There are growing concerns about the sustainability of the naira-for-crude oil deal between the Nigerian National Petroleum Company Limited (NNPCL) and local refineries. The Federal Executive Council (FEC) approved the sale of crude oil in naira to local refineries in July 2024. Implementation commenced on October 1, 2024.
The deal was designed to reduce the demand pressure on the nation’s lean foreign reserves as the Dangote Refinery would not have to source for dollars to buy crude oil. It was equally meant to reduce the pump prices of refined products.
The deal appears to be dithering as stakeholders contend that NNPCL is not decisive about its continuity. The deal, which was to last for six months, will expire at the end of March 2025.
Despite the obvious relief on petrol prices and forex demand pressure emanating from implementation of the deal in the last six months, there are fears that mutual defaults and power play may be hindering its sustainability.
NNPCL and the Dangote Refinery trade blames for mutual defaults that are seen to block the continuity of the deal. Under the deal, NNPCL was expected to supply 385,000 barrels of crude oil to the Dangote Refinery on daily basis.
On its part, the Dangote Refinery was to plough 25 million liters of petrol daily into the local market. None of the parties to the deal is meeting its requirement.
Edwin Devakumar, president of the Dangote Industries, said that what NNPCL supplies to the Dangote Refinery under the deal amounted to “peanuts”. Devakumar did not give figures.
However, NNPCL said it has delivered 48 million barrels of crude oil to the Dangote Refinery since October 2024. That amounts to about 270,000 barrels per day.
On the other hand, available data suggests that the Dangote Refinery has never delivered the required 25 million liters of petrol at any given day.
The highest Dangote had ever supplied the local market in a day was 10 million liters of petrol. There are days it delivered three million liters.
Besides the mutual default by parties in the deal, there are fears of power play constraining the sustainability of the deal. Industry watchers contend that NNPCL is under immense pressure from private importers to jettison the deal and encourage uninhibited importation of petrol.
Marketers complain that the Dangote Refinery reduces the pump price of petrol so regularly that they were incurring huge losses due to the reprehensible spate of downward price reviews.
Marketers even enjoined the federal government to restrain Dangote from incessant petrol price cuts.
Meanwhile NNPCL itself has assured that the deal was meant to last for six months after which it would be re-negotiated. Some sources contend that NNPCL was poised to renew the deal after due consultation with local refineries.
However, despite the fact that NNPCL has asserted its position on the deal suggesting its willingness to renegotiate it, reliable sources contend that the industry regulator has not informed any of the local refineries of its plan to renegotiate the deal. Stakeholders are however optimistic that NNPCL will renegotiate the deal.
Local refineries and even a section of the marketers association are impressed by the gains of the deal.
They attribute the downward trend in petrol prices to the deal, adding that it has reduced the demand pressure on the nation’s lean foreign reserves and that the naira has made considerable gains in the foreign exchange market in the last few weeks due to the relief occasioned by the deal.
In other words, many marketers want the deal to continue due to its obvious gains.
Blueprint joins the optimistic marketers in calling for the renewal of the deal to sustain the gains already registered in petrol prices and the foreign exchange market which are filtering into the economy by way of lower inflation rate.
We enjoin the Dangote Refinery and NNPCL to bury the hatchet and work hard to meet the supply requirements for the deal.
We appreciate the fact that the Dangote Refinery has foreign consumers who patronise its refined products and pay in hard currencies which local marketers cannot.
However, we encourage the refinery to give due priority to the local market for the sake of stabilising the economy to sustain the existence of the Dangote Refinery.
On the other hand, we know that, as NNPCL emphasised in its statement, the supply of crude oil to local refineries under the deal is based on agreed terms and conditions coupled with availability of crude oil.
However, NNPCL itself knows that it cannot honour its commitments to foreign buyers of crude oil if the local economy collapses due to immense pressure on the naira.
That reality compels NNPCL to give supply to local refineries the utmost priority. The naira-for-crude oil deal must be sustained for the survival of NNPCL itself.