The Chairman of the Federal Inland Revenue Service (FIRS), Zach Adedeji, has said that the groundbreaking policy shift that aims to significantly reduce Nigeria’s expenditure on petrol imports, will save the country millions of dollars.
Speaking after a Federal Executive Council (FEC) meeting on Monday, Adedeji revealed that the federal government will cut monthly spending on petrol imports by $610 million by supplying crude oil to the Dangote Refinery and other local refineries in naira.
He disclosed that Nigeria currently spends approximately $660 million per month on fuel importation, translating to about $7.92 billion annually. The new policy, approved by the FEC, seeks to denominate trade among local refineries in naira, thereby slashing foreign exchange costs and stabilizing fuel prices.
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According to Adedeji, the adoption of naira transactions for crude oil supply to local refineries will reduce the need for foreign exchange, cutting down the monthly expenditure from $660 million to just $50 million. This reduction, amounting to a 94% saving, is expected to save the country $7.32 billion annually.
“With this new approval, we are reducing the burden on our foreign reserves and creating a more stable economic environment,” Adedeji stated.
“Just to be specific, in terms of benefits, one which is major is the reduction in foreign exchange pressure. We utilize $660 million per month, totaling $7.92 billion annually.”
He said that this measure would help stabilize the naira’s exchange rate and bring more predictability to fuel pricing, reducing the dependency on fluctuating international forex markets.
“With this approval today through FEC led by Mr President, this has been reduced by a minimum of 90%. Because of what we have today, the transaction will now be down in our local currency not only to Dangote Refinery but to all local refineries for all our local consumption. This will stabilize the pump price.
“This will also make economic stability a reality because there will no longer rely on the fluctuation in forex,” the FIRS boss said.
Backstory: The Road to Naira-Denominated Crude Supply
The policy comes as part of President Tinubu’s broader economic strategy to stabilize Nigeria’s economy and reduce its dependency on imported fuel. The decision to sell crude oil to the Dangote Refinery and other upcoming refineries in naira marks a significant shift in the country’s energy policy.
The Dangote Refinery, a 650,000 barrel-per-day facility, requires 15 cargoes of crude annually, costing approximately $13.5 billion. Under the new arrangement, the Nigerian National Petroleum Corporation (NNPC) has committed to supplying four of these cargoes. The 450,000 barrels of crude earmarked for domestic consumption will now be sold to Nigerian refineries in naira, with the Dangote Refinery serving as the pilot project for this initiative.
This arrangement also includes a fixed exchange rate for the duration of the transactions, ensuring price stability. Afreximbank and other Nigerian settlement banks will facilitate the trade, eliminating the need for international letters of credit and saving the country billions in foreign exchange.
The announcement comes amid ongoing tensions between Dangote Refinery and various stakeholders, including the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the government-owned NNPC Ltd. There have also been allegations of sabotage by International Oil Companies (IOCs), who have been accused of attempting to undermine the refinery’s operations.
The dispute over crude oil supply and pricing had escalated to the point where prominent figures, including Akinwumi Adesina, President of the African Development Bank (AfDB), and billionaire businessman Femi Otedola, had to weigh in. The resolution, brokered by President Tinubu, was seen as a critical step toward ensuring Nigeria’s energy security and stabilizing the domestic fuel market.
While the new policy is expected to provide immediate relief in terms of foreign exchange savings and price stability, the long-term impact on Nigeria’s energy sector remains to be seen. The government’s intervention is crucial as it addresses the dual challenge of stabilizing the naira and reducing the country’s dependence on imported fuel.