The Federal Executive Council (FEC) has approved a groundbreaking initiative proposed by President Bola Tinubu. The initiative will see crude oil sold to the Dangote Refinery, and potentially other refineries, in Naira rather than foreign currencies.
The Dangote Refinery, a key player in Nigeria’s refining sector, currently requires approximately 15 cargoes of crude oil annually, costing around $13.5 billion. Under the new plan, the Nigerian National Petroleum Corporation (NNPC) has committed to supply four cargoes to the refinery, with payments to be made in Naira. This arrangement is part of a broader strategy where the 450,000 barrels per day (bpd) of crude oil allocated for domestic consumption will be offered in local currency to Nigerian refineries, starting with Dangote as a pilot.
President Tinubu, in his address at the FEC meeting, emphasized the importance of this policy for Nigeria’s economic stability. “This decision is a strategic move to strengthen our economy by reducing the pressure on our foreign exchange reserves and ensuring the stability of fuel prices for Nigerians,” he stated. “By using the Naira for these transactions, we are taking a critical step towards financial sovereignty.”
The financial logistics of this arrangement will be facilitated by the African Export-Import Bank (Afreximbank) and other settlement banks in Nigeria. This eliminates the need for international letters of credit, which traditionally add complexity and cost to transactions in foreign currency. Dr. Benedict Oramah, President of Afreximbank, expressed optimism about the initiative, noting, “This partnership will not only stabilize the market but also foster a more resilient financial ecosystem.”
The move has been lauded as a potential game-changer for the Nigerian economy. It is expected to save billions of dollars annually that would otherwise be spent on importing refined fuel, thereby boosting the local refining industry and conserving foreign reserves. Analysts believe that if successful, this policy could pave the way for similar arrangements with other refineries, further enhancing Nigeria’s economic independence.
“This is a bold step by the government,” said Aliko Dangote, Chairman of Dangote Group. “The ability to purchase crude oil in Naira will significantly reduce our operational costs and risks associated with foreign exchange fluctuations. It’s a win-win for the entire sector.”
While the plan is currently focused on the Dangote Refinery, there is potential for expansion to other upcoming refineries. This initiative not only aims to stabilize domestic fuel prices but also seeks to strengthen the Naira by reducing demand for foreign exchange.
The FEC’s decision marks a proactive approach in addressing the dual challenges of fuel price volatility and exchange rate instability. As Nigeria continues to navigate the complexities of the global oil market, this initiative could set a new standard for local transactions and economic policy.
