In a bold move, the Agora Strategy, a prominent think tank headquartered in Abuja, is urging the federal government to abandon the Domestic Crude Oil Allocation (DCA) budgeting strategy. According to their recent policy letter titled “Cancelling Domestic Crude Oil Allocation is Nigeria’s Surest Path to Easing Forex Supply Crunch,” this shift is proposed to enhance FX inflow and stabilize the value of the naira.
Key Points from Agora’s Policy Letter:
- DCA’s Negative Impact:
- Agora Strategy asserts that the DCA policy has become a “crime scene,” citing dubious deductions and accounting practices related to it. The think tank argues that with the elimination of the gasoline subsidy and the passage of the Petroleum Industry Act (PIA), there are no longer justifiable reasons for the continuation of DCA.
- Immediate Positive Impact:
- Agora Policy believes that the immediate cancellation of DCA will positively impact the official forex market, ensuring a consistent flow of FX. The think tank considers this move a practical approach to ease pressure and maintain naira stability.
- Financial Implications and Currency Flows:
- The DCA has seen a significant increase in the Federation’s share of crude oil produced in Nigeria, reaching almost 100% by 2023. Agora Policy argues that the financial implications extend beyond inefficient allocation and have affected the Central Bank of Nigeria (CBN), which has seen a drastic reduction in FX from oil and gas flows.
- Stagnation in External Reserves:
- The stagnation in Nigeria’s external reserves and the decline in FX inflows from crude oil sales within the federation, even during periods of historically high oil prices, are attributed by Agora Policy to the DCA policy. The National Oil Company’s practice of deducting upfront costs further exacerbates the issue.
- NNPCL’s Fund Transmission Issues:
- The Nigerian National Petroleum Company Limited (NNPCL) faces challenges in transmitting funds to the federation account, partially attributed to the DCA policy, according to Agora Policy.
