Naira-for-Crude: Petrol Price Hike Looms as Deal Lingers
There is anxiety in the downstream arm of the oil and gas sector as operators await the decision of the Federal Government on the naira-for-crude deal between the Nigerian National Petroleum Company Limited and the Dangote Petroleum Refinery.
The six-month deal, which started in October 2024, officially ends today, Monday, March 31, 2024. The deal’s extension or complete halt is still being discussed by the parties involved.
However, it was gathered on Sunday that the committee responsible for the negotiations has yet to resolve on the matter. As this lingers, the effect is now felt in the pump prices of refined petroleum products.
Petrol has increased from about ₦860/litre to over ₦930/litre within one week. Dealers blamed this on the failure of the Federal Government to extend the naira-for-crude deal between the NNPCL and the Dangote Refinery.
Oil marketers also projected further hike in petrol price. They said the cost may hit ₦1,000/litre in weeks if nothing is done about the naira-for-crude deal that earlier helped in checking the rise in petrol prices.
Meanwhile, barring any last-minute change, the 650,000 barrels per day Dangote Refinery is expected to shut down its petrol-producing unit for maintenance. According to Reuters, the maintenance, which may occur in June, will last for 30 days.
On the naira-for-crude deal, an insider at the finance ministry familiar with the ongoing negotiations revealed that no significant progress has been made. The source said both parties could not engage in any meeting throughout the past week.
“Nothing new has happened. Probably after the holidays, the committee will sit and meet,” the senior government official stated.
Recall that on October 1, 2024, the government commenced the sales of crude oil in naira to the Dangote Refinery to improve supply, save the country millions of dollars in petroleum product imports, and ultimately reduce the pump prices of fuel.
NNPC recently stated that the Dangote Refinery had received 48 million barrels of crude oil in naira under the deal. It also said a total of 84 million barrels of crude had been supplied to the refinery since it commenced operations in 2023.
NNPC’s Chief Corporate Communications Officer, Olufemi Soneye, in a statement, explained that the initial deal was for six months and discussions for the renewal of the agreement were currently ongoing, with the aim of establishing a new contract.
However, events took a drastic turn when the Dangote Refinery, on March 19, announced a temporary suspension of the sale of petroleum products in naira.
The Lekki-based refinery lamented that there was a mismatch between its sales proceeds and its crude oil purchase obligations, which it said were currently denominated in US dollars.
“Dear valued customers, we wish to inform you that the Dangote Petroleum Refinery has temporarily halted the sale of petroleum products in naira. This decision is necessary to avoid a mismatch between our sales proceeds and our crude oil purchase obligations, which are currently denominated in US dollars.
“To date, our sales of petroleum products in naira have exceeded the value of naira-denominated crude we have received. As a result, we must temporarily adjust our sales currency to align with our crude procurement currency,” the firm announced.
Immediately after the announcement, the cost of loading petrol at private depots in Lagos jumped to about N900/litre. It was less than N850/litre before the announcement.
Industry sources said the deal failed because the national oil company had used large volumes of its yet-to-be-produced crude oil to acquire loans from various international financial institutions, making it tough for the oil firm to have enough crude to supply the domestic market.
Retail stations also increased their pump prices between ₦930 in Lagos, ₦950 in Abuja and ₦960 in the far north.
While industry stakeholders have expressed optimism that a deal would be sealed between both parties, the intense uncertainty concerning the discussions points to a different direction.
SOURCE: Neptune Prime
