(Bloomberg) -- Nigeria’s cabinet approved a plan to sell crude to the Dangote Petroleum Refinery in naira to alleviate pressure on the currency and stabilize domestic pump prices.
The state oil company will sell 445,000 barrels a day of crude allocated for local consumption to the refinery at a fixed exchange rate that will be reviewed every six months, according to a proposal approved at a meeting of the Federal Executive Council in the capital, Abuja, on Monday. The African Export-Import Bank and other settlement lenders will facilitate the trade between Dangote and the Nigerian National Petroleum Corp.
The 650,000 barrel-per-day refinery, owned by Africa’s richest person, Aliko Dangote, is being used as a pilot for the proposal and may will be extended to other domestic refiners, according to a presidential memorandum seen by Bloomberg and confirmed by Zacch Adedeji, chairman of the Federal Inland Revenue Service and an adviser to the president.
The facility requires 15 cargoes of crude per month, at a cost of $13.5 billion a year.
“Currently, these transactions are conducted in US dollars, significantly straining Nigeria’s foreign-currency liquidity,” according to the memorandum.
Under the proposal approved on Monday, the NNPC will provide four cargoes a month, leaving the remainder to be sourced from international traders.
“This strategy will eliminate government control and drive independence of the market as it aims to eliminate government intervention in the management of domestic petroleum prices, further facilitating competitiveness and allowing for greater market predictability and stability,” the memorandum says.
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