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Delay In Crude Supply To Dangote Refinery Poses Risk To Nigeria’s Economy – EIU Report
The Economist Intelligence Unit (EIU) has issued a warning that further delays in crude oil feedstock to the Dangote Petroleum Refinery and Petrochemicals could jeopardise Nigeria’s economic recovery and put additional pressure on the naira.
The research and analysis division of the Economist Group said the Dangote refinery which began production in January has encountered setbacks in petrol production due to a shortage of crude oil feedstock.
It noted that the $20 billion facility has successfully exported various products, including fuel oil, naphtha, nitrogen fertilisers, gasoil, jet fuel, and diesel but has been able to ramp up petrol production due to challenges in sourcing adequate crude oil.
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According to the EIU, the delays in crude feedstock to the Dangote Refinery are expected to have significant economic repercussions for Nigeria, potentially worsening the already strained relationship between public finances and the management of the naira, the country’s currency.
The report pointed out that though the government had previously scrapped the official petrol subsidy in June 2023, the practice of unofficially subsidising petrol continues, with substantial implications for the national budget.
It further pointed out that this had led to increased currency losses, contributing to a widening budget deficit which made it increasingly difficult to manage and could force the Central Bank of Nigeria (CBN) to revert to stronger management of the currency.
“As the federal government unofficially subsidises petrol (the official subsidy was scrapped in June 2023), currency losses feed into a widening budget deficit that is becoming more challenging to finance. This provides extra incentive for the central bank to revert to stronger management of the currency, as we already expect, but the degree of market intervention could become heavier. Meanwhile, ongoing fuel imports would reduce the current-account surplus from the 1.9% of GDP that we currently project for 2025, potentially leading to lower foreign reserves and the return to a more rigid and unstable foreign-exchange system,” it said.
The delay in securing a reliable pipeline of affordable crude oil feedstock was attributed to low crude production due to oil theft and underinvestment, as well as using crude oil to repay outstanding loans.
“The refinery has encountered a range of problems, both practical and political in nature. The most publicly discussed issue is how the refinery can secure a reliable pipeline of crude oil feedstock at affordable prices. NNPC, the state oil firm, has not been able to provide enough volume. The government has promised to deliver 450,000 b/d of oil to the refinery through NNPC in a pilot scheme, sold in naira, but the state oil company is not in a position to make this a reliable arrangement. Crude production in Nigeria is stubbornly low, as a result of oil theft and underinvestment. Output was 1.31m b/d in July, against an OPEC+ target of 1.38m b/d. NNPC receives a varying minority share of this and, moreover, a sizable quantity (about 90,000 b/d) is being committed as loan collateral,” it added.
The situation, it said, has been worsened by International Oil Companies (IOCs) operating in Nigeria, which demand a premium of $3-$4 per barrel over the prices they receive elsewhere. It noted that regulators are hesitant to enforce the Domestic Crude Supply Obligation (DCSO) — which requires IOCs to sell crude to local refineries — out of concern that such enforcement might lead to divestment.
The report emphasised that producing fuel locally would significantly benefit Nigeria’s fiscal position and currency, given that petroleum products account for 15% to 20% of the country’s goods import bill.
The Dangote Refinery, hailed as a transformative development, is expected to resolve the paradox of Nigeria being a major crude oil producer yet still dependent on fuel imports. With a capacity of 650,000 barrels per day (b/d), the refinery could potentially eliminate the need for fuel imports and shield local fuel prices from exchange-rate fluctuations.
“The Dangote fuel refinery is potentially transformational for Nigeria, which has always been an oil exporter and fuel importer. This fact is often regarded as a failure and an embarrassment by politicians, businesses and the media alike, but the new refinery has the ability to change this,” it said.
The Central Bank of Nigeria (CBN) has mandated payment service providers (PSPs) to route all point of sale (POS) transactions through its licensed Payment Terminal Service Aggregators (PTSAs) to standardize operations across the industry.
The directive, issued in a circular dated September 11, 2024, and made public on Thursday, is aimed at ensuring consistent technical and operational standards for POS devices used at merchant and agent locations.
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According to the CBN, PTSAs play a crucial role in certifying POS terminals, ensuring their functionality and availability.
As part of the new regulation, PSPs are required to integrate their systems with the CBN-approved PTSAs, which include the Nigeria Interbank Settlement System Plc (NIBSS) and Unified Payment Services Limited (UPSL).
The apex bank has given PSPs 30 days to comply with the new directive and report their compliance to the CBN within that period.
The circular reads, “In order to achieve the objective of tracking electronic transactions in Nigeria, the Central Bank of Nigeria (CBN) in August 2011, granted a Payment Terminal Service Aggregator (PTSA) licence to Nigeria Interbank Settlement System Plc (NIBSS),” the apex bank said.
“As part of efforts to mitigate the concerns regarding channelling Point of Sale (PoS) transactions through a single aggregator, the CBN on April 19, 2024, granted a second PTSA licence to Unified Payment Services Limited (UPSL).
“In furtherance of the above, the CBN hereby directs as follows: acquirers are henceforth required to route all transactions from PoS terminals at merchant and agent locations, whether on physical or electronic PoS terminals, through any CBN-licensed Payment Terminal Service Aggregator (PTSA).
“PTSAs are required to send PoS transactions to only Processors certified by the relevant Payment Scheme, nominated by the Acquirer and licensed by CBN.
“All licensed Processors must be integrated with both PTSAS, thereby allowing Acquirers the flexibility to choose which Processor(s) and PTSA to utilize
“All Payment Terminal Service Providers (PTSPs) must ensure that their PoS devices. Applications are configured to route transactions through any PTSA, as directed by the Acquirer.
“All PTSPs shall submit monthly returns to the CBN, detailing the number of merchants and agents they manage, along with the PTSA services used to route the corresponding transactions.
It added “Each PTSA is required to submit monthly returns to the CBN, detailing all transactions processed through their platforms.”
In addition, the financial regulator announced that all PSPs and PTSAs must submit their monthly reports to the CBN’s Director of the Payments System Management Department within seven days after the end of each month.
The CBN has advised PSPs and aggregators to adhere to this requirement, warning that failure to comply will result in appropriate sanctions.
In a dramatic turnaround, the Naira significantly appreciated against the dollar at the foreign exchange market on Wednesday, just 24 hours after experiencing a decline.
According to data from FMDQ, the Naira surged to N1,555.75 per dollar, representing an impressive N81 gain from the previous day’s rate of N1,637.59.
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This remarkable recovery not only erased the N57.13 depreciation recorded on Tuesday but also surpassed it, indicating a strong rebound for the Nigerian currency.
Confirming the development, Dayyabu Ashiru, a Bureau De Change operator in Wuse Zone 4, revealed that the Naira traded at N1,650 per dollar on Wednesday, up from N1,660 on Tuesday.
The foreign exchange market also witnessed increased activity, with transaction turnover rising to $221.24 million on Wednesday, a significant jump from $197.37 million on Monday.
Kingsley Moghalu, a former Deputy Governor of the Central Bank of Nigeria, has announced that he will no longer engage with the media on Nigeria’s economic crisis.
Moghalu cited the government’s lack of interest in his expertise as the reason for his decision.
The former CBN chief’s announcement comes as Nigeria grapples with severe economic hardship and hunger, exacerbated by the government’s policies, including the floating of the Naira and removal of fuel subsidies.
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Moghalu’s decision has sparked concerns about the government’s willingness to listen to expert advice on economic matters.
Financial analyst Kalu Aja has also criticized the administration’s handling of palliatives, noting that it took them a year to address food imports and that promised CNG buses have yet to materialize.
Moghalu explained his absence from media interviews, stating that he has already shared his insights on reviving Nigeria’s economy and sees no value in repeating himself.
He said, “I’ve declined virtually all requests for interviews on the Nigerian economy from Nigerian media over the past several months. Why? There is no point in a dialogue of the deaf. I’ve already spoken a lot about how to fix Nigeria’s economy. Anyone interested can find what I’ve said.
“It’s ironic that people like us who actually do not need Nigeria and its economy for our personal survival are so concerned simply out of passion for our country, but after a while, we must recognize the harsh truth and act accordingly.”
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