How to Drop FX Rate – Doyin Okupe writes open letter to Acting President

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Senior special assistant on public affairs to the former president Goodluck Jonathan, Dr Doyin Okupe has written an open letter to the Acting President of the Federal Republic of Nigeria, Prof. Yemi Osinbajo on how best to reduce the foreign exchange rates in the country.

Read the letter below,


Re: Crude oil swap as further panacea to chronic Forex shortages.

The above subject matter and the recent intervention of the federal executive council under your able supervision refer.

Firstly, let me commend you sir for this very bold and positive initiative which is already yielding commendable results with positive impact on our economy.

Nigeria is nearly totally an import dependent economy, we earned about N4.6 trillion from export of crude oil in 2015, while our total import bill was in the region of about N6 trillion; 30% of which was dedicated to the import of petroleum products. Actual figure was about N1.8 trillion or $5b USD.

It is obvious that if we can remove or substantially decrease this demand of $5b USD from our Forex pull, the value of Naira will significantly appreciate further.

Your Excellency, I want to submit that this is achievable through a responsibly and transparently organized crude swap scheme.

I am not unaware that this administration has undertaken a limited crude oil swap arrangement, but this will not suffice. We need to carry it to the level at which we will not commit any significant amount of forex to import of petroleum products anymore.

No doubt this option was also tried and to a large extent poorly executed and abused by the previous NNPC leadership. The errors in its manner of implementation can be corrected to give a major relief to the demand for dollar in our economy.

The statutory allocation of 450, 000 barrels of crude oil daily for domestic consumption which has been on for several decades needs to be readdressed for better productivity.

In this dispensation, the government can start by committing the seven oil majors to the new scheme and after a period of about 1 year of successful implementation, qualified indigenous companies can be brought in, to join and participate.

Analysis and Gross Estimates:

1 barrel of crude oil will produce the following after refining:
Product Quantity (gallons) Percentage Quantity
Gasoline 19gals. 46%
Diesel and other fuels 12gals. 26%
Jet fuel (kerosene) 4gals. 9%
Heavy fuel oil 2gals. 4%
Lubricants 2 gals. 4%
Others 6 gals. 11%
Total 45 gals 100%

Cost of transporting crude to Europe: (approximately) $0.5 per barrel
Cost of refining crude oil: (approximately) $0.5 per barrel
Total cost expended $1 per barrel

If we dedicate 250, 000 barrels/day to this scheme, the cost of transportation will be about $125, 000, plus another $125, 000 per barrel for refining per day, making a total of $250, 000 per day. (assuming the above figures are correct.)

1 barrel of crude oil will produce 19 gallons or 76ltrs of PMS.

250, 000 will produce 19.0million litres of PMS.

Our daily consumption is about 16-20m litres of PMS. Therefore we can see that we can use the swap to supply our daily needs of PMS. Diesel, kerosene, and fuel oils also come along with the PMS supply. But I limit this discussions to PMS only for the purpose of simplification only.

Owing to the fact that the crude oil is supplied to the participating firms by NNPC, without them making any payments, all NNPC needs to pay is $250, 000 per day plus agreed profit margin to the participating oil marketers.

The NNPC for each amount of crude supplied sends a debit invoice to PPMC which receives the finished products and pays back the cost of the crude shipment to NNPC in Naira after sales of PMS and other products.

Ordinarily for importing 19m litres of PMS, the NNPC or PPMC will pay suppliers through CBN or other bankers, the market price of PMS, approximately $0.72 per litter by 19 million litres.
$0.72 x 19 = $14m per day.

Therefore instead of paying $14m per day for petroleum products, this scheme reduces our Forex commitment on import of petroleum products to less than $1m per day.

Under this scheme, we will therefore remove a demand of $14m per day or $420m per month from the aggregate import demand for Forex by the petroleum and oil marketers.

The balance of 200, 000 barrels from the existing statutory allocation of 450,000 barrels can still be channeled to our local refineries if they are in position to consume such volume.

This can only boost the availability of petroleum products, which if available in excess of our needs, can be exported to neighbouring African countries and generate more dollar inflows for the CBN.

The current intervention of the CBN, though highly successful, which is based on injecting hard earned Forex (to the tune of over $1b a month) into the forex market through the banks, also grossly reduces the amount of Forex inflow from sales of crude oil to the federation account; for sharing by the state and federal govt. The crude oil swap is a better sustainable alternative as it does not affect in any way our revenues from crude oil sales.

Your Excellency, with all humility, I submit that while the above may not exactly represent the actual details in the suggested transactions, I strongly believe that this proposition of mine, if fine tuned by experts, will give results with much commendation to your administration and more importantly, improve the strength of our national currency further and relieve some of the current hardship in the nation.

Finally, please accept my belated 60th birthday greetings even as I welcome you to the class of Nigeria’s elder statesmen.

With much regards.

Very respectfully yours,
Omooba Dr. Doyin Okupe.

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