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By Adewale Sanyaolu
Except urgent steps are taken, Nigeria’s foreign exchange and oil revenue crises may worsen in the coming months over the Domestic Crude Allocation (DCA) policy.
DCA involves domestic sales of crude oil, thereby bringing revenues in naira, the domestic currency as against the US dollars.
Agora Policy, a Nigerian think tank and non-profit in their latest research on Nigeria’s forex challenges titled ‘Cancelling Domestic Crude Oil Allocation is Nigeria’s Surest Path to Easing Forex Supply Crunch’ insisted that the DCA policy be scrapped immediately.
The Nigerian Upstream Petroleum Regulatory Commission (NUPRC), in a bid to ensure an adequate and consistent supply of crude oil to the emerging refineries in the country, summoned a meeting with 52 crude oil exploration and production companies last year to ensure the ramping up of feedstock for emerging refineries in the country.
‘‘Of all the options being implemented or considered for boosting forex inflow into Nigeria, cancelling what is termed DCA is Nigeria’s s urest bet.
This will yield immediate result and provide a steady (not one-off) flow of foreign exchange—and thereby address the cashflow challenge in the official segment of the forex markets.
Additionally, it will end the dodgy deductions and accounting associated with the domestic crude allocation policy that has been aptly described as an active crime scene,” says Agora Policy.
The report disclosed that Nigeria lost 70 per cent of its oil revenue to DCA between 2010 and 2022, adding that as of 2010, flows from oil and gas accounted for 94 per cent of forex to the Central Bank of Nigeria (CBN), but dipped to 24 per cent by June 2022.
The report maintained that with the drastic reduction in oil production and shift in arrangements from joint ventures (JVs) to Production Sharing Contracts (PSCs), most of the federation’s share of produced crude oil is channeled to DCA, which has dramatically risen from below 10 per cent of federation’s share of oil in the early 2000s to almost 100 per cent by 2023.
On forex flows, the report maintained that the practice is injurious to survival of the country, especially at this time.
“It is a key challenge because the revenue from DCA sales is received in Naira, meaning that the Central Bank of Nigeria (CBN) is starved of a steady and healthy flow of foreign exchange from what used to be its dominant source: crude oil sales. As of 2010, flows from oil and gas accounted for 94 per cent of forex to the CBN, but plummeted to 24 per cent by June 2022, and is conceivably much lower now,” the highlighted.
“Beyond improving security in the Niger Delta to curtail oil theft and re-engaging with capable partners to raise investments in oil production in the country, a short-term and sustainable fix for oil revenue and ultimately for increased forex flows will be for the Nigerian government to immediately cancel the policy of earmarking for domestic consumption a portion (and increasingly all) of its own share of oil output,” the think tank said.
It further explained that the crude allocation system has acquired an outsized profile of recent.
“Any serious attempt at understanding and reforming how Nigeria’s share of oil is accounted and paid for must, for a number of reasons, zero in on the management of and the recent prominence of the DCA,” it said.
According to the report, the earmarked barrels of crude oil return first as petrol, then, in terms of monetary flow, as Naira, not dollars.
“This is because the resultant petrol from DCA is paid for in Naira, not dollars. It is worth highlighting that there is no guarantee that the Naira payment from DCA would translate to commensurate, or even any, revenue to the federation account.
“This is because the national oil company has always been in the habit of making upfront deductions for sundry reasons from revenue accruing from the DCA. The DCA is the site where NNPC performs its dark magic,” the report said.
