The Independent Petroleum Producers Group (IPPG) has vehemently rejected recent government directives compelling them to sell crude oil to local refineries in Nigeria. The group argues that these mandates contravene the principles of the Petroleum Industry Act (PIA) of 2021 and could have detrimental consequences for the country’s economy.
In a letter addressed to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), IPPG Chairman Abdulrazak Isa urged the government to reconsider its approach and allow producers to engage in voluntary transactions with local refineries based on market principles.
Concerns Over Mandatory Allocations
The IPPG expressed deep concern over the NUPRC’s recent announcement of domestic crude oil refining requirements and the subsequent request for all producing companies to submit monthly crude oil supply quotations to licensed refineries. The group highlighted that some of its members had already received letters from the Dangote Refinery requesting crude supply nominations, which they viewed as an imposition of obligations that conflict with the PIA’s framework.
The IPPG emphasized that the PIA clearly outlines a willing-buyer, willing-seller principle for crude oil transactions. Compelling producers to sell crude to local refineries, regardless of market conditions, could undermine this principle and distort the competitive landscape within the oil and gas sector.
Impact on Foreign Exchange Earnings
The group also raised concerns about the potential negative impact of mandatory crude sales on Nigeria’s foreign exchange earnings. By diverting crude oil to local refineries, the government could limit the volume of crude available for export, which could reduce the country’s revenue from royalties and taxes.
Furthermore, the IPPG argued that the allocation methodology proposed by the NUPRC was flawed, as it appeared to be based on production forecasts and refinery demands rather than actual domestic consumption needs. This could lead to inefficiencies and unfairly disadvantage producers.
Call for Transparency and Fairness
The IPPG called for greater transparency and fairness in the allocation of crude oil to producers. The group requested that the NUPRC provide clear details on the allocation criteria and methodology, and sought an opportunity to contribute to the production forecast to ensure it accurately reflects operational realities.
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Isa emphasized the importance of maintaining a level playing field for all stakeholders in the oil and gas sector. He urged the government to avoid policies that could create undue advantages for certain players, such as local refineries, at the expense of others.
If You Ask Me: Balancing Domestic Needs and Export Opportunities
While the IPPG acknowledged the importance of supporting domestic crude oil refining capacity, it stressed that this should be done in a way that does not compromise the country’s economic interests. The group suggested that the government could utilize its own allocated crude oil volumes to meet the needs of local refineries, allowing producers to focus on maximizing export revenues.
By adopting a more market-driven approach, Nigeria could benefit from both increased domestic refining capacity and robust foreign exchange earnings.
