Dangote Petroleum Refinery has temporarily halted the sale of petroleum products in naira. This decision follows failed naira-for-crude talks between the refinery and the Nigerian National Petroleum Company Limited (NNPCL). The talks aimed to allow Dangote to pay for crude in naira instead of U.S. dollars.
Impact on Petrol Prices and Exchange Rates
Following the announcement on Wednesday, the cost of loading petrol at private depots in Lagos rose to N900/litre, up from N850/litre. Experts warn that the suspension of naira sales will increase pressure on Nigeria’s foreign exchange market. Marketers will now need U.S. dollars to purchase products from the Dangote refinery, driving demand for dollars in the market.
Crude Sales and NNPCL’s Role
Industry sources indicate that the failure of the naira-for-crude agreement stems from NNPCL’s large forward sales of crude. The state-owned company has used future crude production to secure loans from international banks. This strategy has left the company with limited crude to supply domestic refineries, complicating the deal with Dangote.
Dangote’s Official Statement
In a statement on Wednesday, Dangote Group explained the reason behind the temporary halt. The refinery said that it could no longer align its sales proceeds in naira with its crude oil procurement obligations, which are settled in U.S. dollars. The statement emphasized that the refinery’s sales in naira had exceeded the value of the naira-denominated crude they received, prompting the shift to dollar-based transactions.
Denial of Fraud Allegations
Dangote also addressed rumors suggesting that the halt was due to ticketing fraud. The company dismissed these claims, calling them malicious. The statement reassured the public that the refinery’s systems were secure and that it had not encountered fraud. Dangote emphasized its continued commitment to serving the Nigerian market and ensuring sustainability.
Concerns Over the Future of Naira-for-Crude Deal
A major marketer, speaking confidentially, expressed concerns about the future of the naira-for-crude arrangement. The marketer pointed out that Nigeria generates over 90% of its foreign exchange from crude oil sales, but production has remained stagnant at around 1.6 million barrels per day. With much of this production already sold in advance, maintaining the naira-for-crude deal may prove challenging.
Refinery and NNPCL Negotiations Stall
The discussions between Dangote refinery and NNPCL regarding the naira-for-crude deal appear to have stalled. Sources suggest that the lack of sufficient crude supplies has contributed to the breakdown. NNPCL’s spokesman, Olufemi Soneye, did not confirm or deny these claims but reiterated the company’s commitment to supplying crude for local refining under mutually agreed terms.
Impact on the Naira and Fuel Prices
The suspension of naira sales at Dangote refinery may lead to increased pressure on the naira. Industry experts warned that marketers might struggle to secure dollars for petroleum products, which could push the naira’s value down. The National Vice President of the Independent Petroleum Marketers Association of Nigeria (IPMAN), Hammed Fashola, cautioned that the suspension could affect petrol prices. While the landing cost of petrol has been around N774.82, Fashola noted that this could rise if marketers turn to the dollar market.
Appeal for Continuation of the Naira-for-Crude Deal
Fashola urged the Federal Government to reconsider the decision to halt the naira-for-crude deal. He emphasized the positive impact it had on maintaining petrol price stability. However, private depot owners reacted swiftly, adjusting their prices upward following Dangote’s announcement, indicating potential price hikes in the broader market.
PETROAN’s Concern Over Price Hikes
Billy Gillis-Harry, the National President of the Petroleum Products Retail Outlet Owners Association of Nigeria (PETROAN), also expressed concern over the suspension. He warned that ending the naira-for-crude deal would likely lead to increased petrol prices. However, he noted that the Federal Government had not yet made a final decision on the deal’s cancellation.
Marketers Advocate for Deal’s Continuation
At a meeting on Wednesday, marketers voiced their strong support for the continued naira-for-crude arrangement. Gillis-Harry, who led the retailers at the meeting, emphasized the importance of the deal in keeping prices stable. He noted that the deal had allowed Dangote refinery to lower PMS prices, which in turn pressured NNPCL to follow suit.
Speculation About Dangote’s Influence
Industry sources speculated that stopping the naira-for-crude deal might be a strategic move to reduce Dangote refinery’s growing influence in the downstream sector. Some critics have accused the refinery of monopolistic tendencies. The government’s decision on this matter will have significant implications for the oil sector and market stability in Nigeria.
