As Special Adviser to President Bola Tinubu on Revenue, Dr. Zacch Adedeji who doubles as Executive Chairman of the Federal Inland Revenue Service (FIRS), has a critical role to play in the Renewed Hope government helping strategically to deploy all techniques, skills, and global best approaches for successful domestic revenue mobilization to fund the administration’s development agenda.
It is undoubtedly true that Dr. Adedeji appears committed to seeing that Nigeria implements key strategies to increase tax revenue.
Some measures in this regard, that the presidential aide has successfully pushed through for the government include, the improvement in the country’s tax collection efficiency focused on enhancing the effectiveness of tax collection and reducing leakages and waste rather than increasing tax rates.
On Monday, precisely 29th July 2024, Dr. Adedeji presented a memorandum of Understanding to the Federal Executive Council (FEC), where he sought approval for an innovative, forward-thinking, and impactful policy that allows the Nigerian National Petroleum Company Limited (NNPCL) to sell crude oil directly to the Dangote Refinery and other local refineries in denominated Naira.
The FIRS boss has since explained that this particular memo is the brainchild of President Tinubu stemming from his leadership belief that the nation’s economy urgently needs a leapfrog. The unanimous decision of the cabinet presided over by the President at its last meeting further shows the seriousness that is being given to the implementation of this new policy directive.
As one of the economic engine room pillars of Tinubu’s government, Dr. Adedeji who is working continuously and closely with other senior officials of government, including the Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, is at the forefront of leading to ensure that the Naira-base crude sale to refineries initiative works.
His capacity to handle this is not in doubt. Dr. Adedeji is credited to have also advocated for the diversification of revenue sources to reduce reliance on oil, thereby stabilizing the economy against volatility as well as fostering a beneficiary dialogue with major corporate taxpayers to ensure voluntary compliance while addressing concerns about tax multiplicity and oversight.
“Today, at the Federal Executive Council meeting, there was a memo prepared by Mr. President, which is to promote the trade of crude oil within local refineries and the nation’s Petroleum Company, which is the NNPCL,” Adedeji told reporters at the Presidential Villa.
FEC’s approval implies that the NNPCL in an existing commitment will now make available about 445,000 barrels of crude per day at a fixed exchange rate to Dangote Refinery and other local refineries with the hope of enhancing local production and reducing reliance on imports.
The $20 billion Dangote Refinery, with a daily crude production capacity of 650,000 barrels commenced operation in January this year, but has struggled to secure enough crude to meet its full operations.
According to Dr. Adedeji, President Tinubu’s interventionist approach has allowed the country to leverage the Dangote Refinery to stabilize the nation’s currency exchange rates and restore price stability.
The Dangote Refinery and other functioning local refineries, under the new arrangement, will sell refined products in the local market in Naira. Dangote alone, requires approximately 15 crude cargoes per month, translating to an annual supply cost of $13.5 billion.
“NNPCL has committed to supplying four (4) crude oil cargoes monthly, leaving the remainder to be sourced from international traders. Currently, these transactions are conducted in USD, significantly straining Nigeria’s foreign currency liquidity,” the Presidential Adviser on Revenue told reporters during a press conference.
The assuring approach to this decision of the government is that a settlement bank has already been identified. “A settlement bank (e.g., Afreximbank) facilitates both trades by providing guarantees to NNPCL to cover the payment risk of local refineries and to Nigerian commercial banks for the payment risk of Petroleum Marketing Companies. This approach will eliminate the need for international letters of credit, saving Nigeria substantial amounts of American dollars, Dr. Adedeji said.
As explained, Nigeria before this new cabinet approval, utilized $660 million per month, totaling $7.92 billion annually but with the proposed scenario, expenditures are projected to decrease to $50 million per month, equating to $600 million annually.
“This reduction will significantly alleviate the pressure on foreign exchange reserves, leading to an annual savings of $7.32 billion representing 94 percent,” Dr. Adedeji added.
The Federal Government hopes that with the new approval, there will be stability of petroleum product prices as the forward-selling of crude oil and refined products at a fixed exchange rate unaffected by exchange rate fluctuations will stabilize pump prices.
The stability in petroleum prices is also likely to drive the appreciation of the Naira as petroleum imports account for 30 percent of Nigeria’s FX demand. The interesting thing is that this action will also make economic predictability a reality as the country will no longer rely on the fluctuation that happens in the forex market.
Other benefits of the new approval are that the strategy will eliminate government control and drive independence of the market by aiming to eliminate government intervention in the management of domestic petroleum prices while facilitating competitiveness and allowing for greater market predictability and stability. The model, subject to settlement banks such as Afreximbank credit approvals, can be replicated for other refineries, facilitating the trade of 445,000 barrels reserved for domestic consumption and achieving energy security.
Experts agree that the idea is to further ensure that strategic reserves are pegged at tolerable prices driving improved economic stability.
The country is currently facing a severe fuel shortage, exacerbated by logistical issues and the recent removal of fuel subsidies, with the NNPCL however claiming to have sufficient stock as long queues at filling stations persist. This unfortunate situation has an effect of significant impact on transportation and increases costs for businesses and citizens.
Analysts are now hopeful that with the Naira-base crude sale to the Dangote refinery and others, the reliance on a single fuel depot may be addressed, leading to better fuel availability and improved product distribution.
