In a significant turn of events, the Central Bank of Nigeria (CBN) has successfully fulfilled over 75 to 80% of outstanding mature FX forwards, signaling a positive shift in the foreign exchange market. This development, discussed by Chika Mbonu, Arise Business Analyst, holds the promise of reducing panic and instilling confidence in the market.
Simultaneously, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) is taking proactive measures to ensure a consistent supply of crude oil for local refineries, addressing a crucial aspect of the petroleum industry.
Settlement of FX Forwards by CBN: A Game-Changer
The recent accomplishment by the CBN in settling a significant portion of outstanding mature FX forwards is a breath of fresh air for the Nigerian economy. These forwards, amounting to around $6.7 to $7 billion, had created uncertainty and dampened confidence in the foreign exchange market.
However, Mbonu highlights that the CBN has already started clearing the books of international banks, including Stanbic IBTC, Stan-Chart, City Bank, and Rand Bank, with plans to extend the process to local banks.
This move is expected to have a cascading effect, instilling confidence in the market, reducing panic, and facilitating the settlement of offshore lines that have been hanging in the balance due to supply constraints. The initial focus on foreign banks, particularly those with parent companies abroad, is a strategic move to broadcast positive developments to the international community.
Mbonu emphasizes the importance of action over mere discussions, expressing optimism that continued efforts by the CBN will reflect positively on liquidity in the market and contribute to stabilizing the exchange rate.
NUPRC’s Initiative to Guarantee Crude Supply
With a national imperative shifting focus to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), the organization has taken a decisive step to guarantee uninterrupted crude oil supply to local refineries. This move aligns with the provisions of the Petroleum Industry Act, emphasizing the duty of crude oil producers to fulfill domestic obligations to nearby refineries.
During a conference with crude oil producers, Mr. Gbenga Komolafe, CEO of NUPRC, stressed the national significance of ensuring sufficient feedstock for both modular refineries and major facilities like the Dangote Refinery and Petrochemical Complex. Failure to do so, he asserted, would be deemed a national disgrace.
Mbonu sheds light on the challenges faced by modular refineries, which, despite being licensed and undergoing a three-stage approval process, have struggled with a lack of consistent crude oil supply. The Petroleum Industry Act mandates that these refineries receive at least 50% of their crude oil supply from the government or international companies.
However, Mbonu urges a balanced approach, advocating for dialogue between NUPRC, modular refinery operators, and international oil companies (IOCs). He emphasizes the need to address business concerns, such as existing long-term supply contracts and foreign currency loans, to foster a collaborative solution rather than imposing penalties.
JP Morgan’s Naira Projection Tied to Supply Dynamics
The discussion extends to JP Morgan’s projection that the naira will trade at around 850 naira to a dollar. Mbonu correlates this forecast with the prevailing supply dynamics in the market. He underscores the critical role of a sustainable and reliable dollar supply in determining the exchange rate.
Highlighting historical instances where the parallel market rate was lower than the official rate due to consistent and reliable dollar supply, Mbonu suggests that JP Morgan’s projection is inherently linked to confidence in the sustainability of the supply chain. As initiatives to inject dollars into the economy gain momentum, the market is expected to find equilibrium, irrespective of specific numerical projections.
Conclusion
The recent developments in the settlement of FX forwards by the CBN and NUPRC’s commitment to ensuring crude oil supply to local refineries mark positive strides for the Nigerian economy. The articles underscore the importance of sustained actions, collaborative dialogue, and a reliable supply chain in building confidence, reducing panic, and stabilizing crucial economic indicators. As the nation navigates these challenges, the resilience and collaborative efforts of key stakeholders become paramount in shaping a robust economic future.
