Category: Saturday Magazine

The Naira-for-Crude policy, designed to ensure the affordability and sustainability of petroleum supply, has sparked a fierce debate among experts. While supporters believe it strengthens the naira and boosts local refinery capacity, critics warn it could destabilise the currency and deter foreign investment. As the policy ends today, its future remains uncertain, with stakeholders divided on whether it should continue or be abolished. Assistant Editor MUYIWA LUCAS delves into the differing perspectives on this contentious issue.

The Naira-for-Crude policy was designed to support the domestic consumption of petroleum products. According to the government’s vision, the policy aimed to ensure a stable supply and optimise the use of local refining capacity. Additionally, it sought to eliminate the challenges associated with sourcing foreign exchange for petroleum imports. Proponents believed that the policy could enhance economic sovereignty and strengthen the local currency. Launched in October 2024, the policy was initially set to run for six months, with the final day scheduled for March 31.

However, just two weeks before the policy’s expiration, a major beneficiary—Dangote Refinery—announced that it would cease selling petrol in naira to the domestic market. This shift was due to the refinery no longer receiving crude oil in naira, but instead being left to refine oil that it imported using dollars. In response, the Nigerian National Petroleum Company (NNPC) Limited acted quickly, stating that it was in talks with Dangote and other local refiners. NNPC reaffirmed that the agreement was for an initial six-month period and subject to review.

Since the Naira-for-Crude policy’s implementation in October 2024, NNPC reported that it had supplied Dangote Refinery with over 48 million barrels of crude oil. As the policy’s end approaches, Zacch Adedeji, the Chairman of the Technical Sub-Committee on Domestic Sales of Crude Oil and Refined Products in naira, emphasised that the arrangement with local refineries had not been discontinued. However, recent developments may signal the conclusion of the policy.

Terms of sale and the debt burden

A key clause in the agreement stipulates that the sale of crude oil in naira is contingent upon the availability of the commodity. However, with the country facing challenges in meeting its production targets, fulfilling domestic obligations has become increasingly difficult. Under the Petroleum Industry Act of 2021, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) had, earlier in the year, provided an estimate of the crude oil requirements for local refineries in the first half of 2025. This projection was aimed at ensuring effective capacity utilization of the nation’s domestic refineries through a consistent supply of crude oil.

According to the NUPRC’s forecast for the first half of 2025, the country’s crude oil production is expected to average 2,066,940 barrels per day (Bopd). Of this, the Commission estimated that local refineries would require 770,500 barrels per day (Bopd), which represents approximately 37 per cent of the projected daily production.

“This strategic initiative aligns with Nigeria’s commitment to bolstering its domestic refining capacity and ensuring the sustainability of its oil industry. The first half of 2025 is expected to witness increased synergy between local refineries and producing companies, setting the stage for a more robust and self-reliant petroleum landscape in Nigeria,” the NUPRC Chief Executive, Gbenga Komolafe said.

Stakeholders have raised concerns over the potential abandonment of the Naira-for-Crude policy, especially given that the government is aware of the projected crude oil allocation requirements. Furthermore, the claim of insufficient crude oil for domestic consumption is questionable, considering the clear provisions and guidelines established under the Domestic Crude Supply Obligation (DCSO) by NUPRC. The DCSO is a regulatory framework requiring oil-producing companies in Nigeria to allocate a portion of their crude oil production for domestic refining. This provision ensures a steady supply of feedstock to local refineries, bolsters national energy security, and aligns with Section 109 of the Petroleum Industry Act (PIA) 2021.

Introduced to guarantee a continuous supply of crude oil to domestic refineries, the DCSO aims to reduce Nigeria’s reliance on imported refined petroleum products, enhance local refining capacity, promote the growth of the downstream sector, and stabilise the domestic market. The NUPRC is tasked with enforcing this obligation. The allocation of crude oil for local consumption under the DCSO is determined through a mathematical model that considers factors such as the National Domestic Crude Supply Requirement (DCSRn), the company’s production forecast (Prodi), the national production forecast (Prodn), the company’s Technical Allowable Rate (TARI), and the national Technical Allowable Rate (TARn). For Joint Ventures (JVs), the model is adjusted based on the equity participation of each partner.

Each year, the NUPRC sets the percentage of crude oil allocated for domestic supply based on refining capacity, market demand, and government policy directives. Operators are notified of their obligations under the DCSO biannually, typically on January 1 and July 1. Although the Commission is not responsible for setting the price of crude oil supplied to the domestic market—since upstream activities operate under a deregulated pricing framework as outlined in Section 109 of the Petroleum Industry Act (PIA)—it does ensure that pricing remains fair and reasonable. According to the PIA, pricing is to be determined on a willing buyer, willing seller basis. However, to maintain transparency and fairness, the Commission requires producers and refiners to submit their monthly cargo pricing offers to the Commission.

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The provision further stipulates that the pricing of domestic crude oil must align with Section 109 of the PIA 2021 and be based on international benchmarks. Adjustments may be made for factors such as logistics, quality differentials, and regulatory requirements. While the pricing operates on a willing buyer, willing seller basis, in cases of pricing disputes, the parties involved must bring the matter to the NUPRC for resolution. The provision also allows oil companies to export any remaining crude oil after fulfilling their DCSO obligations.

Sources suggest that the unsustainability of the policy is largely linked to several crude-backed loan commitments undertaken by the Nigerian National Petroleum Company (NNPC) Limited, among other factors, which have significantly contributed to the policy’s challenges. The NNPCL’s involvement in crude-backed loan commitments dates to 2019, with a total estimated amount of approximately $22.465 billion in loans to be settled. These agreements include a $750 million vendor financing programme and a $1.5 billion agreement, which expired in May 2023 and November 2024, respectively. Additionally, there is a $3.3 billion emergency crude repayment loan, secured in August 2023 and underwritten by Afreximbank through Project Gazelle Funding Ltd (PGFL), a special purpose vehicle (SPV) incorporated in the Bahamas. This loan was financed upfront by Afreximbank, Oando Plc, and Sahara Energy.

Other notable commitments include a $1 billion crude-backed loan issued during liquidity constraints, a $2 billion loan for Project Leopard, and a $7.5 billion loan for Project Gazelle II, all of which are scheduled for full repayment in January 2029 and April 2034, respectively. Further, NNPCL has other significant loan obligations, such as a $3 billion financing deal for NLNG Train 7, which matures in May 2029; a $1 billion loan for Project Eagle, due in June 2025; and a $300 million loan for Project Brogue, due in January 2027. Additionally, Project Bison—a $1.04 billion credit facility obtained by NNPCL—will mature in December 2026, while the $1 billion Project Yield is set to mature in June 2029. The company also has a $75 million offtake financing arrangement, which is due in October 2029.

There are ongoing discussions within the federal government regarding a new forward sale agreement, which is expected to extend until 2034. This proposed deal is largely driven by Nigeria’s urgent need to settle the Central Bank of Nigeria’s (CBN) outstanding obligations, including $3.2 billion, with $1.2 billion of this amount due in Eurobond yields in 2025. Given the significant financial commitments of both the NNPCL and the country—largely denominated in dollars—stakeholders argue that it is economically illogical for crude oil, which is priced in dollars on the international market, to be sold in naira. The Chief Executive Officer of the Major Energies Marketers Association of Nigeria (MEMAN), Clemet Isong, contended that the forward sales agreements entered into by the NNPCL have resulted in a reduction of the volume of crude oil allocated for domestic consumption.

“You cannot sell what you don’t have. There is no quota set aside for domestic consumption again because we do not have it. Set aside from who?  From your own or from the IOC’s own? From who’s own? You don’t have; it’s just not there,” he said.

Isong, who has over 40 years of experience in Nigeria’s oil and gas sector, explained that for such a policy to be both effective and efficient, the country must significantly increase its crude oil production capacity to a level well beyond its current requirements. He further pointed out that, given the NNPC’s heavy debt burden, every dollar earned becomes crucial for debt repayment and ensuring the company’s survival. As a result, the allocation of crude oil for domestic consumption could be significantly impacted.

Implications of halting policy

The future of the policy—whether it continues or is suspended—has sparked a divide among stakeholders and economists. Some argue that the policy is heading in the right direction, while others view it as a potential disruptor to the country’s economic stability. Meanwhile, some critics attribute the situation to policymakers selectively favouring regulations or laws that align with their interests at any given time. From the perspective of those in favour of the policy, its discontinuation could have significant macroeconomic consequences. They fear that suspending the policy may place additional demand pressure on the foreign exchange market, potentially destabilising the prices of commodities that have been gradually stabilising.

Dr. Muda Yusuf, an economist and Chief Executive of the Center for the Promotion of Private Enterprise (CPPE), warned that halting the Naira-for-Crude policy would be a “disturbing development” as it would fundamentally alter the dynamics of petroleum product pricing. “It will significantly change the dynamics of domestic petroleum products pricing. The sustainability of the widely celebrated deceleration of petroleum products prices is now evidently at risk. We may see a reversal of the trend.

“There are other macroeconomic implications.  For instance, the demand pressure on the forex market would be elevated, resulting in an exchange rate depreciation scenario. The foreign reserves may come under pressure. All of these could result in adverse macroeconomic outcomes with profound implications for investors’ confidence,” Yusuf warned.

Industry analyst Mayowa Sodipo argued that the question of whether to continue the Naira-for-Crude policy should never have arisen for several reasons. He pointed out that the policy has led to a reduction in petrol prices, fostering greater competition in the market. Furthermore, he noted that it has strengthened the Naira on the international market, as refiners no longer need to use foreign currency to purchase crude oil for their refineries.

Prof Omowumi Iledare, an expert in petroleum economics at the Emmanuel Egbogah Foundation in Abuja, explained the benefits of the policy, stating that it fosters an environment for economic expansion. “One you are thinking of the likelihood of expanded economic outfit in the economy; secondly you are thinking in terms of increasing job creation because now you are using your naira, which is the currency that you are going to use to recover the product that you are selling. It is even to government’s benefit that comes with the naira purchase of crude because it is going to increase the country’s revenue because tax will be taken on the production of the crude that they are using in the domestic economy and the influence of fluctuation in foreign exchange will be diminished,” Prof Iledare explained, adding that “also, the royalty on the oil production for the local refinery will be paid in naira.”

The emeritus professor further argued that the policy helps the Central Bank manage money supply in the economy, as the pressure on the exchange rate often stems from the demand for foreign exchange to import petroleum products. However, he acknowledged that there should be concerns, as this could potentially impact the country’s foreign reserves. He described the policy as “novel” and pointed to other countries that have successfully implemented similar measures. For example, India and China have used their local currencies to conduct international transactions within their own borders, and it has proven successful for them.

“Nigeria would have been the poster child in Africa where we begin to establish the need to use local currency to pay for factor of production; but now we are backing out because there are perhaps certain (and I might be wrong) certain individuals that in the short run seems to be affected. Again, perhaps the NNPCL might be losing the market share in the downstream of wholesale market structure because they may be thinking that the crude oil being sold to Dangote Refinery in naira is increasing its competitive advantage,” Prof Iledare argued.

However, the professor explained that market competition and the in terdependence on commodity pricing significantly influence the market dynamics. He emphasised that this is why industry regulators must advocate for all participants, including other local refiners and consumers. Nonetheless, he stressed the importance of understanding the fundamental workings of the market. On the other hand, stakeholders who advocate for discontinuing the policy often point to Venezuela’s failed attempt in the early 2000s to replace the dollar with its local currency for oil transactions. They argue that the effects of this policy contributed to severe economic instability in the country. These stakeholders caution that Nigeria must proceed with care and learn from historical precedents, as policies that disrupt established international trade norms without adequate safeguards can have unintended consequences.

Meanwhile, some players, such as the Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN), argue that the Naira-for-Crude transaction framework presents significant risks. They warn that it could destabilise Nigeria’s foreign exchange system and deter foreign direct investment (FDI). Additionally, they contend that the policy could exacerbate the volatility of the Naira against other international currencies.

Supporting its position, DAPPMAN argued that crude oil transactions are traditionally conducted in dollars due to the currency’s stability and global acceptability. They warned that, given the weakened state of the Naira, continuing the policy could alienate trade partners and investors who rely on the predictability and stability of the dollar. The Executive Secretary, Olufemi Adewole, cautioned that failing to align with the international standard of conducting crude oil transactions in dollars could isolate Nigeria from global markets, reducing trade opportunities and discouraging investment inflows.

He further explained that, given the naira’s instability—driven by inflationary pressures and fluctuating exchange rates—tying crude oil transactions to the Naira could exacerbate these issues. “The naira has experienced significant fluctuations over the years, driven by inflation and exchange rate instability. If crude oil transactions are tied to the Naira, these problems will only worsen, potentially triggering capital flight and causing foreign investors to seek alternative markets. This would negatively impact Nigeria’s economic growth, the sustainability of the sector, and the efficiency of the oil and gas value chain,” Adewole stated. He emphasised the need for policies that recognise the unique nature of the oil and gas sector to ensure the country remains competitive on the global stage.

Further outlining the reasons for DAPPMAN’s support for the discontinuation of the policy, Adewole argued that Naira-for-crude transactions could place an unsustainable strain on Nigeria’s foreign exchange reserves. He warned that the Central Bank of Nigeria (CBN) might struggle to maintain currency stability amid insufficient dollar inflows, which would only add to the country’s economic challenges.

“It is almost inevitable that implementing this policy could further deplete Nigeria’s foreign exchange reserves,” Adewole warned. “The CBN may find it increasingly difficult to stabilise the Naira due to inadequate dollar inflows. Since oil transactions have historically been a primary source of foreign exchange, disrupting this mechanism will likely intensify economic pressures.”

Despite this, DAPPMAN stressed the need to balance economic sovereignty with global market realities. “DAPPMAN supports all efforts and policies aimed at strengthening the Naira. However, these strategies must drive substantial economic reforms that address the root causes of the Naira’s weakness. Nigeria must find a balance between national interests and global market dynamics. Economic policies are most effective when they focus on long-term sustainability rather than being shaped by sector-specific demands,” he explained.

Reiterating the need for policies that align with international market standards while ensuring long-term economic stability, Adewole cautioned that the future of Nigeria’s oil and gas sector hinges on pragmatic policies that promote investment, foster transparent competition, and safeguard the country’s foreign exchange reserves. “By creating an environment conducive to private-sector participation, Nigeria can achieve a sustainable energy sector that benefits the broader economy,” he added.

On the other hand, Prof Omowumi Iledare emphasised that the price of petroleum products is directly tied to the price of crude oil. He argued that pricing crude oil in local currency could mitigate the impact of exchange rate fluctuations on petroleum product prices. “So, if crude is bought in dollars but petroleum products are sold in Naira, consumers would bear a double burden when crude prices rise,” he explained. “If the local currency is devalued, the final product’s price will also increase, leading to inflationary pressures. Because crude oil is a critical factor of production, changes in its price significantly affect the broader economy, which creates a dilemma — or even a trilemma — in terms of economic stability,” Prof Iledare concluded.

Purpose achieved or not?

Experts remain divided on the unfolding situation. While some warn of severe consequences if the policy is terminated, especially with a halt in local sales, others argue that the market may not be significantly impacted, given that the sector is deregulated. A recent market intelligence survey conducted by The Nation revealed that the savings from the retail price of petrol in the final month of the Naira-for-crude policy exceeded N113 billion monthly, or approximately N3.8 billion daily. This has provided more disposable income for households. The analysis, based on the average daily petrol consumption of 50 million litres, as indicated by the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), also considered price changes by the two main petrol suppliers—Dangote Petroleum Refinery and Nigerian National Petroleum Corporation (NNPC) Limited. Dangote Refinery, which had been selling petrol at N925 per litre, reduced its ex-depot price twice last month, bringing the retail pump price down to N860 per litre. Following the competitive price cut, NNPC, which had been selling petrol at N945 per litre, also lowered its retail price to N860 per litre.

Dr. Yusuf praised the pricing efficiency as a positive development for Nigerians, noting that it has freed up more disposable income for households. He highlighted that this is one of the significant benefits of deregulation. While Yusuf acknowledged that global factors contribute to price reductions, he also pointed out that domestic factors have played a role, particularly the removal of several dysfunctional policies within the oil and gas sector and the foreign exchange market.

“These policies are bringing some efficiency into the market system, and it’s beginning to restore normalcy to the overall economic management. It’s a welcome development. Many of us commend this and hope that the trend continues. Closely related to this is the fact that we’re beginning to see stability in the foreign exchange market. This is another remarkable development that is positively impacting the declining and stabilizing prices of energy, particularly petroleum products.

“So, I think the trajectory is positive, and I hope the government will continue addressing these critical issues that affect citizens’ welfare. We expect to see this progress in other sectors as well—such as cooking gas, diesel, and aviation fuel. We’d like to see deliberate policies to make these improvements happen, because energy prices and exchange rates have been two of the biggest issues we’ve faced over the past year,” Yusuf, an economist, explained.

Conflict and the days ahead

However, these gains might be lost soon. Over the weekend, the Nigerian Economic Summit Group (NESG) raised concerns over the potential cancellation of the naira-for-crude policy, warning that the move could exacerbate Nigeria’s already fragile foreign exchange (FX) pressures. The cancellation of the policy, which was originally aimed at strengthening the naira, is seen as a step backward in Nigeria’s broader foreign exchange strategy.

The Group cautioned that scrapping the initiative could lead to even more significant challenges in managing Nigeria’s forex reserves, which have already been under strain due to fluctuating oil prices and low foreign currency inflows. “This cancellation is a misstep that could exacerbate Nigeria’s already precarious forex situation,” said Tayo Aduloju, the Chief Executive Officer of NESG, adding that the move might have unintended consequences for Nigeria’s currency and oil revenue dynamics.

According to Aduloju, NESG supports the crude-for-naira initiative, if transactions align with prevailing market rates and avoid creating a hidden foreign exchange subsidy. “It solved the issue of local production needs chasing forex. Imagine a big player like Dangote constantly chasing forex every day to buy crude—this automatically increases pressure in the market, and it can be disruptive. The journey is going nowhere to help anyone. So, we encourage the committee to revisit the broad framework,” the NESG explained.

Prof Iledare, however, noted that while the policy might be politically sound, it is economically challenging and could require negotiation rather than imposition. He suggested that it might only apply to government equity oil. “The biggest challenge with the PIA is selective implementation. There’s a difference between the letter of the law and the spirit of the law. When you begin picking and choosing from the law’s provisions, you’re likely to lose the intent of the law, and that’s what I’ve observed over the three years of implementing the PIA,” said Prof Iledare in a national television interview. According to him, the issue in the sector is not necessarily regulatory, but rather with policy formulation and implementation. “There must be a competent, transparent, and apolitical policy institution to formulate policies. The naira-for-crude policy could have been analysed with well-developed benefits, concerns, and a proper cost-benefit analysis,” he said.

The professor of petroleum economics stressed that understanding the price trend of petroleum products is crucial, as they are directly tied to crude oil prices. “If crude oil prices are volatile, petroleum product prices will also fluctuate. What we’ve done by attempting to use our local currency for crude oil transactions is like the passage of the local content law, which is working today. That’s why consistency and sustainability are key—it’s about ensuring access to affordable, available, and sustainable energy. This is the only way to grow the economy,” he stated.

He argued that policymakers must balance short-term challenges with long-term sustainability. “Some decisions require staying the course until optimal benefits are realised. Challenges bring opportunities, and that’s why we need a decision-making process, not just ad hoc responses to current situations. The naira-for-crude policy has only been in place for six months, and we haven’t even allowed it to fully play out so we can see its extreme benefits.”