The new Dangote Petroleum Refinery near Lagos in Nigeria has reduced the ex-depot price of a litre of petrol to 899.5 naira (N899.50 - 58 US cents) down from the previous rate of N970.

The price cut comes in the wake of the implementation of the government's naira-for-crude policy that obviates the need for foreign exchange for so many letters of credit (L/Cs) for imported fuel. Meanwhile the new fuel prices are designed to alleviate transportation costs for Nigerians and provide financial relief amid prevailing economic challenges.

Competitive market dynamics

The price reduction reflects the refinery's ability to trade in the Nigerian currency and its commitment to offering competitively priced petroleum products.

Dangote has also collaborated with MRS Oil Nigeria, a significant player in Nigeria's petroleum retail sector, to ensure that most Nigerians feel the reduction. MRS operates an extensive network of over 586 retail stations across the country.

L/Cs and foreign exchange

The Nigerian government has implemented a policy allowing the sale of crude oil to local refineries, including Dangote Refinery, in naira instead of foreign currency. This move reduces the demand for foreign exchange and reduces the need for international L/Cs, which are typically required for transactions involving foreign currencies.

By purchasing crude oil in local currency, the refinery avoids the additional costs associated with foreign exchange fluctuations and the financing charges linked to L/Cs. These savings can be passed on to consumers through reduced petrol prices.

Alleviating forex demand

The ability to transact in naira also streamlines the procurement process, enhancing operational efficiency and contributing to the refinery's capacity to offer petrol at lower prices.

Refinery owner Aliko Dangote also recognises the benefits of the government's naira-for-crude policy from the perspective of overall foreign currency and L/C availability.

"Forty percent of our foreign exchange demand stems from petroleum imports," Dangote says. "The more we import, the more we deplete our foreign exchange reserves, as most L/Cs for these imports send money out of the country," he concludes.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.