Di era of naira-priced petrol don dey end as federal government policy for naira for crude oil flop. Wetin go follow fit reshape inflation, transport cost and di value of naira.
Di decision by Dangote Petroleum Refinery to abandon naira-denominated sales of petroleum products na arguably di biggest policy setback for Nigeria downstream oil sector since di removal of fuel subsidy. E no be just commercial decision by private refinery; e be vote of no confidence for federal government ability to sustain di much-publicised naira-for-crude initiative. More importantly, e underscore painful reality: despite Nigeria emergence as Africa largest refining hub, domestic fuel prices remain hostage to foreign exchange market.
Di decision follow di refinery increasing reliance on crude oil wey dem purchase for dollars after supplies under government naira-for-crude arrangement become inadequate. Di timing fit hardly be worse. Dangote Refinery, a $20 billion investment and di world largest single-train refinery, get refining capacity of 650,000 barrels of crude oil per day, sufficient to meet Nigeria domestic fuel demand and export surplus products across Africa. Yet, industry reports indicate say di refinery receive only seven domestic crude cargoes for May, against monthly requirement of 13-15 cargoes, compelling am to import substantial portion of its crude feedstock for dollars. Dis inevitably expose di refinery to exchange-rate risks wey no private investor fit absorb indefinitely.
For di prevailing official exchange rate of about N1,380 per US dollar, di refinery new dollar price translate to roughly N1,075 per liter before transportation costs, depot margins, regulatory charges, and marketers profits. While di immediate increase fit appear modest, di real danger lie elsewhere: petrol prices don now directly tie to di fortunes of di naira. Should di exchange rate weaken to N1,500/$, di same litre of petrol go cost about N1,169 before additional charges. At N1,600/$, di cost rise to approximately N1,246. For effect, Nigerians fit pay more for fuel without any increase for global crude prices or refining costs. Exchange-rate depreciation alone become sufficient to raise domestic pump prices.
Ironically, dis na precisely wetin di naira-for-crude initiative design to prevent. Introduced for 2024, di policy seek to supply local refiners with crude oil for naira to reduce dollar demand, strengthen local refining, ease pressure on foreign reserves, and stabilise fuel prices. Dat objective don now substantially undermine by inconsistent implementation. Professor Emeritus of Petroleum Economics, Wumi Iledare, rightly argue say Dangote Refinery don merely announce di price wey e prepare to sell its products for deregulated market. According to am, aligning revenues with di currency wey crude dey procure na legitimate commercial response to foreign exchange exposure rather than price-fixing. His position reflect established principles of petroleum economics.
However, commercial logic no dey erase economic consequences. Nigeria downstream petroleum market remain far from perfectly competitive. Di country state-owned refineries never operate at optimal capacity, imported products remain expensive, and Dangote Refinery don become di dominant domestic supplier. Consequently, commercial decision wey single refinery make fit quickly become national economic issue. Industry stakeholders don already sound di alarm. Di Petroleum Products Retail Outlets Owners Association of Nigeria (PETROAN) warn say dollar-denominated fuel transactions fit gradually encourage di dollarisation of di Nigerian economy. At di same time, di Independent Petroleum Marketers Association of Nigeria (IPMAN) argue say marketers go compete for scarce foreign exchange, placing fresh pressure on di naira and increasing pump price volatility. Depot operators don reportedly already raise loading prices by up to N113 per litre at some locations for anticipation of higher replacement costs.
Di wider economy no likely escape di consequences. Fuel remain one of di country biggest drivers of inflation because road transport account for di overwhelming movement of goods and passengers. At di same time, thousands of manufacturers, hospitals, schools and small businesses still rely heavily on petrol and diesel generators due to unreliable electricity supply. Any sustained increase for fuel prices inevitably feed into transportation costs, food prices, industrial production and household living expenses.
Di uncomfortable truth be say dis development expose policy contradiction. Di government promote di naira-for-crude initiative as di cornerstone of its energy reforms, promising lower foreign exchange demand, greater energy security, and more stable fuel prices. Yet e fail to guarantee di one condition necessary for di policy success: adequate supply of crude to domestic refiners for naira. Once crude procurement gradually revert to dollars, Dangote decision become less matter of choice than commercial necessity.
Ultimately, Dangote Refinery don do wetin every rational private investor go do—align its revenues with di currency wey most of its obligations dey incur. Di real issue no be Dangote decision but di policy inconsistency wey make am inevitable. Nigeria establish di naira-for-crude initiative to shield consumers from exchange-rate volatility. Allowing dat framework to unravel don effectively transfer foreign exchange risk from di refinery to motorists, manufacturers and millions of households. Unless di federal government urgently restore transparent and enforceable domestic crude supply framework, Nigerians fit discover say local refining alone no be guarantee of cheaper fuel. For today Nigeria, di price wey display for filling stations fit increasingly depend less on refining costs for Lekki than on di value of di naira for di foreign exchange market.
