Recently, there have been growing concerns about the continued sustainability of the naira-for-crude programme introduced in October, last year, by the Federal Executive Council (FEC). The concerns followed reports that the oil swap deal between the Nigerian National Petroleum Company Limited (NNPCL) and domestic refiners, including the 650,000 bpd Dangote refinery in Lagos, has been terminated over rising defaults and power play.
The deal allows local refiners to purchase crude oil in naira, instead of the US dollar. The programme is designed to support local refining capacity, reduce the reliance on imported petroleum products, and stabilise the value of the naira, as well as ease the pressure on foreign exchange reserves which have been depleting in recent months. The contract for the scheme was structured on a six-month basis, ending this month, subject to availability, according to the management of NNPCL.
Since the deal came into force, the NNPCL is reported to be supplying Dangote refinery almost 300,000 barrels of crude per day. It also entails Dangote refinery selling petrol and diesel to the domestic market in naira equivalent at a discounted rate, rather than in dollar. The discounted rate partly explains why Dangote refinery has made successive marginal cuts in the prices of petroleum products in recent times. But all of that could face imminent collapse, Industry watchers say that there is no guarantee that the NNPC will be willing to continue selling at a discount rate, given that the oil giant is reported to be hemmed in by other commitments to finance deals to service its crude sales.
The NNPCL has denied any unilateral termination of the crude oil deal, insisting that the policy framework enabling the sale of crude for domestic refining remains in force. However the re-negotiation of the agreement with local refiners, including the Dangote refinery is ongoing. The NNPCL had in a statement signed by its spokesman, Olufemi Soneye, said the company remains committed to supplying crude to local refineries based on mutually agreed terms and conditions. It also said it has made over 84 million barrels of crude to Dangote refinery in less than two years.
Recently, the NNPC reportedly informed local refiners that it had already committed its crude production to forward contracts. A forward contract is a customised agreement between two parties to buy and sell at a predetermined price on a future date.
This means that there would be no supply available from the NNPCL for domestic refineries after the six-month deal that expires this March. According to the agreement, Dangote refinery is mandated to inject 25 million litres of premium motor spirit (petrol) daily to the domestic market in exchange for the crude from the NNPCL. The refinery has reportedly been struggling to meet the 25 million litres daily production.
Despite the clarification and denials, this is the continuation of the ‘cold war’ between the NNPCL and Dangote refinery that began more than a year ago. It will be recalled that in November, 2024, Vice President, Dangote Refinery Ltd, Edwin Devakumar, accused NNPCL of failing to meet its target under the naira-for-crude deal. Dangote refinery is expected to receive a minimum of 385,000 bpd from NNPCL.
Devakumar described the volume of crude supplied by NNPCL as “peanut.” He did not specify the exact amount of NNPCL default. The power play is already telling on the volume of crude allocated to the naira-for-crude scheme. Available statistics show a sharp drop for February 2025, with only four cargoes, and just two cargoes for March, all totaling 950,000 barrels. This represents an allocation decline of 61,290 bpd, which is far below the minimum 385,000 bpd target under the deal.
The shortfall has reportedly led Dangote refinery to import crude from outside the country. The company said it recently imported 12 million barrels of crude from the United States (US). Let all the parties resolve the matter amicably and enable the naira-for-crude programme achieve its lofty objectives.
Already, the uncertainty over the naira-for-crude deal has raised fresh fears of another increase in fuel prices. It will also lead to further depreciation of the naira, exchange rate fluctuation and hike in inflation. This is not in the best interest of the economy. In all, let the naira-for-crude deal be.