Victor EzejaThe Naira-for-Crude policy was introduced by the Nigerian government as a strategic intervention initiative to address the country’s fuel supply challenges, reduce reliance on foreign exchange (FX) for fuel imports, and stabilize the economy.
However, its implementation and recent rumour of suspension have sparked concerns about its implications for Nigeria’s economy, fuel prices, and energy security.
Join our WhatsApp ChannelThe Domestic Sales of Crude Oil and Refined Products in Naira policy was initiated by Nigeria’s President Bola Tinubu, and approved by the Federal Executive Council and the National Assembly. Thereafter, a Technical Sub-Committee Chaired by the Federal Inland Revenue Service (FIRS), chairman, Zacch Adedeji, was formed to spearhead the implementation of the policy.
Objectives of the Naira-for-Crude Policy
The policy was designed to achieve the following:
- Reduce FX Pressure: By exchanging crude oil directly for refined petroleum products, the government aimed to minimize the need for scarce foreign exchange to import fuel.
- Ensure Fuel Supply Stability: The deal was also intended to guarantee a steady supply of refined products, preventing shortages and price volatility.
- Curb Inflation: Because of the linkage between fuel prices and other costs, it was also considered that stable fuel prices would help control transportation and production costs, thereby reducing inflationary pressures.
- Leverage Crude Oil Resources: As a major crude oil producer in Africa, Nigeria sought to use its resources more effectively to meet domestic energy needs.
How the Policy Works
Under the Naira-for-Crude arrangement:
- The Nigerian National Petroleum Corporation (NNPC) exchanges crude oil directly with international partners for refined petroleum products.
- This bypasses the need to sell crude oil in the international market, convert proceeds to foreign currency, and then use the FX to import fuel.
- The refined products are then distributed domestically to ensure stable supply and pricing.
Benefits of the Policy
As confirmed by chairman of the Technical Sub-committee on the implementation of the Domestic Sales of Crude Oil and Refined Products in Naira, the initiative has the following benefits:
- Reduced FX Dependency: By avoiding the need to use foreign exchange for fuel imports, the policy helps conserve Nigeria’s FX reserves and stabilizes the Naira.
- Stable Fuel Prices: The direct exchange of crude for refined products ensures a consistent supply, reducing the risk of fuel scarcity and price hikes.
- Economic Stability: Stable fuel prices contribute to lower inflation and support economic growth by reducing production and transportation costs.
Naira-for crude continues
Reacting to reports that the policy has been suspended, the Technical Sub-committee chairman said the programme is still in place, dispelling fears of possible hike in prices of petroleum products. Adedeji said the policy has neither been discontinued nor any consideration being made to so. According to him, “After implementing the policy for some months, evidence abounds that it is the right way to go and it will continue to help the economy.” He also said no local refinery, including Dangote Refinery, has been excluded from domestic crude supply.
“The engagement process for crude oil supply to domestic refineries therefore remains in place by structured agreements, balancing factors such as availability, demand, and market conditions. There is no exclusion of local refineries from access to domestic crude. The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) is actively ensuring compliance with the Domestic Crude Oil Obligations provisions of the Petroleum Industry Act,” Adedeji stated in a statement released Monday night.
READ ALSO: Naira-for-crude Deal: Dangote Refinery Got Over 48 Million Barrels – NNPCL
Earlier in its response to the Naira-for-Crude Policy suspension report, the NNPCL explained that it is a structured arrangement with Dangote Refinery designed to last for six months beginning from October 2024 and was approaching its scheduled end date.
However, Adedeji assured that it would continue, adding that the committee remains committed to ensuring efficient execution of the initiative in line with its core objectives – enhancing local refining, reducing foreign exchange exposure, and stabilising the domestic fuel supply.
Challenges and Concerns
Despite its potential benefits, the Naira-for-Crude policy has faced criticism and challenges. Some of them include:
Lack of Transparency: There are indications that details of the deals and the partners involved have not been fully disclosed, raising concerns about accountability and efficiency.
Some analysts have contended that the deal was never struck between NNPCL, local refiners and other stakeholders as reported. While commenting on rumours about suspension of Naira-for-crude deal, economist and energy analyst, Mr Kelvin Emmanuel, said: “the so-called technical committee was a charade and the deal never took off.”
According to him, while it was being reported that implementation of the policy has taken off, “Dangote was bending over backwards importing crude in US Dollars and selling refined PMS in Naira.”
He raised concerns that the NNPCL may have mortgaged future crude oil production in exchange for loans that is not accounted for.
Commenting on NNPCL’s claim that it has supplied a total of 84 million barrels of crude oil to Dangote Refinery since it commenced operations in 2023, Mr Emmanuel said they were not all supplied in dollars.
The economic expert and energy analyst shared some data which revealed that between January and September 2024, 36 million barrels supplied to Dangote by NNPCL was paid for in US Dollars “at premium with mark up commission,” while the 48 million barrels NNPC supplied to Dangote between October 2024 until date was paid for in a mix of Naira and US Dollars.
Dependence on Imports: Analysts have also expressed concerns that the Naira-for-crude policy does not address Nigeria’s underlying reliance on imported refined products, highlighting the need for local refining capacity.
At a time when local refining of petroleum products spearheaded by Dangote Refinery, resumed in Nigeria, many were surprised to see reports of a surge in petrol imports in the country in 2024. The latest data by the National Bureau of Statistics (NBS) on the foreign trade statistics, revealed that petrol imports surged by 105.3 per cent, reaching N15.42 trillion in 2024.
Commenting on the petrol import numbers, Chief Economist and Partner at SPM Professionals, Dr Paul Alaje, said it is a surprise that petrol import jumped by over 100 per cent at a time when local refining started. Alaje warned that If NPPCL stops selling crude to local refineries, “It’ll negatively affect the price and exchange rate.”
Sustainability and Suspension Impact: The policy is seen as a temporary fix rather than a long-term solution to Nigeria’s fuel supply challenges.
The rumour of suspension of the policy has created uncertainty, with fears of fuel price hikes and FX shortages resurfacing.
Broader Implications for Nigeria
The Naira-for-Crude policy reflects Nigeria’s broader economic and energy challenges:
Refining Capacity Deficit: Nigeria, despite being a major crude oil producer, imports most of its refined petroleum products due to inadequate local refining capacity. The policy underscores the urgent need to revive and expand domestic refineries.
FX Management Issues: The policy highlights the country’s struggle with foreign exchange scarcity and the need for effective FX management strategies.
Energy Security: The suspension of the policy raises concerns about Nigeria’s energy security and its ability to meet domestic fuel demand without relying on imports.
The Way Forward
To address the challenges exposed by the Naira-for-Crude policy, the government, according to experts, need to consider taking certain practical steps such as boosting local refining capacity, entrenching a transparent policy framework, diversifying energy sources, and seeking other long-term solutions to fuel supply challenges.
Victor Ezeja is a passionate journalist with six years of experience writing on economy, politics and energy. He holds a Masters degree in Mass Communication.
