Crude Oil Refiners Urge FG to Extend Naira-for-crude policy

The Crude Oil Refiners Association of Nigeria (CORAN) has called on the federal government to renew and expand the naira-for-crude initiative as the initial arrangement expires this March. The association described the policy as a success, crediting it with strengthening the naira and reducing the cost of Premium Motor Spirit (PMS), also known as petrol.

CORAN spokesman, Eche Idoko, revealed that the initiative was introduced as a trial measure set to conclude in March, with a review to determine its impact. According to him, the policy initially focused on supplying crude oil to Dangote Refinery, with the objective of reducing forex pressure, ensuring optimal refinery operations, and making petroleum products more affordable.

Idoko clarified that the Nigerian National Petroleum Company (NNPC) Limited’s decision to suspend the arrangement aligns with its original design. However, he emphasized that the policy’s positive impact on stabilizing the domestic market justifies its renewal.

Launched on 1 October 2024, the naira-for-crude initiative allowed local refiners to purchase crude oil in naira instead of dollars, bolstering domestic refining capacity while easing pressure on Nigeria’s foreign exchange reserves.

However, industry stakeholders warn that its termination means Nigerian refineries, including the Dangote Refinery, must now source crude from international suppliers and pay in dollars, a shift that will escalate operational costs and potentially drive up fuel prices.

Sources familiar with the development disclosed that NNPC has already committed its crude production to forward contracts, leaving no domestic supply for local refiners despite an increase in Nigeria’s crude output since the initiative began.

The suspension has sparked concerns, particularly for the $19 billion Dangote Refinery, Africa’s largest refining facility, which has been a major beneficiary of the naira-crude arrangement. Analysts fear that the move could delay the refinery’s full operations and lead to increased production costs.

Other private refineries, including Waltersmith Petroman and BUA Refinery, are also expected to feel the impact. The deal had provided them with a cost-effective crude sourcing model, enabling them to compete with international refiners.

Economists warn that discontinuing the naira-for-crude mechanism could exacerbate currency volatility, with the naira already under pressure in recent months. The decision may also hinder Nigeria’s efforts to achieve self-sufficiency in petroleum production, a core policy objective of the federal government.