The Nigerian National Petroleum Company Limited (NNPCL) on Monday said discussions are currently ongoing towards emplacing a new naira-for-crude contract with local refiners.
The company reacted after the reported collapse of the naira for crude deal between the NNPCL and the local refiners, prompting marketers, stakeholders and Nigerians to express mixed feelings.
The deal, which lasted barely six months, was said to have collapsed, raising fear of increase in prices of petroleum products and further depreciation of naira against the dollars.
Alexa News Nigeria reports that President Bola Ahmed Tinubu had directed the sale of crude oil to Dangote in naira as part of move to bring down the cost of premium motor spirit (pms) otherwise known as petrol.
In October 2024, the Federal Executive Council (FEC) approved that 450,000 barrels intended for domestic consumption be offered in Naira to Nigerian refineries, with the Dangote Refinery acting as a pilot project.
But findings by our correspondent indicated that the deal which was signed in October 2024 and is expected to lapse at the end of March 2025 might have collapsed.
Sources said this was due to “irreconcilable” differences bothering on product delivery and other issues.
Alexa News Nigeria reports that under the scheme which commenced in the first week of October 2024, the NNPCL was expected to supply 385,000 barrels of crude oil to the 650,000 bdp Dangote Refinery located in Ibeju-Lekki Lagos.
However, findings showed that there has been a consistent low supply of allocations to Dangote Refinery, forcing it to resort to importation.
Daily Trust earlier reported that there has been a sharp decline in the volume of crude allocated to the Naira-for-Crude scheme.
A document reviewed late January indicated that for February 2025, the scheme has been allocated only four cargoes, and for March, just two cargoes totalling 950,000 barrels (1.9 million barrels in total for the month). This represents an allocation of 61,290 barrels per day – far below the 385,000 bpd target under the scheme.
The shortfall has left Dangote Refinery with no option than to import crude oil from outside Nigeria. It recently received 12 million barrels of crude oil from the United States.
There was no official comment yet from Dangote on the reported collapse of the naira for crude deal but a source close to the refinery confirmed that it is true. He did not provide further clarification.
But the NNPC Limited while clarifying the development said it has noted recent reports circulating on social media regarding the alleged unilateral termination of the crude oil sales agreement in Naira between NNPC and Dangote Refinery.
Chief Spokesperson of the NNPC, Olufemi Shoneye said, “To clarify, the contract for the sale of crude oil in Naira was structured as a six-month agreement, subject to availability, and expires at the end of March 2025.
“Discussions are currently ongoing towards emplacing a new contract. Under this arrangement, NNPC has made over 48 million barrels of crude oil available to Dangote Refinery since October 2024. In aggregate, NNPC has made over 84 million barrels of crude oil available to the Refinery since its commencement of operations in 2023.
“NNPC Limited remains committed to supplying crude oil for local refining based on mutually agreed terms and conditions…”
Experts, Nigerians lament collapse of deal
There are concerns among Nigerians, experts and marketers over the negative implication of the deal on fuel supply and the local currency.
They said the arrangement ordered by the president was responsible for the relative stability recently recorded in the foreign exchange. They said the development would further trigger depreciation of the naira resorting to an increase in prices of petroleum products.
A petroleum industry player, Akinrinade Akinade in a chat with our correspondent warned that the development would affect the prices of petroleum products.
He called for the intervention of President Tinubu who initiated the scheme in the first place.
He said, “I read it like you. It has not been confirmed yet. It was the President that ordered the NNPC to do it. It is not final.”
According to him, the scheme was felt largely “in the value of naira to dollar.”
“It was one of the reasons the dollar had some air space. If that one changes, we might see another devaluation of the naira because the refineries would have to be looking for dollars to source their crude. This will also affect the price of petroleum products,” he said.
Solution is to increase crude production – Marketer
An industry player and marketer, Adetunji Oyebanji said the deal was not sustainable ab initio because of the forward contracts the federal government had committed to.
He stated that the only solution was to increase crude production to 2.5m barrels daily from the present 1.7m.
He said, “I am sure all of you are aware that they (NNPC) have committed a lot of their crude for the loan that they took initially at the beginning of this administration.
“So, they have committed a good portion of the contract. You cannot enter into a contract like that, then because local refineries have suddenly shown up, you now go and cancel all those crude contracts because a lot of people are pressing this narrative that NNPC just wants to sell products to foreigners so that local refineries have to go abroad to buy. Not only NNPC but the IOCs (International Oil Companies), a lot of crude they produce to banks for facilities and so on and so forth.
“So, when they started talking about this crude for naira, I was wondering how they are going to succeed? Where are they going to get the crude from? Unless you increase the crude production to about 2.5m barrel a day, you would never find the extra crude to give to local refineries. That is the only solution.”
Another analyst, Tunde kugbeha said, “Anyway the Tinubu’s directive to conduct crude oil transactions in naira, is to strengthen the local currency, reduce dependence on the U.S. dollar, and ease pressure on Nigeria’s foreign exchange reserves.
“By reversing this policy, the NNPC is effectively reinforcing dollar demand, which could further weaken the naira maybe to N2000 this time and with food being cheap now we should expect to be paying more.”
He added, “The official reason given is that the NNPCL has already committed its crude production to forward contracts, leaving no supply available for domestic refiners under the naira-for-crude arrangement. However, this raises concerns about whether the policy was properly implemented…
“If the government is serious about promoting the use of the naira, there may need to be a policy review or direct intervention to ensure that domestic refiners can access crude in local currency as originally planned. Otherwise, this move could undermine confidence in government policies and fuel further instability in the forex market.”
A lawyer, Adeusi Anthony said the decision would impact on the value of the naira, saying, “NNPC’s decision to switch back to selling crude oil in dollars instead of naira is a major policy reversal…”
He added, “When they first introduced naira payments, the idea was to boost the local currency, which I considered to be a very good policy, it was meant to ease pressure on forex demand, and improve liquidity in Nigeria’s financial system.
“But in reality, it seems like challenges such as naira instability and hesitation from international buyers made the shift difficult to sustain. In other words, demand from the International market for the naira has not been nearly as much as expected.
“By returning to dollar transactions, NNPC is likely trying to make crude sales smoother, and attract more buyers. However, this could put more pressure on the naira and Nigeria’s forex reserves.
“In the long run, building investor confidence is paramount. Going forward, a lot will depend on the government, how this plays out will depend on the government’s ability to stabilize the local currency. I still think, though, that the best idea in my modest opinion is to leave the erstwhile policy as it were, for the long term interest.”
