The federal government may be the first beneficiary of the sale of crude oil in naira. Wale Edun, Nigeria’s minister of finance and coordinating minister of the economy, told newsmen last week that the federal government reaped a bumper harvest of N700 billion from the sale of crude oil to Dangote Refinery in naira.
The minister said that the programme has allowed market forces of demand and supply to determine the exchange rate of the naira through which crude oil is sold to Dangote Refinery. At the peak of the dispute by the Nigerian National Petroleum Company Limited (NNPCL) over the sale of crude oil to the Dangote Refinery, President Bola Ahmed Tinubu ordered NNPCL to sell crude oil to Dangote Refinery in naira.
The order which was given about three months ago came into force in October. The federal government bumper harvest in the scheme emanates from the market determined exchange rate for the transaction. The scheme also enhances a market determined price of the crude oil sold to domestic refiners.
While commending NNPCL and the domestic refiners for the cooperation in operating the innovative pricing of crude oil, President Tinubu said that the system would stabilise the oil industry. The president urged NNPCL to solve the teething problems that might crop up in the operation of the innovative transaction.
The innovative system, which is a departure from the transaction in the global crude oil market where products are priced in U.S. dollars, allows the NNPCL to sell crude oil to domestic refiners in naira.
NNPCL had dithered over the sale of crude oil to Dangote Refinery due to an odd combination of supply deficit and complex pricing factors. It took the stakeholders more than two months to work out the formula for the innovative transaction.
The sale of crude oil in naira to Dangote Refinery and other domestic refiners is a big relief for domestic consumers of refined products and even the federal government.
Nigeria was spending close to $20 billion annually on refined petroleum products imports. With the dispute over the supply of crude oil to Dangote Refinery now settled through the sale of crude oil in naira, the federal government would now be saving close to $20 billion in foreign exchange annually.
That would reduce the demand pressure on the naira and eventually enhance its appreciation.
A major benefit of the sale of crude oil in naira to domestic refiners is the fact that it will reactivate the nation’s petrochemical industry.
The collapse of Nigeria’s refineries disrupted the supply of raw materials to the petrochemical industry.That is precisely why prices of soft drinks and bottled water have escalated in the last one year following the massive depreciation of the naira.
The crude oil residue used to produce resins, which is raw material for plastic bottles, is imported at very high cost due to naira depreciation. That has pushed the cost of the plastic bottles used for soft drinks and water above the cost of the liquid contents.
With Dangote and other domestic refiners now getting crude oil from NNPCL in naira, the residue of the crude oil will be recycled to the domestic petrochemical industry for the production of resins that will reduce the cost of the plastic bottles.
Perhaps the most important benefit of the sale of crude oil in naira to domestic refiners is what Aliko Dangote, president of the Dangote conglomerate, inadvertently announced last week.
There has been a huge controversy over Nigeria’s daily petrol consumption figure. That was because the federal government in 2017 directed NNPCL to write off the extra cost of the pump price of petrol when the rise in crude oil price pushed the landing cost of petrol above the N145 per liter pump price decreed by the federal government.
That development resulted in the arbitrary fixing of the daily consumption figure for petrol. At a certain point in 2022, NNPCL raised the daily petrol consumption figure to 102 million liters. The Nigeria Customs Service (NCS) disputed the figure vehemently.
Last week Dangote inadvertently settled the matter when he announced that daily petrol consumption in Nigeria stands at 32 million liters. That is against the 62 million liters claimed by NNPCL.
With the sale of crude oil in naira to domestic refiners, everyone in Nigeria will now know precisely how many liters of petrol is consumed daily.Blueprint is excited by the successful implementation of the presidential directive on the sale of crude oil in naira to domestic refiners. However, we are worried by Dangote’s complaint that NNPCL still imports petrol when Dangote Refinery has 500 million liters of petrol sitting idle in its tanks. We urge the federal government to ban petrol imports since Dangote Refinery can easily supply the domestic market.