The Dangote Petroleum Refinery has temporarily suspended the sale of petroleum products in naira, citing a mismatch between its sales proceeds and crude oil purchase obligations, which are denominated in U.S. dollars. This decision comes amid reports that the Nigerian National Petroleum Company Limited (NNPCL) may have stopped supplying crude to the refinery in naira, further complicating the situation.
In an official statement, the refinery explained that the suspension is necessary to ensure financial stability. “To date, our sales of petroleum products in naira have exceeded the value of naira-denominated crude we have received. As a result, we must temporarily adjust our sales currency to align with our crude procurement currency,” the statement read.
The company, however, emphasized that this is a temporary measure and assured that it would resume naira-based sales once it receives crude oil supplies in naira from the NNPC. Additionally, it dismissed online speculations that the halt was due to an incident of ticketing fraud, calling such claims a “malicious falsehood.”
Challenges in Crude Supply and the Naira-for-Crude Deal
The Dangote Refinery, which has a refining capacity of 650,000 barrels per day, has reportedly faced difficulties in securing crude oil from local producers. The main issue stems from delays and uncertainties surrounding the naira-for-crude agreement with NNPCL.
The agreement was designed to provide a steady supply of crude oil to the refinery in exchange for refined petroleum products. However, the NNPCL has allegedly failed to meet its part of the deal, forcing Dangote Refinery to source crude in U.S. dollars. It was previously reported that the NNPCL had suspended the naira-for-crude arrangement until 2030 due to forward sales of its crude oil. However, the NNPCL later clarified that negotiations for a new agreement with Dangote Refinery were ongoing and that the current arrangement would remain in place until the end of March.
Market Reactions and Economic Impact
The suspension of naira sales by the Dangote Refinery is expected to have a significant impact on Nigeria’s foreign exchange market, fueling an increased demand for U.S. dollars. Petroleum marketers and other stakeholders now face the challenge of purchasing refined products in dollars, adding pressure to Nigeria’s already volatile currency market.
Following the announcement, the naira weakened further in the foreign exchange market. According to Central Bank of Nigeria (CBN) data, the naira depreciated by 30 basis points, closing at N1,532.94/$ in the Nigerian Foreign Exchange Market (NFEM), compared to N1,528.03/$ the previous day. In the parallel market, the naira dropped to N1,590/$, down from N1,575/$.
Analysts warn that if local refineries, including Dangote, are forced to buy crude in dollars, production costs could rise significantly. This could lead to higher petrol pump prices, increased fuel scarcity, and greater reliance on imported refined products, undermining Nigeria’s energy security.
Marketers’ Reactions and Concerns
The decision by Dangote Refinery to suspend naira-based sales has been met with resistance from independent petroleum marketers. Abubakar Maigandi, President of the Independent Petroleum Marketers Association of Nigeria (IPMAN), expressed concerns over the impact of the decision on fuel prices and availability.“
We call on the government and the NNPC to continue the sales of crude to the Dangote Refinery in naira. Since the naira-for-crude sales commenced, we have seen a continuous reduction in the price of petrol as well as its availability across the country,” Maigandi stated.
He further warned that forcing marketers to purchase products in dollars would pose significant financial challenges, as the added costs would eventually be passed on to consumers in the form of higher petrol prices.
Implications for Nigeria’s Fuel Market
The temporary halt in naira-denominated sales of petroleum products is expected to have far-reaching consequences for Nigeria’s economy and fuel supply chain. While Dangote Refinery has reassured customers of its commitment to serving the Nigerian market efficiently and sustainably, the disruption could lead to fuel shortages and price hikes.
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