The naira is under fresh pressure against the US dollar as fuel importers increase foreign currency purchases to boost inventories.
Reuters reported on Thursday that the Nigerian currency, along with those of Ghana and Uganda, is forecast to weaken against the dollar over the next week, while the Kenyan shilling and Zambian kwacha are expected to remain broadly stable.
The report attributed the expected depreciation of the naira to increased demand for foreign exchange from fuel importers who have been granted licenses by the Nigerian Petroleum Regulatory Authority to import refined petroleum products.
The naira was quoted at 1,368 naira/$ on the official foreign exchange market on Thursday, up from 1,383 naira/$ a week earlier. It was trading at about N1,420/$ on the parallel market.
A trader told Reuters the local currency would likely face downside risk as importers seek more dollars to finance fuel purchases. “We expect the naira to come under pressure as downside risks will shift to depreciation as fuel importers make pre-purchases in dollars to increase inventories,” a trader said.
The Reuters forecast comes amid growing concerns among oil refiners that continued fuel imports are increasing demand for foreign currency, despite growth in domestic refining capacity.
The Dangote Refinery has repeatedly accused NMDPRA of sabotage by importing fuel when its tanks were full. A refinery representative complained that the government was allegedly allocating dollars to import fuel when 45 percent of the refinery’s output could meet the country’s fuel needs.
Meanwhile, the Independent Petroleum Traders Association of Nigeria has called on the federal government to stop importing the fuel, arguing that imported petrol has become more expensive than local refined products and is undermining efforts to stabilize prices in the downstream sector.
The association said the continued issuance of fuel import licenses is worsening price volatility, putting further pressure on the naira and eroding the competitiveness of domestic refineries, especially the Dangote refinery.
Speaking to The PUNCH, IPMAN National Publicity Secretary, Chinedu Ukadike, said recent import licenses issued by the Nigerian Petroleum Regulatory Authority have failed to achieve their target of reducing domestic fuel prices.
According to him, petrol imported under the new licenses is sold at prices significantly higher than the cost of the products supplied to Dangote.
Ukadike said: “Independent marketers have looked at the issues of price volatility, import licenses and dollar sales of petroleum products. I want to use this opportunity to urge the Federal Government to transparently address these issues through the Nigerian Petroleum Regulatory Authority, which is the industry regulator.”
“The recent import licenses, which were supposed to serve as a benchmark and check on the prices of locally processed petroleum products, did not produce the results we expected. We were shocked that the licenses issued to tank farm owners to import petroleum products resulted in prices of about N1,350 per liter, which is much higher than what Dangote was selling to us.”
He stressed that the purpose of allowing fuel imports was to create competition that could curb domestic prices, but noted that this policy had the opposite effect.
“The whole point of NMDPRA and the Federal Government opening import licenses was to check domestic fuel prices. Instead, we discovered that imported products are of questionable quality and are more expensive.
“What is the point of issuing these licenses? They will only create tension in society. Price volatility is deepening and affecting independent marketers. We do not know what to expect and where to turn,” he said.
Ukadike argued that imported petrol remained significantly more expensive than supplies from the Dangote refinery, questioning the rationale for continued imports.
“The implied offshore price of petroleum products is almost 20 percent higher than prices in Dangote. So what is the point of importing products from Lome when they are more expensive than Dangote? It doesn’t make any sense. It puts unnecessary pressure on the dollar and the naira,” he said.
However, some stakeholders were of the view that the Dangote refinery should not be the sole supplier of petroleum products.