In light of the Dangote Petroleum Refinery’s halt on selling petroleum products in naira, several filling stations have begun to accumulate stocks of Premium Motor Spirit, commonly referred to as petrol. Retailers are reportedly storing the product in anticipation of a potential price hike, driven by the Federal Government’s failure to continue selling crude oil to the refinery in the local currency.
The Independent Petroleum Marketers Association of Nigeria (IPMAN) has warned retailers against panic buying, cautioning that such actions could lead to significant financial losses. The suspension of naira sales by the Dangote refinery has already caused the cost of loading petrol at private depots in Lagos to rise from less than N850 per litre to approximately N900 per litre.
Dangote Refinery’s Announcement and Market Reactions
Last week, the Dangote refinery revealed that it would temporarily halt sales in naira. This decision was made due to a discrepancy between the revenue generated from naira sales and the obligations for purchasing crude oil, which are priced in US dollars. The refinery clarified that the amount of naira sales had surpassed the value of the naira-denominated crude it had received, prompting this necessary adjustment.
In response, private depot owners quickly raised prices, while filling station owners began stockpiling fuel to capitalize on expected future price increases. However, IPMAN’s National Publicity Secretary, Chinedu Ukadike, condemned the profiteering by depot owners and urged marketers to avoid panic buying. He warned that the Dangote refinery might eventually lower prices, leaving those who stockpiled at higher rates with significant losses.
Federal Government and Dangote Refinery Negotiations
Ukadike revealed that the Federal Government and the Dangote refinery are close to resolving their differences over the naira-for-crude deal. He expressed optimism that the suspension of naira sales would be temporary, with both parties working to resume the arrangement. However, no official statement has been released yet.
A Technical Sub-Committee on the Naira-for-Crude Policy is set to reconvene to deliberate on the matter, with the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) tasked with proposing solutions. Industry insiders suggest that the Nigerian National Petroleum Company Limited (NNPCL) has faced challenges in meeting crude supply obligations due to its extensive forward sales of crude oil to secure international loans.
Implications for the Economy and Forex Market
The suspension of naira sales by the Dangote refinery has raised concerns about increased pressure on Nigeria’s foreign exchange market. Marketers will now need to source US dollars to purchase petroleum products, potentially destabilizing the naira, which has recently shown signs of stability.
Experts argue that the naira-for-crude deal had previously enabled the Dangote refinery to lower petrol prices, forcing competitors, including the NNPCL, to follow suit. The suspension of the deal could reverse this trend, leading to higher fuel prices and renewed reliance on imported petroleum products.
Broader Industry Concerns
The halt in naira sales has also sparked accusations of monopolistic tendencies against the Dangote refinery. Some industry players view the suspension as a deliberate move to curb the refinery’s influence. Domestic crude oil refiners, represented by the Crude Oil Refinery-owners Association of Nigeria, argue that the suspension undermines efforts to achieve energy security and could lead to a resurgence of fuel imports.
Meanwhile, seven vessels carrying 154.22 million litres of imported PMS are expected to arrive at Nigerian seaports between March 17 and 23, according to the Nigerian Port Authority. This influx aims to stabilize fuel supply amid the ongoing uncertainty.
Historical Context and Ongoing Challenges
The Dangote refinery has faced significant challenges since its launch, including difficulties in securing crude oil supplies from international oil companies (IOCs). The refinery’s management has accused IOCs of prioritizing crude sales to Asian countries and imposing premium prices on local buyers. Despite interventions by regulatory bodies, these issues persist, complicating the refinery’s operations.
In July 2023, President Bola Tinubu proposed selling crude oil to local refineries in naira to support domestic refining capacity. The Federal Executive Council approved the initiative, with the Dangote refinery serving as a pilot. However, the recent suspension of naira sales highlights the ongoing complexities in Nigeria’s petroleum sector.
Conclusion
The suspension of naira sales by the Dangote refinery has created uncertainty in Nigeria’s downstream petroleum sector, prompting fuel stockpiling and price speculation. While negotiations between the Federal Government and the refinery are underway, stakeholders await an official resolution to stabilize the market and prevent further economic strain.