Naira to weaken as fuel importers increase dollar demand

The naira is coming under renewed pressure against the United States dollar as fuel importers increase foreign exchange purchases to build inventories. Reuters reported on Thursday that the Nigerian currency, alongside those of Ghana and Uganda, is projected to weaken against the dollar over the next week, while Kenya’s shilling and Zambia’s kwacha are expected to remain broadly stable. The report attributed the anticipated depreciation of the naira to increased demand for foreign exchange by fuel importers, who have been granted licences by the Nigerian Midstream and Downstream Petroleum Regulatory Authority to import refined petroleum products. The naira was quoted at N1,368/$ on the official foreign exchange market on Thursday, compared with N1,383/$ a week earlier. It exchanged at about N1,420/$ in the parallel market. A trader told Reuters that the local currency was likely to face downside risks as importers sought more dollars to finance fuel purchases. “We expect the naira to come under pressure, with downside risks skewed toward a depreciation as fuel importers front-load dollar purchases to build inventories,” the trader said. The Reuters projection comes amid growing concerns by downstream operators that continued fuel imports are increasing demand for foreign exchange despite rising domestic refining capacity. The Dangote Petroleum Refinery has repeatedly accused the NMDPRA of sabotage by importing fuel when its tanks were full. An official of the refinery complained that the government was allegedly releasing dollars for fuel importation when 45 per cent of the facility’s output could satisfy the country’s fuel needs. Meanwhile, the Independent Petroleum Marketers Association of Nigeria has urged the Federal Government to halt the importation of fuel, arguing that imported petrol has become more expensive than locally refined products and is frustrating efforts to stabilise prices in the downstream sector. The association said the continued issuance of fuel import licences was worsening price volatility, putting additional pressure on the naira and undermining the competitiveness of domestic refineries, particularly the Dangote refinery. Speaking with The PUNCH, the National Publicity Secretary of IPMAN, Chinedu Ukadike, said the recent import licences issued by the Nigerian Midstream and Downstream Petroleum Regulatory Authority had failed to achieve their intended objective of moderating domestic fuel prices. According to him, petrol imported under the new licences is being sold at rates significantly higher than the price of products supplied by the Dangote refinery. Ukadike said, “Independent marketers have looked at the issues of price volatility, import licences and the sale of petroleum products in dollars. I want to use this opportunity to urge the Federal Government to transparently review these issues through the Nigerian Midstream and Downstream Petroleum Regulatory Authority, which is the industry’s regulator. “The recent import licences, which were expected to serve as a guide and a check on the prices of petroleum products refined locally, are not yielding the results we expected. We were shocked that the licences issued to depot owners to import petroleum products are resulting in prices of about N1,350 per litre, which is far higher than what Dangote has been selling to us.” He stressed that the objective of allowing fuel imports was to create competition capable of checking domestic prices but noted that the policy had produced the opposite outcome. “The essence of the NMDPRA and the Federal Government opening up import licences was to check domestic fuel prices. Instead, we have found that the imported products have questionable quality and are more expensive. “What is the essence of issuing these licences? They will only create tension in society. Price volatility is deepening and is affecting independent marketers. We do not know what to expect or where to turn,” he said. Ukadike maintained that imported petrol remained significantly more expensive than supplies from the Dangote refinery, questioning the rationale behind continued imports. “The implied offshore price of petroleum products is almost 20 per cent higher than Dangote’s prices. So what is the essence of importing products from Lomé when they are more expensive than Dangote’s? It does not make any sense. It is putting unnecessary pressure on the dollar and the naira,” he said. However, some stakeholders held the view that the Dangote refinery should not be the sole supplier of petroleum products.