The Dangote Refinery’s Naira Suspension and its Impact on the Nigerian Fuel Market
The recent decision by the Dangote Petroleum Refinery to temporarily suspend the sale of petroleum products in naira has sent ripples through the Nigerian downstream petroleum sector. This move, prompted by a mismatch between the refinery’s naira-denominated sales proceeds and its dollar-denominated crude oil purchase obligations, has sparked concerns about potential fuel price hikes and market instability. The refinery clarified that its naira sales had outpaced the value of naira-denominated crude received, necessitating a temporary shift to align sales currency with procurement currency.
The immediate consequence of this announcement was a surge in the cost of loading petrol at private depots in Lagos, rising from below N850/litre to approximately N900/litre. While filling station owners maintained current retail prices, many engaged in stockpiling, anticipating future price increases and aiming to capitalize on higher profit margins. This behavior prompted a warning from the Independent Petroleum Marketers Association of Nigeria (IPMAN), cautioning against panic buying due to the risk of significant losses should the refinery subsequently reduce prices. IPMAN’s National Publicity Secretary, Chinedu Ukadike, condemned the opportunistic price gouging by depot owners, emphasizing its detrimental effect on the economy.
The Federal Government’s silence following the refinery’s announcement further fueled speculation and uncertainty within the downstream sector. Marketers were left without clear guidance on future petroleum product pricing and purchasing procedures. The lack of communication from the refinery about how dealers would acquire PMS exacerbated the situation. Private depot owners, however, reacted swiftly by raising prices in anticipation of a general price hike. This maneuver created a sense of urgency among filling station owners, prompting them to stockpile fuel in anticipation of larger profits.
IPMAN leadership, however, cautioned against this speculative buying spree. Ukadike emphasized the potential for substantial losses should the Dangote Refinery reverse its decision and lower prices, leaving marketers with large volumes of overpriced fuel. He urged members to exercise restraint and avoid excessive purchases to mitigate the risk of financial setbacks. The potential price volatility underlined the need for cautious inventory management.
Behind the scenes, however, discussions continued between the Federal Government and the Dangote Refinery aimed at resolving the impasse and reinstating the naira-for-crude arrangement. While official statements were yet to be released, sources from the Ministries of Finance and Petroleum Resources indicated that a Technical Sub-Committee was reconvening to address the matter. The Nigerian Upstream Petroleum Regulatory Commission was tasked with exploring options for reviving the naira-for-crude deal. While the specifics of the deal’s potential revival remained unclear, sources suggested it was not intended to be a permanent disruption, but a result of crude availability challenges faced by the Nigerian National Petroleum Company Limited (NNPCL).
The suspension of naira sales has wider implications for the Nigerian economy. Industry experts and oil marketers warn that the increased demand for US dollars to purchase petroleum products could exert pressure on the foreign exchange market, potentially destabilizing the naira’s recent gains. The situation is further complicated by the NNPCL’s substantial forward sale of crude oil to secure loans from international financial institutions. This practice has reportedly limited the NNPCL’s available crude supply for the domestic market, further contributing to the current challenges. Prior to the suspension, the naira-for-crude deal had enabled the Dangote Refinery to repeatedly lower PMS prices, prompting similar price reductions by the NNPCL, even at the expense of its profit margins. This price competition resulted in significant financial losses for fuel importers, leading organizations like the Petroleum Products Retail Outlet Owners Association of Nigeria to advocate for regulations limiting the frequency of price reductions.
The suspension of the naira-for-crude deal has generated controversy and speculation. Some industry players suggest it may be a deliberate attempt to curb the influence of the Dangote Refinery, which some accuse of harboring monopolistic ambitions. Domestic crude oil refiners, on the other hand, view the move as a tactic to undermine the Dangote Refinery and reinstate the reliance on imported refined petroleum products. The Crude Oil Refinery-owners Association of Nigeria argues that suspending the naira-for-crude deal jeopardizes efforts to achieve national energy security. Amid these complex dynamics, the Nigerian Port Authority reported the arrival of seven vessels carrying imported PMS, adding another dimension to the evolving fuel supply landscape. These shipments, totaling 154.22 million litres, arrived at ports in Lagos and Cross River State, coinciding with the Dangote Refinery’s import of 654,766 metric tonnes of crude oil within the same period. These imports highlight the ongoing interplay between domestic refining and imported fuel supplies.
The Dangote Refinery’s entry into operation has not been without its challenges. Upon commencing operations, the refinery encountered crude supply issues, with allegations that international oil companies (IOCs) were attempting to sabotage the project by refusing to supply crude or by offering it at inflated prices. The Dangote Group claimed that IOCs prioritized selling to Asian countries and preferred dealing through foreign agents, even for Nigerian-produced crude. Despite regulatory intervention, these issues persisted, hindering the refinery’s access to local crude. The situation escalated into a public dispute when the Chief Executive of the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) questioned the quality of locally refined fuels compared to imported ones. This prompted President Bola Tinubu to propose the sale of crude to local refineries in naira, a proposal subsequently approved by the Federal Executive Council. The naira-for-crude deal was intended to support local refineries, starting with the Dangote Refinery as a pilot project, with a fixed exchange rate for the duration of the transactions.
