President Bola Tinubu has instructed the Nigerian National Petroleum Company Limited (NNPC) to start selling crude oil to Dangote Refinery and potentially other local refineries in Naira.
This directive aims to simplify the fiscal framework and strengthen Nigeria’s economy by stabilizing fuel prices and the Naira-to-dollar exchange rate.
It could be a strategic shift for economic stability
President Tinubu’s decision, communicated through his Special Adviser on Information and Publicity, Bayo Onanuga, via a social media post, talked about a strategic pivot towards enhancing economic self-sufficiency.
According to him, by transitioning crude oil transactions with Dangote Refinery to the local currency, the government seeks to reduce the reliance on hard currencies like the U.S. dollar, which have historically dictated the economic rhythms of oil-rich Nigeria.
This policy was ratified by the Federal Executive Council, highlighting the administration’s commitment to this new economic trajectory. The move is anticipated to mitigate the volatility of fuel prices at the pump and establish a more predictable foreign exchange environment, crucial for both businesses and everyday consumers.
Dangote Refinery, a mega-project expected to refine up to 650,000 barrels per day, has been at the center of Nigeria’s industrial strategy. The refinery needs about 15 cargoes of crude oil annually, costing roughly $13.5 billion. Currently, NNPC has agreed to supply four of these cargoes.
The shift to Naira payments for these transactions is not just about simplifying trading measures but also about fortifying Nigeria’s economic sovereignty.
The Federal Executive Council has further endorsed this initiative by earmarking the 450,000 barrels designated for domestic consumption to be sold in Naira. This approach not only supports local enterprises but also serves as a pilot test with the Dangote Refinery leading the way.
How the transition would go
To ensure a smooth transition and operational consistency, Afreximbank along with other Nigerian settlement banks will oversee the facilitation of these trades. This arrangement is pivotal as it circumvents the traditional complexities and costs associated with international letters of credit, which typically necessitate dollar transactions.
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