for domestic consumption in Naira.
“The exchange rate will be fixed for the duration of this transaction,” Onanuga stated.
Afreximbank as Settlement Bank
The government has designated Afreximbank as the primary settlement bank for the naira-denominated crude oil transactions. This strategic partnership underscores the government’s determination to control the nation’s economic mainstay.
“Council approved that AFREXIM bank will be the settlement bank, while the government will definitely be in charge of the mainstay of our economy,” Adedeji concluded.
Chairman of the Federal Inland Revenue Service (FIRS), Zacch Adedeji, emphasized the policy’s potential to save billions of dollars spent on refined fuel imports.
Economic Implications of Naira-Denominated Crude Oil Sales
The implementation of the naira-for-crude policy marks a significant milestone in Nigeria’s economic development. By promoting local currency transactions and reducing dependence on foreign exchange, the government aims to strengthen the economy and create a more sustainable future.
Adedeji highlighted the potential to reduce foreign exchange pressures by approximately 94%, saving the nation an estimated $79 million in finance costs.
“With effect from today, the NNPC will sell crude oil to local refineries and engage with them on the basis of local currency,” Adedeji confirmed.
Government Aims to Boost Local Refineries
By prioritizing Naira transactions, the government aims to stimulate the growth of local refineries and reduce dependence on imported refined products. This policy aligns with the administration’s broader economic diversification agenda.
“The sale of crude oil to the Dangote refinery will be done in Naira to reduce pressure on the local refineries,” Adedeji added.
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If You Ask Me
While the policy holds the promise of significant economic benefits, challenges may arise. Experts have raised concerns about potential exchange rate volatility and the need for effective monitoring to prevent illicit activities.
However, if successfully implemented, the Naira-denominated crude oil sales could serve as a catalyst for economic growth, job creation, and increased foreign exchange reserves.
The government has assured the public that it will closely monitor the policy’s impact and make necessary adjustments to optimize its benefits. As the nation transitions to this new era of oil trade, stakeholders will be watching closely to assess its effectiveness in achieving its stated objectives.
