Very recently, the Nigerian National Petroleum Company (NNPC) Limited, halted its Naira-for-crude initiative, where the country sells crude to local refineries in the country’s currency.
The rationale behind the decision lies in the report that the NNPC had sold all its crude, despite current production levels being higher than when the deal began about six months ago.
“Forward-sold all its crude” means that the Nigerian National Petroleum Company (NNPC) Limited has already sold future crude production in advance, possibly to secure immediate funding, repay debts, or fulfil contractual obligations.
As a result, local refineries, including the Dangote refinery, whose operations were beginning to pick up steam, would be forced to source local crude in USD.
Current estimates as seen in the Punch newspaper have pegged the potential loss at N32.5 billion from 500 million litres stock of premium.
This is based on the fact that the chairman of the refinery, Aliko Dangote, had revealed to the press prior to the Naira-for-Crude suspension that his oil facility had over 500 million litres of petrol in its tanks.
According to the Punch’s estimates, 500 million liters of petrol will amount to N445 billion if sold at the former rate of N890/litre.
Although there were talks about negotiations between the NNPC and Dangote for a new Naira-for-Crude deal, Dangote has wasted no time in sourcing crude from foreign markets, particularly from Angola for its Pazflor grade and Algeria for its Saharan Blend through a deal with Glencore Plc.
500 million litres of PMS at the current rate of N825 per litre, which had been put in effect by the Dangote refinery, following a N65 decrease on the 26th of February, is expected to lower the Dangote Refinery’s income from the stock to N412.5bn.
“This means the company must have sold the 500 million litres at N32.5bn below its original value of N445bn,” the analysis suggests.
This is contrary to the projections by experts that the refinery would be able to recover its losses as a result of the recent collapse in crude prices and the increase in the value of the Naira relative to the Dollar.
