President Bola Tinubu has taken a bold step to rescue Dangote Refinery and other local oil refineries from collapse by directing the Nigerian National Petroleum Company Limited to make crude available to them directly in naira. However, to ensure sustainability and consistency of feedstock supply to these local refineries, the president should do more by also directing the Nigerian Upstream Petroleum Regulatory Commission to expedite actions on the reactivation of all idle oil fields to ramp up production, writes Peter Uzoho
In a bold move aimed at not only rescuing the $20 billion Dangote Refinery and other local oil refineries from an impending collapse but also ending further rubbishing of the country's image internationally, President Bola Tinubu last Monday offered a lifeline to the refineries. Specifically, the president ordered the Nigerian National Petroleum Company Limited (NNPCL) to henceforth sell crude oil to Dangote and other local refineries in naira, which is no longer in dollars.
The directive has received a mix of commendation and reservation from industry experts and other concerned personalities and institutions owing to the controversial nature of such executive fiat on an international commodity coming from a dollarised industry.
The presidential order is the first leg of the measures to end the ongoing rift or misunderstanding between the management of Dangote Industries Limited, the NNPC, the international oil companies (IOCs), the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), petroleum marketing companies and even the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), which is the regulator of the exploration and production segment of the nation's oil and gas sector.
Africa's richest man and President of Dangote Group, Alhaji Aliko Dangote had alleged that the IOCs were working to frustrate his 650,000 barrels per day oil refinery by refusing to sell crude to it directly. He had complained that rather than sell crude to his refinery directly, the IOCs instead take the crude to their trading companies abroad, which will now sell to the refinery with attendant middleman-related inefficiencies and high cost.
On the other hand, the billionaire businessman had also accused the NMDPRA of plotting to frustrate the multi-billion dollar refinery by issuing licences to oil marketing companies to keep flooding the country with dirty fuels imported from abroad, rather than encouraging the marketers to patronise locally produced fuels.
Nevertheless, Dangote had equally accused some personnel of NNPCL of owning and operating an oil blending plant in Malta, from where he said they import fuels into Nigeria. He had also revealed that NNPCL had slashed its equity holding in the refinery to 7.2 per cent as the company was unable to meet up with its 300,000 bpd crude supply obligation in line with the earlier 20 per cent stake.
However, the NMDPRA, NNPC, Deport and Petroleum Products Marketers Association of Nigeria (DAPPMAN), which spoke for the marketers, and the NUPRC have all debunked all the allegations by the Dangote Group as relating to their respective operations.
The Presidential Intervention
Fed up with these ugly developments that not only send bad signals to the current and prospective foreign investors and the country's diplomatic allies but also pose an embarrassment to his administration, Tinubu ordered direct crude sale to Dangote and other local refineries in naira to keep them functioning.
At the Federal Executive Council (FEC) meeting held last Monday, the president ordered NNPCL to immediately commence engagement with local refineries including the Dangote Refinery in transactions dominated in naira.
Disclosing the directive after the FEC meeting presided over by Tinubu, the Executive Chairman, of Federal Inland Revenue Service (FIRS), Dr. Zacch Adedeji, said apart from extending the sale of crude oil to Dangote Refineries, it would also include the sale of Dangote's products to others to be conducted in naira.
He said the order was to promote the sale of crude oil within local refineries and NNPCL, to deal in Nigeria's local currency.
He added that the attitude of the president was thinking outside the box to solve Nigeria's problem and localise the solutions to the nation's problem.
Deal to Slash Monthly Petrol Import Costs by $660 million
The FIRS boss explained that the decision of the president that crude oil be sold to local refineries in naira was aimed at mitigating the heavy reliance on the foreign exchange (FX) for crude oil imports, which currently accounts for between 30 to 40 per cent of Nigeria's FX expenditure.
He further explained that by denominating transactions in naira, the federal government expects to significantly reduce its FX burden, just as he estimated annual savings of about $7.3 billion.
"Just to be specific, in terms of benefits, one which is major is the reduction in foreign exchange pressure. We utilize $660 million per month, totalling $7.92 billion annually.
"With the new approval that we have, this will reduce to a maximum of $50 million per month which is annualized to be only $600 million. This is a total reduction of 94% and saving us $7.32 billion," Adedeji said.
"This will also reduce finance costs, which today stand at $79 million when you consider the opening letter of credit between those local refineries and what happens.
"Also, as a pilot, council has approved that a settlement bank, which in this instance is Afreximbank, would be the lead arranger between NNPC and Dangote Refinery."
He congratulated the council members, Mr. President, and the operators; the NNPC and Dangote Refinery as well as the lead arranger, Afreximbank.
According to him, "Kudos should go to the President of Afreximbank, Prof. Benedict Oramah, for this initiative because these are people that worked behind the scenes to make sure that what we witnessed today happened."
"One of the major directives of Mr. President and the Council in general, is that Afreximbank leads the advisory work of structuring and arranging this initiative with the Associated Trade Finance Facility, in collaboration with the Central Bank of Nigeria, the Nigerian National Petroleum Corporation Limited and Federal Ministry of Finance and other critical agencies," he added.
Similar Order Needed for Idle Oil Fields
However, to ensure sustainability and consistency of feedstock supply to Dangote Refinery and other local refineries, the president should do more by also directing immediate reactivation of all idle oil fields to ramp up production and increase feedstock availability for local refining.
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One of the arguments against the president's order that NNPCL should make crude available to local refineries in naira has been around where the volume is going to come from. Nigeria is currently faced with under-capacity crude production at just below 1.5 million barrels per day.
To address the low production challenge, the president should direct the NUPRC to immediately see to the expeditious reactivation of the over 3000 oil wells that have been idle for years, which the regulator had earlier said would release some huge volumes when brought back into production.
Also, the president should demand explanations as to why none of the over 50 marginal fields awarded since 2022 have started production while the country struggles with insufficient crude volumes to meet the country's needs.
Ramping Oil Production with War against Oil Criminals
Oil industry experts said the Presidential directive on the supply of crude to the Dangote Refinery can only make sense if the ongoing crackdown on oil thieves and vandals is sustained. They argued that the only the presidency can convince Nigerians that the directive was not a mere political statement is to be serious with the industry-wide security collaboration against crude oil theft and vandalism of Nigeria's critical hydrocarbon infrastructure through the four-way strategy of "Detect, Deter, Respond and Recover."
"Unless the federal government succeeds in its ongoing war to curb oil theft, the reality is there won't be enough crude to sell to the Dangote Refinery and other local refineries. We must upscale our production for things to work according to plan," stated an industry analyst who preferred to be anonymous.
