Afreximbank, Other Banks To Settle Transactions Between NNPC Ltd, Dangote Refinery

…IOCs Won’t Benefit From New FG’s Deal

…Intervention To Eliminate Letters Of Credit, Save FX On Petrol Import

…NNPC Ltd’s Fight Against Oil Theft Raises Production To 1.61mbpd

The Federal Executive Council on Monday approved the sale of crude oil to Dangote Refinery and other local Refineries in Naira instead of Dollars.

The approval was given during the meeting chaired by President Bola Tinubu

During the meeting, President Tinubu extended an offer of support to the Dangote Refinery by proposing that NNPC Ltd sells crude to the refinery in Naira, providing a valuable lifeline.

In order to maintain the stability of fuel prices and the exchange rate between the dollar and the Naira, THE WHISTLER understands that the Federal Executive Council accepted a suggestion put forward by Tinubu during the meeting.

The proposal involves selling crude oil to Dangote Refinery and other new Refineries in Naira.

The Dangote Refinery currently needs 15 shipments of crude oil annually, amounting to a total cost of $13.5bn.

It was learnt that NNPC Ltd has pledged to provide four of these cargoes.

The FEC also agreed to make available 450,000 barrels for local consumption, which will be offered to Nigerian refineries in Naira, with the Dangote Refinery being the initial test.

The exchange rate will remain constant throughout this transaction.

Based on the approval, THE WHISTLER can report that only the volume that is equivalent to domestic consumption would be billed in Naira.

The implication of this is that only the Nigerian National Petroleum Company will sell crude oil to Dangote Naira as the International Oil Companies are not covered by the arrangements.

The Special Adviser to the President on Media and Strategy, Bayo Onanuga said the move would ensure the stability of the pump price of refined fuel and the dollar-Naira exchange rate.

He said, “The Federal Executive Council today adopted a proposal by President Tinubu to sell crude to Dangote Refinery and other upcoming refineries in Naira.

“Dangote Refinery at the moment requires 15 cargoes of crude, at a cost of $13.5bn yearly. NNPC has committed to supply four.

“But the FEC has approved that the 450,000 barrels meant for domestic consumption be offered in Naira to Nigerian refineries, using the Dangote refinery as pilot. The exchange rate will be fixed for the duration of this transaction.”

He said Afreximbank and other settlement banks in Nigeria will facilitate the trade between Dangote and NNPC Limited.

The game changing intervention will eliminate the need for international letters of credit.

THE WHISTLER had reported that the inability of the Dangote Refinery and Petrochemicals Company to raise banks letters of credit may have forced the company to be reselling cargoes of crude oil bought from Nigeria to other countries.

Sources familiar with the matter confirmed this last Friday.

A letter of credit is a mode of payment for the importation of visible goods. As requested by the customer, the bank promises in writing to pay the exporter a certain sum within a certain time frame in return for goods, as long as the customer provides the bank with the proper paperwork.

Pricewaterhouse Coopers Nigeria and Citibank have recently raised concerns about foreign suppliers rejecting letters of credit amid unsettled foreign exchange obligations to domestic lenders.

Onanuga also revealed that tge new deal would also save the country of billions of dollars used in importing refined fuel.

Vice-President Kashim Shettima had revealed that Nigeria spends $25bn per annum on the importation of petroleum products.

This is expected to be saved with the new deal between the NNPC Ltd and Dangote Refinery

Reacting tp.th3 development, the immediate past president of the Independent Petroleum Marketers Association Of Nigeria (IPMAN), Debo Ahmed said the move by the federal government is a welcome development, adding selling crude to Dangote in naira would reduce inflation and conserve foreign exchange.

Ahmed said, “The federal government is selling crude to Dangote in naira to make sure the price of petroleum products reduces a little. The economy is so bad and the contributing factor to inflation is logistics which is fueling food inflation.

“If it is taken care of, at least it will reduce hardship. If we refine locally, it will reduce the problem of foreign exchange. There will be a lower cost of transportation. Goods and food will be transported easily. The whole thing will reduce the price of fuel.

“Dangote has been buying from abroad and if this is done, he will meet our need in terms of supply and it will help the country.”

The deal is coming just as the declaration of a state of emergency by the Nigerian National Petroleum Company Limited on crude oil production has yielded a positive outcome with the increase recorded in daily production from 1.25 million barrels per day [mbpd] in June to 1.61mbpd as of July 23, 2024.

Group Chief Executive Officer of NNPC Ltd, Mr Mele Kyari had declared the state of emergency at the end of June in a speech at the 2024 Nigeria Oil and Gas (NOG) Energy Week in Abuja.

Kyari said the move was directed towards increasing Nigeria’s crude oil production and growing its reserves.

According to him “We have decided to stop the debate. We have declared war on the challenges affecting our crude oil production. War means war. We have the right tools. We know what to fight. We know what we have to do at the level of assets. We have engaged our partners. And we will work together to improve the situation.”

He had explained that a detailed analysis of assets showed that Nigeria could conveniently produce two million barrels of crude oil per day without deploying new rigs, but the major impediment to achieving that remained the inability of players to act in a timely manner.

“War will help NNPC Ltd and its partners to speedily clear all identified obstacles to effective and efficient production such as delays in procurement processes, which have become a challenge in the industry,” he said.

And about a month after, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has just announced the increase in the daily crude oil production in the country from 1.25 million barrels per day (mbpd) in June to 1.61 mbpd as of July 23rd.

The increment in output, according to the Commission, was in spite of significant operational challenges especially affecting terminals at Bonny, Brass, and Forcados, prompting the Commission to employ end-to-end production monitoring and a mass balance methodology to accurately account for losses and differentiate them from operational losses.

The announcement by the NUPRC has generated positive sentiments in the oil sector of the national economy with its potential for more revenue accretion to the federal government’s coffers.

Chief Executive Officer of the Commission, Engineer Gbenga Komolafe dropped the information at the House of Representatives’ Special Committee’s Two-Day Public/Investigative Hearing on Oil Theft/Losses in Abuja at the weekend.

An elated Komolafe said that Nigeria remained Africa’s largest producer of crude oil, boasting proven reserves of 37.50 billion barrels and a production capacity of approximately 2.19 million barrels per day (mbpd).

According to him: “Nigeria is facing significant challenges, especially affecting terminals at Bonny, Brass, and Forcados. This has prompted the Commission to employ end-to-end production monitoring and a mass balance methodology to accurately account for losses and differentiate them from operational losses.

“The NUPRC has introduced several innovative measures to enhance transparency and accountability.”

He listed other innovations towards accountability to include the Advanced Cargo Declaration (ACD) Regulation that ensures no crude oil is exported without proper accounting and that assigns a unique identification number (UIN) to each cargo; the Upstream Metering Regulation, which mandates reliable metering systems to account for all hydrocarbon production and exports; and, real-time cargo tracking and digital documentation to improve visibility and efficiency in cargo operations.

He explained that with a mandate to oversee the exploration, development, production, and lifting operations of crude oil and natural gas, “the NUPRC regulates both the technical and commercial aspects of operations in the nation’s Upstream Petroleum Sector, ensuring optimal tax revenue generation, royalty collection, and cost benchmarking.

“Other areas of major focus for the Commission include ensuring business continuity and production sustainability at low costs, accurate measurement and timely payment of royalties, uninterrupted crude oil and natural gas supply to the domestic market, and maintaining safety, health, and environmental standards.

“The Petroleum Industry Act 2021 grants the Commission several statutory mandates in the areas of calibration and certification of metering systems and equipment, publication of reports and statistics on upstream operations, regulatory oversight and issuance of quality and quantity certificates for exports, and determination of fiscal prices for crude oil and condensate.”

Komolafe stated that the strategies of the Commission aimed to optimise production, enhance regulatory oversight, and ensure accurate measurement and accounting.

He further said that the Commission had prioritised improving rig availability and reducing non-productive time through unlocking heavy crude oil reserves via industry workshops.

“These initiatives also support new Petroleum Prospecting License (PPL) awardees to achieve their first Oil, among other initiatives,” he explained.

He reaffirmed NUPRC’s commitment to continued engagements with stakeholders to optimise Nigeria’s Oil production and maintain its leadership position in Africa’s energy sector.

Afreximbank, Other Banks To Settle Transactions Between NNPC Ltd, Dangote Refinery is first published on The Whistler Newspaper

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