CBN Governor Reveals How Dangote Refinery Will Sell Forex to Banks and Cut Fuel Prices

Patrick OdeyMay 25, 2023

5 minutes read

The Central Bank of Nigeria (CBN) has expressed optimism that the Dangote Refinery, which is set to deliver its first products in July, will ease the foreign exchange scarcity and fuel subsidy problems in the country.

The CBN Governor, Mr Godwin Emefiele, said on Tuesday that the apex bank would persuade the refinery to sell its foreign exchange earnings to banks at a good market rate, rather than hoarding them or selling them to the CBN.

He said this would increase the availability of dollars in the domestic market and reduce the pressure on the CBN to provide forex for importers.

Emefiele also said that the refinery would lower the cost of fuel importation and make it possible for the government to exit the fuel subsidy regime.

He said the refinery would save about 20 per cent of the total cost of importing petroleum products, which would translate to lower prices for consumers in the long run.

He said: “By the time the Dangote Refinery comes on stream, the price at which it (fuel) will be dispensed will be lower than what it is when we spend dollars to import because there will be no freight cost, no storage and all other logistics expenses.

“So we will be lucky to be having about 20 per cent savings from refining locally, rather than importing.

“But the important thing is that we have reached a point, whether we like it or not when we must exit subsidy.

“Dangote Refinery coming at this time gives us the confidence that even if we exit subsidy, the products will be available. And eventually, the interplay of market forces will also moderate the prices to a level that will help the country.

“So we are expecting that, no doubt, by the time he produces for domestic consumption, the excess will be exported by the numbers that he talked about, which we agree with.

‘’We should be able to save, conservatively, close to about $5 billion to $10 billion in foreign exchange that will come into the country.

“Whether it comes to our reserves or not is not the point, it is the fact that the dollar is available and it will be sold in the domestic market so that customers of banks who need to import do not necessarily resort to CBN for dollars.

“They can go to their banks and Dangote will sell dollars to their banks and we are going to ensure that it is done at a good market rate.

“What I would have loved to say on Monday (at the Dangote Refinery Commissioning) which I didn’t say was that the CBN, the government and the country have helped Dangote to set up that refinery.

“He is a Nigerian; Nigerians must benefit from that venture and we are going to engage him and talk to him and I am sure that being the richest man in Africa, he is going to throw a few crumbs so that the price will be lowered.”

Emefiele also revealed that the CBN had given out about N8 trillion in interventions to the private sector in the last five years at single-digit interest rates and with long repayment periods.

He said these interventions had helped to stimulate economic growth and create jobs in various sectors.

He said: “In the last four to five years, we have done about N8 trillion in interventions to the private sector of the economy. The loans have been granted for 10 years, with a two-year moratorium and at single digit”.

The CBN boss disclosed, however, that going forward, the apex bank would reduce its quasi-fiscal activities and focus more on its core mandate of monetary policy.

Meanwhile, at its 291st meeting on Tuesday, the Monetary Policy Committee (MPC) raised the Monetary Policy Rate (MPR) from 18 per cent to 18.5 per cent.

Emefiele said this was part of its strategy to curb inflation and stabilize exchange rates.

He admitted that raising interest rates had negative effects on credit growth and economic activity but argued that it was necessary to maintain price stability and confidence in the naira.

He stated: “The current trend in price development would continue to be monitored by the bank with greater collaboration with fiscal authority to address the drivers of inflation.”

The MPC also voted to keep other parameters unchanged. The asymmetric corridor remained at +100 and -700 basis points around the MPR. The Cash Reserve Ratio (CRR) stayed at 32.5 per cent and the Liquidity Ratio at 30 per cent.

Stakeholders react:

Reacting to Emefiele’s statement on Dangote Refinery, some stakeholders in the oil and gas sector expressed their views.

The National President of Independent Petroleum Association of Nigeria (IPMAN), Elder Chinedu Okoronkwo, said: “Oil marketers are very happy about the Dangote Refinery. We were tied to the global market for several decades. Now, everyone will be free to patronise the refinery.

‘’We look forward to a significant cost reduction, apparently because freight and shipping costs will not apply anymore.

“With the coming onstream of the plant, the Federal Government will be encouraged to end fuel subsidy. This might be affordable to Nigerians, unlike what it could have been in the past.”

The National President of Oil and Gas Service Providers Association of Nigeria (OGSPAN), Mazi Colman Obasi, said: “On a serious note, Alhaji Aliko Dangote should be commended for making this gigantic investment.

“Every patriotic Nigerian and African should be proud of this refinery. It is very huge and it comes with a lot of multiplier effects for Nigeria.

“I completely agree with the CBN governor that it will culminate in the generation of additional foreign exchange into Nigeria as well as assist the nation to conserve foreign exchange currently expended on massive importation of petroleum products.

“As a major crude oil producer, Nigeria should not have been involved in the importation of petroleum products.

‘’The nation was compelled by circumstances to go into importation. I am happy that this big refinery will enable us reduce or completely stop dependence on the global market.”

The Director General of Nigerian Chamber of Commerce, Industry, Mines and Agriculture (NACCIMA), Sola Obadimu, said: “Honestly, my take is that CBN should merge these forex rates to avoid whatever might be called ‘good’ or ‘bad’ rates. And that’s the responsibility of CBN – to determine the true value of the Naira. Various exchange rates are basic ingredients for grandiose corruption as we know it.

“Yes, this is a very commendable project that has the capacity to generate forex whenever it starts to export and the proceeds would be convertible to Naira.

“At present, exporters through official channels are complaining that conversion for forex generated from exports is only available to them at official rates which may be unfair, given the fact that they never get enough forex at official rates when they need it either for imported inputs or machinery/parts.

“That’s the danger of dual or multiple exchange rates, particularly when the gaps are too wide as we have it now. But then, the government now has some stakes in the project.

‘’So they may reach some agreements on that level. But it might be preferred to have policies that encourage export activities by all as much as possible.”