PIB: Local refineries to buy crude oil in naira

Holders of crude oil refining licences in Nigeria will pay for domestic crude oil supply in Naira.

This is according to the Petroleum Industry Bill (PIB) passed by the senate on Thursday.

Companies holding refining licences in Nigeria include Dangote Oil Refinery Company, Waltersmith Refining & Petrochemical Company Limited, OPAC Refineries, Niger Delta Petroleum Resources, BUA Refinery & Petrochemicals and Edo Refinery and Petrochemical Company Limited.

In February, Godwin Emefiele, governor of the Central Bank of Nigeria (CBN), said arrangements have been made to enable the Dangote Refinery sell refined petroleum products in naira when it commences production.

“That is the element where foreign exchange is saved for the country becomes very clear,” he had said.

According to section 109 of the PIB report released by the senate joint committee on downstream petroleum sector; petroleum resources (upstream); and gas, payment guarantees to be provided by refinery licence holders shall be in dollars or naira.

The section which addresses “domestic crude oil supply obligation” notes that since refiners will be paid in Naira after supply delivery of refined crude, it will be challenging for them to pay for crude oil using US dollar.

“Holders of crude oil refining licences shall provide payment guarantees as required by the applicable lessee and payment for crude oil purchased pursuant to obligations shall be in US dollars or Naira, as may be agreed between the lessees or suppliers and the licensee of the refining licence,” the report reads.

“Since refiners themselves may only be paid in Naira for deliveries to the domestic market, it may be onerous to require US dollar payments.”

The senate recommended that two regulators be established, namely the Nigerian Upstream Regulatory Commission and the Nigerian Midstream and Downstream Petroleum Regulatory Authority.

“The commission may issue regulations or guidelines on the mechanism for the imposition of a domestic crude oil supply obligation on lessees of upstream petroleum operations, including applicable penalties,” the report added.

“The authority shall supply the commission on a regular basis the crude oil requirements of refineries in operation and where shortages or inadequate supply conditions occur report such conditions to the commission.

“The commission shall ensure that the domestic crude oil supply obligation contains the following: (a) crude oil may only be sold to holders of crude oil refining licences, whose refineries are in operation.

“b) the supply of crude oil shall be commercially negotiated between the lessee and the crude oil refining licensee, having regard to the prevailing international market price for similar grades of crude oil; and (c) holders of crude oil refining licences shall provide payment guarantees as required by the applicable lessee and payment for crude oil purchased pursuant to obligations shall be in US dollars.”