Fuel price hike looms as Dangote, NNPCL talks fail

The Dangote Petroleum Refinery has temporarily halted the sales of petroleum products in naira as the naira-for-crude talks between the $20bn Lekki-based plant and the Nigerian National Petroleum Company Limited appear to have failed.

Following the announcement of the halt in petroleum products’ sales in naira by the Dangote refinery on Wednesday, the cost of loading petrol at private depots in Lagos jumped to N900/litre. It was less than N850/litre before the announcement.

Industry experts and oil marketers warned that the halt in naira sales by the Dangote refinery could increase the pressure on the foreign exchange market, as dealers would now have to access the United States dollars in large amounts to buy petroleum products.

This came as multiple industry sources familiar with what prompted the failure in the naira-for-crude talk decried the humongous forward sales of crude by NNPCL.

They stressed that 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.

In a statement on Wednesday, the Dangote Group said the suspension of petroleum products’ sale in naira is temporary.

It said, “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 refinery also debunked online reports that it was stopping loading due to an incident of ticketing fraud.

“This is a malicious falsehood. Our systems are robust and we have had no fraud issues. We remain committed to serving the Nigerian market efficiently and sustainably. As soon as we receive an allocation of naira-denominated crude cargoes from NNPC, we will promptly resume petroleum product sales in naira,” the statement said.

When asked to state some of the effects that the latest decision of the Dangote refinery would have on the oil sector, a major marketer, who spoke in confidence due to the nature of the matter, replied, “Two key things to ponder. Nigeria generates over 90 per cent of its foreign exchange earnings from the sale of crude oil.

“Secondly, we have not been able to produce much more than 1.6 million barrels a day on a consistent basis. Thirdly, much of that production has already been sold in advance to ease cash flow problems that essentially came about because NNPCL was absorbing the cost of subsidising gasoline prices. So your guess is as good as mine as to how naira for crude can be sustained. If you have an idea please share it with me.”

The oil dealer further noted that the development shows that the naira-for-crude deal between NNPCL and the Dangote refinery may have collapsed.

“I really can’t say beyond the fact that the negotiations may not be going well. As in all negotiations, there must be give and take and compromise. Once either party insists on their own position irrespective of the circumstances, then things might break down,” the dealer stated.

In an interview with The Punch, the NNPCL spokesman, Olufemi Soneye, neither denied nor confirmed claims that the NNPCL was halting the naira-for-crude deal with Dangote refinery.

However, The Punch gathered that discussions about the deal between the Dangote refinery and the Technical Sub-Committee regarding the naira-for-crude deal have collapsed due to what sources described as a lack of enough crude.

Soneye instead insisted that the company had maintained its stance on supplying crude for local refining based on mutually agreed terms and conditions.

“As I have repeatedly stated, NNPC remains committed to supplying crude for local refining based on mutually agreed terms and conditions. Additionally, the NUPRC has disclosed that all local refining companies collectively produce less than 50 per cent of our national consumption. You can do the Maths,” he stated.

Last week, the NNPC announced that it had initiated fresh negotiations with the Dangote refinery over the renewal of the naira-for-crude agreement, as talks were underway in anticipation of the expiration of the first phase which started in October 2024 and ends this month.

Soneye said 48 million barrels of crude had been supplied to the Dangote refinery since October. As the Dangote refinery suspends the sale of petroleum products in naira, it means marketers would have to source dollars before buying petrol from the facility.

With this, the National Vice President of the Independent Petroleum Marketers Association of Nigeria, Hammed Fashola, said there could be pressure on the naira, and that it would lose the stability it had gained lately.

He said, “The price of petrol will depend on the exchange rate, the crude price, and other factors that determine the landing cost. Recently the landing cost was around N774.82, if that is sustainable for now, Dangote’s suspension of naira sales may not affect prices for now. But the dollar may lose value if marketers run after the dollar to buy petrol from Dangote refinery, the naira will lose value again. Let’s wait and see the market reaction to this move from the Dangote refinery.”

In his advice, the IPMAN Vice President appealed to the Federal Government not to stop the naira-for-crude deal.

“I would like to advise the FG to look into the agreement with Dangote again to maintain the tempo of the prices of petroleum products. The masses today are happy with the drop in petrol prices. But just a few hours ago the private depot owners started reacting to the Dangote press release by reviewing their prices upward.

“Yesterday, we closed with N825 to N826, but this afternoon, prices have started increasing again to N835 to N836 per litre. I will appeal to the FG to continue supplying crude to Dangote and other local refiners to maintain stability in the sector,” Fashola said.