AGORA STRATEGY TO FG: STOP ALLOCATING LOCAL CRUDE OIL TO INCREASE FOREIGN EXCHANGE INFLOWS.

The federal government should scrap the (DCA) budgeting strategy, according to Agora strategy, a think tank with headquarters in Abuja, in order to increase FX inflow and stabilize the value of the naira.

In a recent policy letter headed Cancelling Domestic Crude Oil Allocation is Nigeria's Surest Path to Easing Forex Supply Crunch.

DCA is the name given to a system in which the government reserves a specific percentage of an oil output for domestic use.

According to Agora Policy, putting this temporary solution into place will have an immediate positive impact in the official forex, ensuring a consistent flow of FX. According to the company, the most practical approach to ease pressure and preserve naira stability is to cancel the DCA.

Agora Policy added that the elimination of DCA will put a stop to the dubious deductions and accounting related to the

The think tank stated, “DCA policy has been aptly a crime scene.” The company claims that there are no longer any justifications for carrying out the DCA in light of the elimination of the gasoline subsidy and the passage of the Petroleum Industry Act (PIA).

The DCA now has profile of recent. For a variety of effort, alter the accounting and financing of Nigeria's oil share must focus on recent prominence of the DCA, according to Agora Policy.

The Federation's share of crude oil produced in Nigeria is channeled to DCA, which has dramatically increased from less than 10% of Federation's share of oil in the early 2000s to almost 100% by 2023. This is due to the drastic reduction in oil production in Nigeria and the shift from joint Ventures (JVs) to Production Sharing Contracts (PSCs).

This problem goes beyond inefficient allocation. The Central Bank of Nigeria (CBN) faces terms of currency flows since the revenue from DCA sales is received in Naira, depriving it of a consistent and what was once its primary source: the sale of crude oil.

“As of 2010, the CBN received 94% of its FX from oil and gas flows; however, by June 2022, that percentage had dropped to 24%, and it lower today (the CBN and NNPCL have stopped sharing some crucial data).” Over 70% of Nigeria's overall exports are still made up of crude oil, but since 2016, a disproportionately large fraction of exports has been designated for internal use.

In terms of money flow, the designated barrels of crude oil return first as gasoline and then as Naira, not dollars.

This is because Naira, not dollars, are used to pay for the gasoline that results from DCA. It is important to emphasize the Naira payment from DCA would result in any revenue at all, let alone one that.

This is due to the National Oil Company's long-standing practice of deducting upfront costs from the money received from the DCA.

“NNPC works its evil magic here at the DCA.”

Why did NNPCL not remit funds to the Federation account？

The Nigerian National Petroleum Company Limited (NNPCL) was unable to transmit funds to the federation account, according to the organization, in part because of the DCA policy.

Agora Policy asserts that the DCA is to blame for the country's external reserve stagnation and the drop in FX inflows from the sale of crude oil within the federation during a period of historically high oil prices.

The company said, “The DCA policy must be changed right away in order for this to be feasible.” The country must pursue all of these options as short- and long-term solutions, but it should accept the one that is primarily under its control and can guarantee a consistent and sustainable flow of foreign exchange: earning dollars from the sale of its crude oil wherever it is sold.

Agora Policy suggested selling the export in addition to canceling the agreement; however, if the oil was sold domestically to private refineries, the transactions should be made in US dollars.