Relief for Nigerian refineries: Local operators now permitted to pay for crude in Naira

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In a move welcomed by domestic oil refiners, the Nigerian government has announced that indigenous refineries, including Dangote’s mega-refinery and smaller “modular” refineries, can now purchase crude oil using the local currency, the naira. This decision comes after months of pressure from the industry, which faced difficulties obtaining foreign exchange (forex) to pay for crude priced in US dollars.

The announcement was made on April 16, 2024, by the Federal Government. It follows a media report in February 2024, which highlighted the challenges faced by modular refineries due to forex scarcity. These smaller refineries, with a combined capacity of 200,000 barrels per day, were at risk of shutting down operations as acquiring dollars for crude purchases became increasingly difficult.

The government disclosed this through the Nigerian Upstream Petroleum Regulatory Commission at a briefing in Abuja, where it unveiled the new template for domestic crude oil supply obligation.

It stated that in compliance with the provisions of Section 109(2) of the Petroleum Industry Act 2021, the NUPRC in a landmark move, had developed a template guiding the activities for Domestic Crude Oil Supply Obligation.

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“The commission in conjunction with relevant stakeholders from NNPC Upstream Investment Management Services, representatives of Crude Oil/Condensate Producers, Crude Oil Refinery-Owners Association of Nigeria, and Dangote Petroleum Refinery came up with the template for the buy-in of all.

“This is in a bid to foster a seamless implementation of the DCSO and ensure consistent supply of crude oil to domestic refineries,” the Chief Executive, NUPRC, Gbenga Komolafe, told journalists in Abuja.

The new policy offers a lifeline to domestic refiners. Paying in naira eliminates the need for them to navigate the complex and often expensive forex market. This could significantly reduce operational costs and improve the overall financial health of the refining sector.

The decision also aligns with the government’s broader goal of boosting domestic refining capacity. By easing the financial burden on local refiners, the government hopes to encourage further investment and ultimately reduce reliance on imported refined products.

While the policy change is a positive step, challenges remain. The naira’s stability against the dollar will be crucial for the long-term success of this initiative. Additionally, ensuring a steady supply of crude oil to domestic refineries will be essential for maximizing their output and reducing dependence on foreign fuel sources.