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Oil sector operators fault CBN’s policy on dollar transaction

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Central Bank Of Nigeria building

Central Bank Of Nigeria building

CBNSTAKEHOLDERS in the oil and gas sector have expressed concerns over the moves by Central Bank of Nigeria (CBN) to ban dollar denominated transactions in the petroleum industry.

According to a joint position taken by leaders of all professional bodies and industry business associations in a private meeting attended by select media representatives, the controversial proposals ignored the status of the petroleum as a global industry that requires the dollar to drive transactions across international boundaries.

They called on the Governor of CBN, Godwin Emefiele, to personally intervene and exempt the petroleum industry and other sectors that operate on global business platforms from the dollar restriction in order to make them globally competitive.

In their reaction, indigenous players maintain that whereas government agencies continues to drive policies and programmes that support economic growth and development, comprehensive impact analyses on key growth factors must also be allowed to guide implementation strategies.

They called on Emefiele to recall all directives issued to the financial services industry in relation to implementation of the policies and immediately review the proposals and decide where they are applicable.

They pointed out that Emefiele has been very supportive to the policies and programmes that promote growth of indigenous players in the petroleum industry and tasked him to deploy his huge experience in providing tailored financial services to the industry.

“We can even suggest that the CBN Governor who has openly advocated support of the oil and gas industry particularly in supporting the direct intervention in expansion of gas facilities that supply the Gencos, has not received the proper advice in implementing this policy,” they stated.

Specifically, the Executive Secretary of the Major Oil Marketers Association of Nigeria (MOMAN), Obafemi Olawore, said the high exchange rate resulted in the high cost of both petrol and diesel in the country and recent directive issued to reduce their level of exposure to oil companies in order to reduce the challenges of meeting its huge funding demand was also cited as a decision that contributed to the current fuel scarcity..

“The unfortunate situation in which we find ourselves is that as the price of crude oil and the international price of diesel was dropping, we devalued the naira. For example, for Premium Motor Spirit (PMS), the exchange rate for bringing products before the devaluation was N171.36 per dollar.

At that rate, the landing cost of PMS was N90.67 per litre. There was a time the exchange rate rose to N188, that is, N188 was the interbank rate, while the CBN gave us N171.36. But when it went to N188, the landing cost of PMS rose from N90.67 to N98.36. As at today when the exchange rate has gone to N199 (there is no window again), the landing cost rose to N103.45. So, you see that the main factor here is the exchange rate,” he said.

In a tax alert to foreign investors that partner Nigerian companies, UK based global investment advisory firm, Deloitte, pointed at the CBN’s circular on dollar denominated transactions in Nigeria and cautioned them to remain cautious of Nigeria’s monetary policies.

According to Deloitte, the directive exempts foreigners, visitors and tourists who are encouraged to use their cards for payments.

“The Circular supersedes the provision of Memorandum 16 of the CBN Foreign Exchange Manual which provides that payments in foreign currency for products and services provided by a Nigerian company to another Nigerian company are optional,” Deloitte warned its clients.

However, the circular is not clear about companies operating in the oil and gas industry whose transactions are predominantly priced in foreign currencies; continuity of split currency arrangement in oil and gas contracts; continuous use of legitimately earned foreign currency in foreign domiciliary accounts maintained by Nigerian companies whether or not they are subsidiaries of multinational companies; and other transactions between Nigerian companies and offshore service providers entities whether individual or corporate.

The directive, according to Deloitte, is not also clear on the impact on existing or on-going contracts already priced in foreign currency prior to the new circular.

In the light of the CBN circular, the company advised “to evaluate all foreign currency denominated contracts with other Nigerian entities including employment contracts and determine appropriate mitigation measures to manage associated foreign exchange risks that may arise as a result of seeking to comply with the


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