Category
🗞
NewsTranscript
00:00Oyemi Oker, a partner at AO2 Law, believes the ripple effect from a failed Naira for
00:05crude deal will impact the stability in petroleum product availability and pricing in Nigeria.
00:11In a chat with CNBC Africa, he stresses that Nigeria's crude production volume must be
00:15sustained amid the recent sabotage of pipelines.
00:18Take a look.
00:19It's a good thing that we've gotten feedback that the committee of the Federal Executive
00:26Council is now in talks with the refinance with regards to the Naira for crude transaction.
00:35But my concern is that perhaps this came a little bit too late.
00:40Six months did not jump on all of us.
00:43Six months started counting as far back as October.
00:46And the concern is why did we have to wait up until what I will call the time beneath
00:52a few days to the end of March before these conversations were open.
00:58But nonetheless, I think it's good that the conversations are on the way.
01:04And the understanding we have is that both parties, particularly the NNPC, is looking
01:10to extend the Naira for crude arrangement.
01:13So I think it's a good thing for us as a country generally.
01:18With regards to the potential impact, if we do not have a deal, what this means is
01:24that considering the fact that the Dangute refinery is a free zone, it has the freedom
01:33to be able to sell the petroleum products in USD, but what that means is that the marketers
01:41would have to take Naira to the markets to go and look for USD in order to purchase the
01:48product.
01:49And ultimately, this would reflect on the pricing at the pumps, which what I'm saying
01:56perhaps in so many words is that there is a possibility of an increase in pump prices
02:02if we don't have a renewal of the deal.
02:05Now, one of the things which is causing concern is also the issue of balancing the interests
02:13of the federal government with regards to forward sale contracts that have already pledged
02:19crude to the creditors of Nigeria and also ensuring that there is sufficient and consistent
02:28supply to the Nigerian market.
02:30Do not forget that there's been even reports before now that there's been inconsistent
02:36supply from the NMBC up until March.
02:44And talking about the inconsistencies here now, some of the data we've also had is that
02:50the forward oil sales had hit about $21.5 billion in the last six years, that's since
02:572019.
02:58And in terms of the sanctity of these contracts and ensuring that we don't have defaults here,
03:03the ripple effects, in terms of pressing forward the near-term outlook, how do you
03:08see the picture getting, especially on the back of concerns around whether or not Nigeria
03:13can sustain its production volume at this moment?
03:18At this point, we have no choice but to ensure that we do everything possible to ensure that
03:24our production volumes are sustained.
03:27Unfortunately, looking at some of the events that have happened in the course of last week
03:33with regards to certain sabotage of pipelines, this would also count negatively towards output
03:42and oil production.
03:45But we should, as much as possible, ensure, as a country, that security issues with regards
03:51to production or anything that can affect production is highly curtailed and highly
03:57minimized.
03:58And if we do not do that, then perhaps we may be running a risk of not meeting our credit
04:06obligations to our financiers on the various forward sale contracts.
04:12And what would happen would now be some of the concerns which we are getting with regards
04:18to lack of consistent supply for domestic refining capacity.
04:23So what I'm saying essentially is that we are in dire straits with regards to our production
04:30levels and we shouldn't allow anything negatively affect it because it would affect us, one,
04:37economically as a country, and as individuals also we may see inflationary trends as a result
04:43of potential increasing fuel pump price if we do not have consistent domestic supply
04:49of crude oil to the refineries.
04:51And some estimates have it that we might likely see pump price hit about 930 Naira per dollar
04:56if we see things not necessarily move favorably for us under this deal.
05:02But now talking about timelines here and how do we also boost our refining capacity here
05:08in the country, this shifts my attention a little bit towards the concept of modular
05:12refinery, the government strategy towards this, and then the local players here, and
05:17then the timelines for the rehabilitation or modernization of our refineries, Port Harcourt,
05:23Kaduna, these definitely continue to come, make the news, however, hitting the ground
05:29running and producing still remains a concern here.
05:33Your take around the timelines, how we've paced ourselves so far, and the concept around
05:37investment in modular refineries?
05:41I think you've lumped up various issues.
05:43You have the issue of the modular refinery on one hand, you also have the issue of the
05:49ongoing rehabilitation of government-owned refinery.
05:54With regards to the modular refineries, I think one of the things we should also still
06:00or we still have to talk about is the issue about supply of feedstock.
06:05Now, maybe apart from maybe one or two refineries that have feedstock from their upstream businesses,
06:18what we will have is that the other refineries will still have to purchase feedstock from
06:25upstream producers.
06:26The question would be, do we have sufficient feedstock from these upstream producers, particularly
06:35because usually what happens is that the nature of crude oil sale contracts is not, I mean,
06:42there are a few times where you have spot sales.
06:45Most times what happens is those contracts are either on the forward sale agreements
06:51or prepayment agreements, which are already locked in.
06:54So, the success of modular refineries would also largely depend on feedstock.
07:01The operators of modular refineries as at today, I think those that are recorded success
07:07as at today is on the back of the fact that they have upstream operations that can easily
07:13give them feedstock.
07:16And even at that, I'm aware that some of them even still enter into contracts with
07:20local producers to get more feedstock too.