Emmanuel OchayiDangote Petroleum Refinery, Nigeria’s largest private refinery, has temporarily stopped selling petroleum products in naira to marketers. This decision, announced in an official statement, has raised concerns about the potential economic and social impact on Nigerians. The refinery cited its need to align its sales with its crude oil purchase obligations, which are denominated in U.S. dollars. With rising inflation and an unstable exchange rate, this development could affect fuel availability, pricing, and the broader economy.
The question now is: what does this mean for Nigerians who depend on the refinery for fuel supply? Experts weigh in on the consequences of this move and its implications for the country’s economy.
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Why Has Dangote Refinery Halted Sales in Naira?
According to Dangote Refinery, the decision to suspend sales in naira, stems from an imbalance between the refinery’s revenue stream and its crude oil procurement expenses. The refinery purchases crude oil in U.S. dollars but previously sold refined petroleum products in naira. This mismatch, coupled with delays in the naira-for-crude oil swap deal with the Nigerian National Petroleum Company Limited (NNPCL), has led to financial strain.
In a statement, Dangote Refinery clarified, “Our sales of petroleum products in naira have exceeded the value of naira-denominated crude we have received. To ensure operational stability, we must temporarily adjust our sales currency to match our procurement currency.”
The naira-for-crude deal was expected to provide a steady supply of crude oil to the refinery without requiring dollar payments, but it has yet to materialise. As a result, Dangote Refinery is forced to rely on dollar-denominated crude oil imports.
Impact on Petroleum Marketers
PETROAN’s National President, Billy Gillis-Harry, emphasised the difficulty marketers face in accessing foreign exchange through official channels, forcing them to rely on the black market at unfavourable rates. “It is going to be difficult for us because we don’t have access to dollars. The only way to get foreign exchange is through the black market, which will create further challenges,” he stated.
While acknowledging that Dangote’s decision appears final, Gillis-Harry stressed the need for industry stakeholders to seek alternative solutions. “There’s no reason why we shouldn’t be able to fund our products. People will still need to buy from Dangote, but the difficulty lies in securing FX,” he said.
PETROAN is already engaging the Ministry of Petroleum Resources on the issue and expressed surprise at Dangote’s sudden announcement, noting that deliberation on the matter was still ongoing. “As of today, the matter is still being discussed at the highest levels. The Minister assured us there was no immediate policy change, and we were expecting the conclusion of a pilot phase before any further decisions. So, this announcement came as a surprise,” he said.
NNPC’s Position
NNPC’s Chief Corporate Communications Officer, Olufemi Soneye, maintained that the company does not conduct its commercial business through the media. “We have consistently stated that NNPCL remains committed to supplying crude for local refining based on mutually agreed terms and conditions,” Soneye said.
NNPCL appears to use the opportunity to position its refinery, as the company immediately issued a report that the Port Harcourt Refinery remains operational and continues to produce refined petroleum products.
Possible Fuel Scarcity and Price Increase
The Independent Petroleum Marketers Association of Nigeria (IPMAN) warned that the country could experience fuel scarcity and rising pump prices due to FX challenges. With the unpredictable disruption in prices, most marketers, who are already counting their losses, have been sceptical about the volume of products they stock and may begin to restrict their purchases when they have clarity about the market.
President of IPMAN, Abubakar Shettima, said independent marketers, who control about 80 per cent of Nigeria’s retail outlets, traditionally purchase and sell petroleum products in naira. The sudden shift to dollar-only transactions, he noted, would pose a major challenge. “If we are required to source dollars before we can buy products, there will be scarcity. It is already difficult to access foreign exchange, and if we are forced to buy in dollars, the price of fuel will likely increase,” he warned.
Shettima urged NNPC to maintain its previous arrangement with Dangote Refinery, allowing marketers to purchase products in naira, as this had contributed to a gradual reduction in fuel prices and improved supply. IPMAN confirmed that discussions with Dangote Refinery and NNPC are ongoing, with marketers seeking assurances on continued product availability. “We have already paid for products in naira and are waiting for them to resume loading. By tomorrow, we will begin engaging NNPC as well,” the official added.
What Does This Mean for Nigerians?
The temporary halt of sales in naira has significant implications for Nigerians, particularly regarding fuel prices, availability, and economic stability. With fuel already a major driver of inflation, this move could exacerbate economic hardship.
Economic Impact
If the refinery continues selling in dollars, marketers will need to source foreign exchange to purchase fuel, leading to increased fuel costs. Higher fuel prices would translate into increased transportation costs, affecting businesses and consumers alike.
Dr. Hassan Adebayo, an economist, warns that this could destabilise the market. “If Dangote Refinery insists on selling fuel in dollars, it will affect the cost of transportation and goods. The demand for dollars will also rise, further weakening the naira.”
Also, Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, described Dangote’s policy shift as a “disturbing development” that could significantly alter the dynamics of domestic petroleum pricing. “The sustainability of the widely celebrated deceleration of petroleum product prices is now evidently at risk. We may see a reversal of the trend,” Yusuf warned.
He also highlighted broader macroeconomic concerns, including increased forex demand, potential depreciation of the naira, and pressure on foreign reserves. “All of these could result in adverse macroeconomic outcomes with profound implications for investor confidence,” he said.
Fuel Supply and Distribution Challenges
Many independent fuel marketers rely on Dangote Refinery for supply. If these marketers struggle to access dollars for purchases, fuel shortages may occur. This could lead to long queues at filling stations, reminiscent of past fuel crises.
Speaking on this, an oil and gas expert, Funmi Ojo, states; “The Nigerian market is not structured for dollar transactions at the retail level. If independent marketers struggle to access fuel from Dangote Refinery, we could see severe supply disruptions.”
Impact on Government Policy
The Nigerian government has been pushing for fuel price stabilisation and a more structured energy sector. This decision by Dangote Refinery could force the government to intervene, either by expediting the naira-for-crude swap deal or by providing forex support to marketers.
Energy expert, Peter Okonkwo, suggests that the government must act swiftly. “The government cannot afford to let this situation escalate. If fuel prices surge due to forex constraints, it will have a ripple effect on the entire economy.”
Will the Suspension Be Lifted?
The refinery’s management has described the suspension as temporary, but it remains unclear when sales in naira will resume. This largely depends on whether the naira-for-crude oil swap deal materialises or if the forex situation stabilises.
For now, Nigerians must brace for potential disruptions in the fuel market. Without a quick resolution, the cost of living could rise further, adding to the economic burden on citizens.
The halt of petrol sales in naira by Dangote Refinery is a significant development with far-reaching consequences. While the refinery has justified its decision on financial grounds, the impact on fuel pricing, availability, and the broader economy is a cause for concern. Experts agree that swift action from both the government and the refinery is needed to prevent an economic crisis. Nigerians will be watching closely to see how this situation unfolds in the coming weeks.
Emmanuel Ochayi is a journalist. He is a graduate of the University of Lagos, School of first choice and the nations pride. Emmanuel is keen on exploring writing angles in different areas, including Business, climate change, politics, Education, and others.
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