The Nigerian National Petroleum Corporation (NNPC) Ltd. has confirmed that it is in active discussions with the Dangote Oil Refinery to extend the landmark agreement that allows the refinery to purchase crude oil in the local currency naira. This development comes as the initial six-month contract, implemented in October 2024 to address supply challenges, is set to expire later this month.

The original agreement was forged in response to persistent difficulties faced by local refineries, including the massive Dangote facility, in securing adequate crude oil supplies. These challenges were largely attributed to foreign exchange volatility and the complexities of international oil trading.

The initiative was designed to circumvent these hurdles by enabling refineries to purchase crude oil from NNPC Ltd. using the local currency, the naira. This was intended to streamline procurement, reduce reliance on foreign exchange, and ultimately enhance the operational efficiency of domestic refineries. Under the current arrangement, NNPC Ltd. has reported supplying 48 million barrels of crude oil to the Dangote Refinery.

However, the implementation of the agreement has not been without its challenges. While the initial plan envisioned extending the naira-based supply to seven other smaller refineries, only the Dangote Refinery ultimately benefited. Furthermore, even the Dangote Refinery did not receive the full volumes initially stipulated in the contract.

The backstory to this agreement is rooted in Nigeria's long-standing ambition to achieve self-sufficiency in petroleum product supply. Despite being Africa's largest oil producer, Nigeria has historically relied heavily on imported refined products due to the limited capacity and operational inefficiencies of its domestic refineries. The Dangote Refinery, with its massive 650,000 barrels per day capacity, represents a pivotal step towards achieving this goal.

However, the refinery's operational commencement was hampered by logistical challenges and the difficulties in securing a consistent crude oil supply. The foreign exchange crisis in Nigeria, with the naira experiencing significant depreciation, further exacerbated these issues, making it difficult for refineries to acquire the necessary foreign currency for international crude purchases.

The naira-based supply agreement was thus seen as a crucial intervention to ensure the smooth operation of the Dangote Refinery and other domestic refineries, contributing to the nation's energy security and reducing reliance on imports.

As discussions for a new contract proceed, the focus will be on addressing the shortcomings of the initial agreement. Key areas of negotiation are expected to include the volume of crude oil to be supplied, the pricing mechanism, and the duration of the new contract. NNPC Ltd. has stated that "discussions are ongoing towards" a new contract but has yet to provide specific details.