Local crude producers demand payment in dollars

• …NUPRC moves to secure supply obligations

Local crude oil producers in Nigeria are demanding to be paid with United States dollars as the currency of their operations by local refiners in Nigeria.

The producers made the demand at a meeting with the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), convened to activate local domestic crude supply obligation.

Section 109 of the Petroleum Industry Act (PIA) introduces the obligation by the oil industry in Nigeria and stipulates that the supply of crude oil to the domestic market shall be on a willing supplier and willing buyer basis.

The volume of crude oil that oil-producing companies shall dedicate to the domestic crude supply obligation shall be based on an allocation system determined by the NUPRC.

Speaking at the meeting, Oluwadare Agbelese of Watersmith said: “A broader discussion needs to be held with the NMDPRA and the CBN to ensure that off-takers have priority access to forex so that they can pay for the product in a competitive manner  just like the operators would if they were selling to external off-takers.”

Also raising other concerns, Tunde Akinpelu from Aiteo sought to know whether the local refiners have the flexibility on their crude oil appetite. Adding that, “Kaduna refinery does not process all the product sleeves that we have in Nigeria. So in Port Harcourt and Warri.”

Another stakeholder, Abdalla Buba  talked about allowing some time for adjustment in the transition from the pre-PIA regime to  the PIA regime.

Responding to the concerns raised, the Chief Executive of the NUPRC, Gbenga Komolafe,  said any company that fails to respond to a request for production within a specified period is liable to pay an administrative fine of $10,000 to the NUPRC and shall not be granted an export permit.

He said the move by the commission is in a bid to ensure domestic sufficiency, adding that  the nation’s  inability to meet it’s domestic refining obligation has impacted negatively on the  state of the economy given the numbers that are  rolled  out in terms of under-recovery.

Komolafe said: ‘It behooves us as an industry to find a way to make Nigeria a net exporter of refined product. It is important that we engage the industry as we are trying to implement this important  provision of the PIA, which is the domestic crude oil obligation.

“The domestic crude oil obligation refers to the requirement imposed by the government on oil producers to allocate a certain portion of their crude oil production for domestic consumption. What we are trying to do in effect as a commission is to begin the enforcement of this critical provision of the PIA.

“There are now firm attempts to  step up domestic refining with some modular refineries.  We now also have the largest refinery in Africa, the Dangote refinery.  We have received a request from the refinery to guarantee fixed stock and we believe as a nation, it will be a shame if we cannot meet the fixed stock of the refinery.”

In furtherance of the latest move, The NUPRC has written to the producers to furnish them with copies of the committed agreement for the commission to distill the available barrels that are not committed.

Speaking on the concerns around dollar payment terms, Komolafe said the law already envisages a willing buyer, willing seller situation. “The currency of purchase will either be in naira or in dollars. The parties will sit and agree to a purchase agreement and the currency of the transaction.

 “We will also escalate to other stakeholders to see how domestic refiners will be able to meet their obligation.”

Speaking on the implementation mechanism, he said; “we are conscious of the fact that every refinery is configured to take a specific type. We will collate that data and factor obligation in respect to the compactable crude type.