The recent move by the Federal Government to end the opaque Domestic Crude Allocation (DCA) scheme, which has been in place for 20 years, is anticipated to positively affect the domestic fuel supply chain and increase transparency in the industry. Dangote and other local refineries will begin receiving sales of crude oil denominated in nairas on October 1.
The largest economy in Africa has been running a system for more than twenty years that ensures the federation’s share of oil is put aside for domestic refining at a rate of roughly 445,000 barrels per day (the nameplate capacity of Nigeria’s four government-owned refineries).
The allotment would be paid for in Nigerian Naira, and the earnings would go to the now-defunct Petroleum Products Marketing Company through sales and distribution of the refined products that would be produced.
This was justified by the argument that an exclusive domestic allocation of crude oil would ensure energy security, decouple the price of refined petroleum products from fluctuations in foreign exchange rates and the price of crude oil, and guarantee sufficient supplies of refined petroleum products within the nation.
Though the plan appears excellent on paper, in practice, ongoing operational and financial difficulties in the domestic refineries frequently require that a portion of the 445,000 bpd be allocated to a convoluted oil-for-product swap between trading companies and NNPC, a deal known as the Direct Sale Direct Purchase program.
According to Bayo Onanuga, the president’s special assistant on information and strategy, the African Export-Import Bank (Afreximbank) and other Nigerian settlement banks will facilitate commerce between Dangote and NNPC.
“The Federal Executive Council today adopted a proposal by President Tinubu to sell crude to Dangote Refinery and other upcoming refineries in Naira to ensure the stability of the pump price of refined fuel and the dollar-Naira exchange rate,” Onanuga stated on his X account on Monday.
“The FEC has approved that the 450,000 barrels meant for domestic consumption be offered in Naira to Nigerian refineries, using the Dangote refinery as a pilot. The exchange rate will be fixed for the duration of this transaction,” he added.
The Federal Inland Revenue Service (FIRS) executive chairman, Zacch Adedeji, announced that distributors will also be paid in naira for the byproducts sold by the Dangote refinery.
“And what does it mean to our economy? One, the pressure on foreign exchange will be reduced,” Adedeji stated.
FG Is Expected To Save $7.92 Billion
Adedeji said that the new permission will limit the foreign exchange used for petrol purchases to a monthly ceiling of $50 million, or $600 million annually.
Adedeji added, “This is a total reduction of 94 percent and saving us 7.32 billion.”
“So, this is a major innovation in solving Nigeria’s problem permanently. Not only will it have more employment but we will definitely be in charge of one of the mainstays of our economy.”
