The Independent Petroleum Producers Group (IPPG) has cautioned the Nigerian government about the potential economic risks of its recent decision to sell crude oil in naira to local refineries.
In a letter to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), IPPG Chairman Abdulrasaq Isa expressed concerns that this policy could worsen Nigeria’s foreign exchange (FX) crisis by significantly reducing the country’s FX earnings from oil, its primary revenue source.
The policy, approved by the Federal Executive Council and set to begin on October 1, aims to lower Nigeria’s monthly foreign exchange expenditure on petroleum imports.
While the government anticipates saving up to $7.32 billion annually by reducing FX outflows, the IPPG argues that the move contradicts existing laws and could destabilize the naira.
Isa warned that this policy could undermine government revenues from royalties and taxes, which are typically denominated in U.S. dollars.
He also highlighted the operational and financial challenges facing oil producers under the new domestic crude oil refining requirements.
The IPPG’s concerns come amid tensions between the 650,000-barrel-per-day Dangote Refinery and the NUPRC over crude supply shortages.
Isa suggested that the Nigerian National Petroleum Company (NNPC) Ltd allocate its crude volumes more effectively to domestic refineries and consider a price hedge mechanism to manage domestic supply.
The IPPG’s warnings underscore the challenges in balancing Nigeria’s energy security with the need for FX stability.