Local crude oil producers in Nigeria are demanding for their payment in United States dollars as the preferred currency for their transactions with local refiners in the country. This demand was made during a meeting with the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), which had been convened to activate the local domestic crude supply obligation.
The demand stems from Section 109 of the Petroleum Industry Act (PIA), which introduces this obligation to the Nigerian oil industry. It dictates that the supply of crude oil to the domestic market should be conducted on a voluntary basis between suppliers and buyers. The specific volume of crude oil that oil-producing companies must allocate to meet this domestic crude supply obligation is determined through an allocation system administered by the NUPRC.
During the meeting, Oluwadare Agbelese from Watersmith emphasized the need for broader discussions with the NMDPRA and the CBN to ensure that off-takers have priority access to foreign exchange, allowing them to pay for the product competitively, just as external off-takers would do.
Tunde Akinpelu from Aiteo raised concerns about whether local refiners have the flexibility in their crude oil preferences. He pointed out that the Kaduna refinery doesn’t process all the product varieties available in Nigeria, whereas refineries in Port Harcourt and Warri might have different requirements.
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Abdalla Buba suggested allowing some transitional adjustment time from the pre-PIA regime to the PIA regime to address these concerns.
Responding to the concerns, Gbenga Komolafe, the Chief Executive of NUPRC, noted that any company failing to meet a production request within a specified period could be subject to a $10,000 administrative fine imposed by the NUPRC. Furthermore, such companies may not be granted an export permit. Komolafe explained that this move is aimed at ensuring domestic sufficiency and addressing the negative impact on the economy due to significant under-recovery figures.
He emphasized the importance of making Nigeria a net exporter of refined products and implementing the critical provision of the PIA, known as the domestic crude oil obligation. This obligation requires oil producers to allocate a specific portion of their crude oil production for domestic consumption.
To bolster domestic refining efforts, there are initiatives to establish modular refineries and the Dangote refinery, which is the largest in Africa. The Dangote refinery has requested a guarantee for a fixed stock, and Komolafe expressed concern that the nation should meet this commitment.
As part of the latest developments, NUPRC has reached out to oil producers to provide copies of their committed agreements to help assess the available barrels that are not yet allocated.
Regarding the concerns related to dollar payment terms, Komolafe clarified that the law already accommodates a willing buyer, willing seller situation, allowing parties to negotiate and agree on the currency of the transaction, which can be either in naira or dollars. The NUPRC will collaborate with other stakeholders to facilitate domestic refiners in meeting their obligations.
Komolafe also addressed the implementation mechanism, acknowledging that each refinery has specific configurations for different crude types. Data will be collected to determine the obligation concerning compatible crude types.
