By Gideon Osaka
In May 2023 when the multibillion-dollar Dangote Refinery was officially commissioned, it was hailed as a national pride and a monumental achievement for Nigeria’s petroleum sector. The 650,000 barrels per day (bpd) plant is Africa’s biggest oil refinery and the world’s biggest single-train facility. Its pipeline infrastructure is the largest anywhere in the world, and refined products from the refinery can meet all of Nigeria’s needs, with spare to export. The refinery was expected to change the face of Nigeria’s oil industry, ending the country’s long-standing dependency on imported refined petroleum products and long queues at fuel stations.
Again, on Sunday, September 15, 2024, when the refinery eventually commenced production and release of the first batch of Premium Motor Spirit (PMS) otherwise called petrol to the domestic market, the commencement was met with high expectations, with Nigerians expressing hope that the price of PMS would significantly drop due to local refining of the product which was expected to eliminate certain importation-related expenses. But as expectations grew, so did the complexities, especially surrounding the pricing of petrol produced by the refinery.
On the same day that the Dangote refinery launched its first PMS volumes into the market, the Nigerian National Petroleum Company (NNPC) Ltd announced a sudden increase in petrol prices, from N568 per litre to N896 per litre. While Nigerians were struggling to get over the shock from the increase, it was announced that a litre of the Dangote fuel, if sold in Lagos, is estimated at N950 per litre (including other charges such as NMDPRA fee N8.99, inspection fee N0.97, Distribution Cost (Lagos) N15.00 and Margin N26.48) while the price gets to as high as N1,019 per litre, depending on the distance between Lagos and the destination of the product. Before lifting from the Dangote Refinery, NNPC retail outlets in Lagos sold petrol for around N855. In fact, Nigerians witnessed a situation where the petrol produced locally from the Dangote refinery was higher than imported fuel as against the popular opinion that locally refined fuel should be priced significantly lower than imported fuel, as it avoids costs such as landing charges and import duties.
The price hike caught Nigerians off guard, coming as an unpleasant shock to especially majority of Nigerians who had anticipated relief from soaring high costs of PMS, with the refinery’s entry into the market. To the ordinary Nigerian who had expected that the locally produced fuel would come with a price regime that would ease the pains of high cost of the imported ones, the prices announced by NNPC were not just an anti-climax to the much-awaited succour but additional afflictions to an already debilitating financial ailments. The price increase has had a significant impact on the already challenging inflationary situation and has led to some businesses scaling down operations and cutting down their workforce.
Weeks after the rollout of the much-expected fuel from the Dangote Refinery, the disquiet that the pricing template that accompanied its arrival into the market is far from abating. The debate around Dangote’s petrol pricing continues to gain momentum as Nigerians and industry stakeholders seek greater clarity. The current confusion has only deepened concerns about transparency, fairness, and the true impact of local production on fuel prices. Since the Management of Dangote Refinery disowned the statement released by NNPC on the price it sells PMS to NNPC, the Management of the Refinery has yet to come out with its explanation of the exact price. In the wake of this seeming confusion and logjam, Nigerians continue to buy fuel at prices ranging between 950 and 1,200 per litre, hoping that some interventions from the authorities would clear all the fog surrounding the pricing issue and, possibly, bring some succour.
Energy experts contend that while it may be possible that prices could go down in the months ahead when the Dangote Refinery and other local refineries start buying crude oil in naira and commencing selling refined products to marketers in naira, they however called for cautious optimism in this regard. According to the experts, several factors are influencing the pricing of petrol from the Dangote Refinery, making it clear that local production alone does not automatically translate to lower petrol prices as some major determinants of production cost like the price of crude oil on the international market, the Naira-to-dollar exchange rate, and the cost of refining crude per litre have all been on the rise lately. “We are expecting that as this refinery and others ramp up production, scale, and achieve greater economies of scale, there should be the opportunity—and there is definitely the potential—to reduce their costs, which should be passed on to the consumer,” the Minister of Finance and Coordinating Minister of the Economy said in a TV interview on Sunday, September 15, during the inaugural loading of PMS from the refinery.
Will respite come in October?
From all indications and if promises made by the Dangote refinery are anything to go by, Nigerians should expect a drop in the price of PMS starting from October when the crude oil sale in naira by the NNPC to the Dangote refinery would commence. To crash the price of Dangote petrol significantly, the Crude Oil Refiners Association of Nigeria have suggested to the Federal Government committee working on crude sales to local refineries to sell the feedstock in naira at a discount and peg the exchange rate at about N1,000 to a dollar. According to the Publicity Secretary of the association, Eche Idoko in a recent media interview, the N898 would drop to N550 if the exchange rate is pegged at N1,000/$ for locally-produced petroleum products.
“As it is right now, this pricing you see is a reflection of what the price will look like if there is no intervention at all, because of how the naira is doing and because of what crude is doing in the international market. But if the government intervenes by way of naira sales and pegging the dollar exchange rate for crude transactions at a reasonably low rate, you will see an improvement. This is different from paying money as a subsidy. You are only just putting mechanisms in place to ensure the product is cheap,” Idoko said.
According to him, a litre of Dangote PMS is $0.52, which translates to N842.61 when calculated at an exchange rate of N1,637 to a dollar. He said this would have been N520 if the exchange rate was pegged at N1,000 to $1.
“The premium is $0.03, which should be N30 if the exchange rate is N1,000. The two will give you N550/litre as the gantry price. If the government removes levies and taxes, the product will be below N600, especially if the crude is sold at a discount.” he stated.
However, some experts have continued to caution Nigerians against expecting a drastic drop in pump prices. The Director of the Centre for the Promotion of Private Enterprise (CPPE), noted that the pricing issue will depend on various factors, including the cost at which Dangote gets the crude. He stated that if the cost of crude is low, there may be a price reduction, but if the cost is high, the price of the product will also be high.
“The pricing issue will depend on a number of factors. First, it depends on the cost Dangote gets the crude. If the cost at which Dangote refinery gets the crude is low, maybe by virtue of concession given by NNPC or the condition given by the government then we are likely to see a reduction in price as a result of the coming on board of Dangote.
“That’s the principal factor because if crude oil is selling at $80 and Dangote has to buy crude at that maybe $80 or more, there is no way that can bring down the price of his product. Even in the social environment in which we are, the NNPC at the current prices still subsidise fuel. So, unless the government is trying to subsidise the product for Dangote as well,” Mr. Yusuf said.
He explained that the fact around Dangote is not enough to change the price; it depends on the condition under which he can get the crude.
“Government has offered NNPC to sell the crude in Naira, but we don’t know at what exchange rate they are using, we don’t know how much they are going to sell it per barrel. So, the major determinant will be the cost of the crude that will determine what will happen,” he said.
Managing expectations
While the Dangote Refinery represents a monumental achievement for Nigeria’s energy sector, the expectation that it will dramatically lower petrol prices for the average Nigerian has been greatly dashed with the reality of global market forces offsetting the huge benefit of local PMS refining.
The current challenge before the government will be to balance the need for a profitable local refining industry with the socio-economic impact of high fuel prices on Nigerian consumers. As the refinery ramps up output, it remains to be seen how the pricing confusion will evolve and whether additional government interventions will be required to ensure that Nigerians benefit from local production.
The issue of petrol pricing remains a complex one—an area where hopes of a quick fix may give way to the reality of a more gradual and nuanced solution. For now, the situation remains precarious, and the government will need to carefully balance its fiscal policies with the needs of its citizens. Ensuring that the benefits of the Dangote refinery and other reforms reach the populace will be key to maintaining public trust and avoiding further economic and social unrest.