…Nigeria can save Africa $17bn petrol import bill- Dangote
The bold step by the federal government for full deregulation of the downstream sector is seen to address the recurrent petrol shortages that have plagued Africa’s biggest economy for decades.
The move is being described as bowing to common sense for a country that has gradually witnessed everything wrong about regulating the supplying and pricing regime of petroleum products for decades.
BusinessDay learnt that senior government officials acknowledged the exit of Nigerian National Petroleum Company (NNPC) as a middleman in the purchase of Dangote Refinery, a development that implies the national oil company will no longer cover the price gap between the facility’s price and the selling price to retailers, previously absorbing a subsidy of N133 per litre.
Marketers can now negotiate petrol prices directly with the Dangote Refinery under a “willing buyer, willing seller” arrangement, aligning with practices for other deregulated products such as diesel and kerosene.
The new development is seen to accommodate the independent sourcing of foreign exchange by marketers of the products, as well as fluctuations that may be encountered as the new regime comes into full effect.
The landing cost of Premium Motor Spirit, also known as petrol, was N1,009/litre as Monday, October 7, 2024.
BusinessDay findings showed if Tuesday’s highly volatile international price were applied the landing cost will drop by as much as N60/litre.
On Tuesday, Brent, the benchmark of Nigeria’s crude were down $3.70, or 4.57percent to $77.23 a barrel at 6 PM Nigerian time.
The managing director of one of the major oil companies, who did not wish to be identified, said the action was long overdue and hoped that this would be the beginning of better things to come in the downstream sector of the economy.
“A fully deregulated market would translate to healthy competition in the sector and attract badly needed investment,” he added.
The NNPC which took on the role of the sole importer is now buckling under the weight of the bruising subsidies and is leading the charge to abolish them, as the subsidies continue to rubbish its finances and keep alive a robust fuel smuggling enterprise across Nigeria’s porous borders.
Agora Policy, an Abuja-based think tank said said petrol subsidy stood at N5.10 trillion in 2023 — almost double the record set in 2022.
“With 4.2t incurred in just seven months, 2024 is set for an all-time record,” the think tank said in August.
Yet, the marketers’ motivation is not only on account of the national loss subsidies represent, but Nigeria’s regulated downstream environment has also crippled their investments as they cannot recover the billion naira costs they spend building depots with the margins NNPC allocates to them to make a profit on N2 per litre.
“The argument for moving for full deregulation is that it will benefit the industry and country by attracting the kind of investment that is needed,” a senior oil executive who pleaded anonymity said.
It would be the first time in decades that the federal government would remove artificial controls on the supply of the commodity for which availability has seen Nigerians and businesses suffer massively as a result of scarcity that is often disruptive.
On Tuesday, Aliko Dangote,chairman of Dangote refinery said Nigeria can enhance its crude oil production capacity and effectively manage its crude supply to ensure adequate feedstock for domestic refineries, in order to transit from a net importer to a net exporter of petroleum products.
Addressing Nigeria’s potential as a refining hub, Dangote expressed concern that, despite producing over 3.4 million barrels of crude oil per day, Africa imports around 3 million barrels of petroleum products daily.
He noted that these imports, primarily from Europe, Russia, and other regions, are estimated to cost approximately $17 billion in 2023.
He urged that Nigeria could capitalise on this situation to become a net exporter of refined petroleum products, as the markets would be more competitively served from Nigeria.
“Both the crude oil and the petroleum products will travel shorter distances. The logistics costs of floating storage will be eliminated, and countries can purchase their petroleum product requirements just-in-time,” Dangote said during his keynote address at a summit held in Lagos by the Crude Oil Refinery Owners Association of Nigeria (CORAN).
“It is worth noting that the Dangote Refinery already produces sufficient diesel and jet fuel to meet Nigeria’s demand. We recently started the production of PMS and will soon ramp up to meet Nigeria’s needs. Our refined products have been exported to diverse markets, including Europe, Brazil, the UK, the USA, Singapore, and South Korea,” he added.
Represented Mansur Ahmed, group executive director of Dangote Industries Ltd, Dangote emphasised that Nigeria must develop a refining capacity of 1.5 million barrels per day and prioritise domestic crude supply obligations to seize this opportunity.
Acknowledging the arising and future challenges, he urged the government to incentivise investors, contrasting this with the Dangote Oil Refinery, which was built without any government incentives.
“…It is unfortunate that while countries like Norway are putting oil proceeds into a future fund, in Africa, we are spending oil proceeds from the future. We will also need to prioritise the implementation of domestic crude supply obligations. We will need to expand our crude oil production capacity to support demand from new refining capacity. The government of President Bola Ahmed Tinubu is taking active steps to achieve this through fast-tracking IOC divestments and other initiatives,” he stated.
Dangote stated that Nigeria is uniquely positioned to capitalise on this opportunity and become a significant player in the global oil industry.
“As a vibrant exporter of refined products, Nigeria will witness an improvement in its balance of trade and generate much-needed foreign currency. Nigeria’s potential as a refining hub is clearly not in doubt; let us work together to make it happen,” he urged.
Abdulrazaq Isa, chairman of Independent Petroleum Producers Group called on the government to support domestic refiners by ensuring the availability of crude, adhering to domestic crude supply obligations, and implementing effective pricing and monitoring measures to prevent smuggling.
Emmanuel Iheanacho, chairman of CORAN’s Board of Trustees and CEO of Integrated Oil & Gas noted that transforming Nigeria into a net exporter will bring numerous benefits but reiterated the need for increased investment to boost crude production, lamenting that Nigeria loses approximately $83 billion annually by not meeting its OPEC quota.
While acknowledging that tank farms remain essential despite local refining, Iheanacho urged the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), to consider cancelling import licences, as Nigeria can now meet its local demand.
Huub Stokman, chairman of Major Energies Marketers Association of Nigeria (MEMAN) stated that Nigeria is on the verge of becoming Africa’s refining powerhouse, which will significantly boost the economy.
SOURCE: Businessday