The Nigerian government announced a major shift in its oil policy on Monday, approving the sale of crude oil to domestic refineries, including the mega Dangote refinery, in naira rather than dollars.
This move aims to alleviate the country’s persistent foreign exchange shortage.
The $20 billion Dangote refinery, Africa’s largest when operating at full capacity, has faced challenges securing adequate crude supplies since commencing operations in January.
Despite its massive scale, the refinery has been reliant on costly imports due to alleged obstacles from oil majors.
To address these issues and ease pressure on the naira, the government has authorized the Nigerian National Petroleum Company (NNPC) to sell crude to both Dangote and other local refineries using the domestic currency.
Furthermore, refined fuels from these refineries will also be traded in naira.
According to Zacch Adedeji, chairman of the Federal Inland Revenue Service, this policy shift is expected to significantly reduce the country’s monthly foreign exchange demand from $660 million to approximately $50 million.
This translates to annual savings of $7.32 billion.
Nigeria has grappled with severe dollar shortages, prompting multiple naira devaluations in the past year.
Analysts believe the naira-denominated crude sales could mitigate the need for refineries to secure foreign loans and reduce transportation costs.
However, some experts caution that prioritizing naira transactions might come at the expense of the country’s foreign currency reserves. Additionally, the policy change could impact local fuel marketers who were concerned about dollar-priced supplies from the Dangote refinery.
This development follows a recent agreement between Nigeria’s oil regulator and producers to allow crude oil sales to domestic refiners at market prices, aiming to resolve a supply dispute that had strained relations with international oil companies.
