Dr Zacch Adedeji, Special Adviser to Nigeria’s President on Revenue, says the Federal Government estimates to make annual savings of $7.3 billion on its decision, Monday, to sell crude directly to local fuel refiners including the Dangote Refinery and denominate the sales in the local currency, the naira.
Adedeji, who is also chairman of Nigeria’s Federal Inland Revenue Service (FIRS) further explained that by denominating transactions in naira, the Federal Government expects to significantly reduce its forex burden.
He added that apart from extending the sale of crude oil to Dangote Refineries, it will also include sale of Dangote’s products to others to be conducted in naira.
He said the decision aims to mitigate the heavy reliance on foreign exchange for crude oil imports, which currently accounts for between 30 and 40 percent of Nigeria’s forex expenditure.
He observed that the new policy will stabilise crude oil prices domestically by minimising the impact of forex fluctuations.
He said it is further anticipated to ease the pressure on Nigeria’s foreign exchange reserves, reducing monthly forex expenditure on petroleum products to $50 million from approximately $660 million.
AFREXIM Bank has been selected as the pilot settlement bank to facilitate these transactions, he said.
His words: “Today, at the Federal Executive Council, there was a memo by Mr. President, which is to promote the sale of crude oil within local refineries and the Nigeria National Petroleum Corporation (NNPC), is to deal in our local currency.
“The attitude of Mr. President is thinking outside the box to solve Nigeria’s problem and actually to localise the solutions to Nigeria’s problems.
“He has approved through the Council that effective immediately, that NNPC get engaged with local refineries and we are starting that with Dangote Refinery. That the sales of crude oil to Dangote Refinery be denominated in naria and also the sales of byproducts from Dangote Refinery to distributors also be conducted in naira.
“What does it mean to our economy? One, the pressure on foreign exchange will be reduced”.
Adedeji said Nigeria currently spends between 30% and 40% of its foreign exchange on importation of petrol that it consumes, adding “monthly, we spend roughly $660 million in this exercise and if you analyse, that will give us $7.92 billion annually”.
The Presidential Adviser, said, “with this approval today through FEC, led by Mr. President, this has reduced by minimum of 90% because what we have today, will mean transaction is now done in our local currency, not only with Dangote Refinery, but to all local refineries for all our local consumptions and this will actually stabilise the pump price.
“This will also make economic predictability a reality because we will no longer rely on the fluctuations that happen in FOREX. This is an innovation to solving our problems as a country today.
“Just to be specific, I’ll just read parts of the benefits. Number one, which is major, is the reduction in foreign exchange pressure, as the existing process that we have today utilises $660 million per month, totally $7.92 billion annually.
“With the new approval that we have, this will reduce to maximum of $50 million per month which is annnualised to be only $600 million. This is a total reduction of 94% and saving us $7.32 billion.
“This will also reduce finance costs, which today stand at $79 million, when you consider opening letter of credit between those local refineries and what happens.
“Also, as a pilot, Council has approved that a settlement bank, which in this instance is AFREXIM Bank, would be the lead arranger between NNPC and Dangote Refinery.
“So, this is a major innovation in solving Nigeria’s problem permanently. Not only will we have more employment, but we will definitely be in charge of one of the mainstays of our economy.
“So, I congratulate the Council members, Mr. President, and also congratulate the operators; the NNPC and Dangote Refinery and also the lead arranger AFREXIM Bank because kudos should go to the President of the African Export-Import Bank (AFREXIM Bank), Prof. Benedict Oramah, for this initiative because these are people that work behind the scenes to make sure that what we witnessed today happened.
“One of the major directives of Mr. President and the Council in general, is that AFREXIM leads the advisory work of structuring and arranging this initiative with the Associated Trade Finance Facility, in collaboration with the Central Bank of Nigeria, the Nigerian National Petroleum Corporation Limited and Federal Ministry of Finance and other critical agencies”, he said.
