As part of efforts to guarantee energy self-sufficiency in Nigeria by ensuring adequate feedstock for local refineries as well as to reduce FX burden for fuel importation, the Federal Government on Monday directed the Nigerian National Petroleum Company (NNPC) Limited to sell crude oil to the Dangote Refinery and other local refineries exclusively in Naira.
This was part of the resolutions of the Federal Executive Council meeting chaired by the President yesterday. According to Bayo Onanuga, the Special Adviser to the President on Strategy and Information, FEC adopted a proposal to sell crude to Dangote Refinery and other upcoming refineries in naira.
“Dangote Refinery at the moment requires 15 cargoes of crude, at a cost of $13.5 billion yearly. NNPC has committed to supply four,” Onanuga stated.
“The FEC has approved that the 450,000 barrels meant for domestic consumption be offered in Naira to Nigerian refineries, using the Dangote refinery as a pilot. The exchange rate will be fixed for the duration of this transaction.
“Afreximbank and other settlement banks in Nigeria will facilitate the trade between Dangote and NNPC Limited. The game-changing intervention will eliminate the need for international letters of credit. It will also save the country billions of dollars used in importing refined fuel”, Onanuga added.
From the information made available by Bayo Onanuga, $13.5 billion will purchase around 156.9 million barrels of crude oil at today’s rate of $86 per barrel. Dangote Refinery at full operation can process up to 650,000 barrels of crude oil per day which translates to over 230 million barrels of crude oil feedstock annually.
However, it is expected to take a while before Dangote Refinery ramps up production to its full capacity, which explains why Dangote Refinery according to Bayo Onanuga needs 15 crude oil cargoes. One crude oil cargo typically contains one million or two million barrels of crude oil.
So, there is a possibility that the 15 cargoes mentioned by Mr. Onanuga are the additional quantities Dangote Refinery needs in addition to the millions of barrels they have already purchased including a further 5 million barrels expected from Brazil by September.
By committing to supply four crude oil cargoes to Dangote Refinery from its share of crude oil production, it means NNPC Ltd will likely supply up to 8 million barrels of crude oil to the refinery before the end of the year.
The chairman of Federal Inland Revenue Service (FIRS), Zacch Adedeji who was part of the arrangement also confirmed the development and disclosed that the arrangements between NNPC Ltd and local refineries was facilitated by AFREXIM bank to promote trade of crude oil in local currency.
“With effect from today, the Nigeria National Petroleum Company Limited (NNPC) will sell crude oil to local refineries and engage with the refineries on the basis of local currency,” Adedeji said.
The FIRS boss said that the sale of crude oil to Dangote refinery will be done in naira to reduce pressure on the local refineries. The sale of byproducts from Dangote refinery to distributors will also be conducted in naira.
Adedeji noted that Nigeria currently spends about $660m monthly or $7.92 billion annually to import petroleum products. This, he said, amounts to between 30-40 percent of our foreign exchange, which places pressures on the nation’s foreign exchange.
According to Adedeji, the new measures being put in place is expected to reduce this FX burden for importation of petroleum products by about 94% as only $50 million per month would be spent on importation of petroleum products. A further $79 million associated finance cost would also be saved.