By Ndubuisi Micheal Obineme
With the commencement of PMS production from the Dangote Group’s 650,000-barrel-per-day refinery, the Federal Government of Nigeria has appointed the African Export-Import Bank also known as Afreximbank as the Settlement Bank for naira-based transactions on crude oil and refined petroleum sales to preserve foreign exchange, encourage local refining, and reduce reliance on imports.
In a statement made known to The Energy Republic, Afreximbank President Prof. Benedict Oramah met with President Tinubu and the Implementation Committee for Crude Oil and Refined Petroleum Products in Local Currency at the Presidential Villa Abuja on October 29, 2024, to formalize the appointment.
The initiative would allow the NNPC Limited to supply crude oil in local currency, with Dangote’s refinery as the pilot for this strategy. The Dangote Refinery, which requires significant crude supplies annually, is expected to reciprocate by providing petrol and diesel in naira, simplifying currency transactions and lessening the economic strain of fuel imports.
According to the federal government, the approach will reduce FOREX demands by up to 40 percent as key institutions, including the Central Bank of Nigeria and AfreximBank, support the transition.
In early October 2024, the Federal Government began implementing a policy to sell crude oil to the Dangote Refinery in naira rather than U.S. dollars. This followed the Federal Executive Council’s approval which, the FG says, will stabilize fuel prices domestically and strengthen Nigeria’s currency by cutting down on the need for dollars in crude oil transactions. By trading in naira, the government aims to improve the availability of petroleum products and decrease import-related costs.
Speaking about Afreximbank’s appointment, Nigeria’s Finance Minister, Hon. Wale Edun highlighted Afreximbank’s critical role and experience in structuring complex transactions, noting that Afreximbank will serve as a settlement bank to facilitate these vital transactions working with local banks and stakeholders.
The minister added that the naira-based transactions on crude oil and petroleum sales will positively impact the Nigerian economy, boost private sector growth through local refining investments, create jobs across diverse industries, and enhance government revenue for salaries, infrastructure, and social programs.