Emmanuel OchayiThe Naira-for-Crude policy has been a key part of Nigeria’s strategy to stabilise petrol prices and manage inflation. The Nigerian National Petroleum Company Limited (NNPCL) has been selling crude oil to local refiners in naira, instead of dollars, allowing fuel to be refined and sold within the country without the heavy impact of forex fluctuations. Now, with the possible discontinuation of this policy, concerns are growing over what could happen next. Petrol prices have already been volatile, and any change in policy could further push them higher.
If the Naira-for-Crude arrangement is stopped, experts warn that the country could face a sharp rise in petrol prices. The cost of importing refined products would increase due to the pressure on the naira in the foreign exchange market. The local refiners who have depended on crude supplied in naira would be forced to buy in dollars, making production more expensive. Many Nigerians are already struggling with the current price of fuel, and a further increase could lead to higher transportation costs, increased inflation, and economic hardship.
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One major concern about ending the Naira-for-Crude policy is the impact on petrol prices. Since the policy began, it has helped to keep costs relatively stable, preventing sudden increases in fuel prices. However, if NNPC stops selling crude in naira, local refiners will have to buy crude at international market rates, which could force them to raise fuel prices.
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Zarma Mustapha, deputy president of the Independent Petroleum Marketers Association of Nigeria (IPMAN), explained how petrol prices are determined. “You have other costs that you are supposed to add to your margin and it depends on where your location is. For example, using Abuja, the cost of transportation per litre is about N45 or so. If you load at N870 and you add N45, that means the product will land in Abuja at N915 Naira. Then you add your margin of N15 to N20. So, that’s basically how the dynamics work.”
With the removal of Naira-for-Crude, refiners may be forced to factor in forex costs, leading to pump prices rising above N930 per litre in some locations. This would make petrol even more expensive for consumers and businesses.
The foreign exchange burden could worsen without Naira-for-Crude
Another major challenge of ending the Naira-for-Crude policy is the added pressure on the foreign exchange market. Currently, local refiners pay for crude in naira, which eases demand for dollars. But if they must buy crude in dollars, the pressure on the naira will increase. This could lead to further depreciation of the naira and higher inflation.
Jide Pratt, COO of AIONA, believes the situation needs urgent attention. “For Premium Motor Spirit (PMS), it is about N10 to N20 as some sell N880 for probably old stock. Ideally, another N25 added to these prices will be the pump price. If we now add the cost of forex fluctuations, it becomes difficult to predict how high prices may go. The government needs to ensure that there is stability.”
The Central Bank of Nigeria (CBN) has been trying to stabilise the naira, but removing Naira-for-Crude would add another layer of stress to the forex market. This could create a cycle where fuel prices rise due to higher forex costs, further weakening the naira and making imports even more expensive.
What can be done to avoid fuel price hikes?
To prevent a crisis, experts suggest several alternatives to replacing the Naira-for-Crude policy. One option is for the NNPC to continue supplying crude to local refiners at discounted rates while encouraging them to expand refining capacity. If Nigeria can refine more of its crude domestically, the reliance on imported fuel will reduce, helping to keep prices stable.
Another solution is to provide forex support for local refiners. The government could introduce a special forex window to allow refiners to access dollars at lower rates, reducing the impact of exchange rate fluctuations on fuel prices.
Some experts also believe that allowing market forces to determine crude oil pricing while gradually adjusting subsidies could create a balance. While full deregulation could lead to short-term price increases, it may encourage more investment in local refining, which would be beneficial in the long run.
NNPC and government must decide the future of Naira-for-Crude
The decision to continue or stop the Naira-for-Crude policy will have significant consequences for fuel prices, inflation, and the broader economy. Policymakers must carefully evaluate the risks before making a decision. If the policy is discontinued without a solid alternative, petrol prices could rise sharply, increasing the financial burden on Nigerians.
Billy Gillis-Harry, national president of the Petroleum Products Retail Outlet Owners Association of Nigeria (PETROAN), urged the government to extend the policy. “Our stand is that we still advise the government that it is too early to stop the experiment. We should be able to still allow the naira-for-crude sales to go on at least for another six months and see what that will yield.”
The Naira-for-Crude policy has played an important role in stabilising fuel prices and reducing inflationary pressure. Any decision to end it must be backed by a well-thought-out strategy to prevent further economic hardship. Nigeria cannot afford another fuel crisis, and finding a sustainable solution must be a top priority for the government.
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.
