I am not sure what to make of the news that there is finally an agreement in place which will see NNPC starting to load petrol from the Dangote Refinery from 15th September, which it will then push on to marketers for onward distribution to service points around the country.
There is no doubt that it is good news, as a troublesome knot has been untied, with availability, one of the critical 3As is ticked off and we can finally witness the distribution of locally refined petrol, which Nigerians have eagerly looked forward to seeing for many years. But then, this is a case of sorting out what one would have thought would have been resolved between the two organisations right from the beginning, using inside channels. Had that been done, we would have been saved from the needless kerfuffle that has been witnessed in recent weeks.
The agreement, according to reports, provides that marketers will buy from NNPC Trading Limited and sell at the current pump price. This is not surprising, as I had argued that such an arrangement is the only way to maintain the current price regime and prevent a further hike in the price, given the projections that the price from Dangote Refinery would be higher than the current retail price. With this arrangement, NNPC will continue to serve as a buffer, for now, between a Dangote-reflective price of petrol and what Nigerians pay at the pump, as yet another hike in the price of the product would not augur well for the people, the economy, and even the government.
Pending the time when the naira attains what can pass as a fair value, accommodation must continue to be found for a moderation of the retail price of petrol, so that it does not continue to rise as the naira depreciates, leading to further erosion of the people’s purchasing power, and exacerbating the cost-of-living crisis we are faced with.
As I had suggested in an earlier article, only a political solution could have possibly resolved the impasse between NNPC and Dangote Refinery. It has to be a case of the crude supplied to Dangote by NNPC being priced at a reasonable discount to make up for the differential, or for the ‘swap’ between the two entities to be priced at a special FX rate. Otherwise, NNPC would have to continue to carry the burden of under-recovery on behalf of the government, as jacking up the pump price is out of the question.
Not wanting to be the target of the blowback that would come with an increase in the retail price of petrol from his refinery, Dangote Refinery pulled back from going public with its price, electing to push the ball to the court of NNPC. But NNPC knew the game, returning with a groundstroke, leading to a stalemate that left the Umpire with no choice but to weigh in with a political solution.
Indeed, it was within the context of the expectation of a political solution that Devakumar Edwin, Dangote’s vice president of Oil and Gas had said, “We are still in talks with the government about receiving crude in naira. The discussions are ongoing, and nothing has been finalised yet. Some unresolved issues include the pricing of crude, the pricing mechanism, and determining the appropriate exchange rate for the naira.”
It was in that same context that the President of the firm, Aliko Dangote, had said that it was up to the Federal Executive Council and the NNPC to determine the price of the product. Whereas some misread Dangote’s statement to mean that FEC/NNPC is going to determine the price at which he is going to sell the product, I read that differently to mean that the retail price at which the product would be sold at the pump, not the price the Refinery would sell. Indeed, he could not have meant that the government would fix the price at which the Refinery would sell its product. But that was what some thought he meant, thus triggering heightened suspicion and further confusion.
I would think that what Aliko Dangote meant would be clearer now that the ‘implementation committee’ set up by the government “to fashion out the details of the modalities for the implementation of the FEC approval” has announced that “all agreements have been completed and loading of the first batch of PMS from the Dangote Refinery will commence on Sunday 15th September.” The statement from the Committee says, “From 1st October, NNPC will commence the supply of about 385kbpd of crude oil to the Dangote Refinery to be paid for in naira. In return, the Dangote Refinery will supply PMS and diesel of equivalent value to the domestic market to be paid for in naira. Diesel will be sold in naira by the Dangote Refinery to any interested off-taker. PMS will only be sold to NNPC, NNPC will then sell to various marketers for now.”
The expectation, we are told, is that there will be an initial daily allocation of 25 million litres of petrol from Dangote Refinery to NNPC Trading Limited, which will then be distributed to marketers. Some reports, however, suggest that NNPC will continue to import “a shortfall of 15 million litres to meet Nigeria’s daily demand for petrol estimated at 40-50 million litres a day.” While some query the veracity of the claim that Nigeria’s daily demand for petrol is that high, allowing for imports should enable NNPC to fulfil whatever pending obligations it might have with traders under the DSDP arrangement and other windows through which it has been servicing the market. That will also provide an alternative source of supply, which is considered important in ensuring energy security. If indeed this is the case, it does look like a win-win, with traders, importers and marketers getting to have a bite of the cherry.
On the back of this agreement, I would suggest that Dangote Refinery needs to find a way to further accommodate legitimate interests from other players in the market and structure a compelling win-win arrangement that will make others more comfortable to be partners rather than adversaries. It is disturbing that months after it started producing diesel, the Refinery and marketers, are yet to come to an agreement that would have them singing from the same page.
Devakumar Edwin claims that marketers are not happy with Dangote Refinery for bringing down the price of Diesel in the market, which led them to write a letter to the President in protest. He claimed that domestic patronage is currently at only about 3 per cent, with the bulk of the products exported. While the daily loading capacity is 2,900 tankers, the refinery is currently loading less than 29 tankers per day, he said. “So, it is very strange that after putting the refinery to supply the products locally, every diesel I am producing, I have to export. Every jet fuel I am producing, I have to export because they do not want to buy from us. So, we are in a very strange situation.”
That is strange as it is difficult to understand how marketers will opt to go offshore to buy a product if it is indeed available locally, and it is sold at a good price. But the marketers have a different story. They claim that they are willing to buy, and have been buying, even if not as much as they could, citing impediments that have stood in their way, in seeking to patronise the Refinery.
They claim that the policy by Dangote Refinery restricting loading to a minimum of 20,000 metric tonnes is a disincentive to many marketers, as their requirement for lower volumes, some as high as 15,000 metric tonnes, was denied by Dangote Refinery. “We are disadvantaged by the Dangote Refinery policy of selling big parcels of products to international traders who then take such products offshore Lome and resell to Nigerian oil traders in small parcels and in market terms that they are used to, such as credit terms, in Naira (eliminating exchange risks) and in quantities needed, and of course higher than what they paid Dangote Refinery,” they said.
The Marketers also make the point that should be given the option of paying for products in Naira, which they say “…will reduce the attraction of trading with international suppliers and will reduce the pressure on the Naira. But as of now, this is not the situation…It is only the Refinery’s management that can widen the scope of the patronage by relaxing all the policies that are not in the interest of the local traders,” the marketers say.
This again appears to be another needless back-and-forth between Dangote Refinery and other stakeholders in the industry. There is no doubt that the coming into the market by Dangote Refinery will upend rules, traditions and conventions as the industry has known it, as what Dangote has done in setting up such a massive refinery is to disrupt the industry within and without, home and abroad. It would thus be naive on the part of the promoters of the Refinery to expect that other players whose livelihood and existence are now under threat will receive them with a bear hug. It is also understandable that Aliko Dangote, having staked $23 billion in the refinery and fertiliser project will stand idly by while the foundation of his investment is being rocked. He has not become an activist out of choice but compulsion. He has found that there is a need to fight back, seeing threats to the realisation of his dream and the survival of his massive investment.
But then, he must also apply a bit of greater caution and play smarter. He must find a way to better manage all the stakeholders, especially NNPC, which holds a 7.2 per cent stake in the business, as well as the regulators and other players in the industry. It must have been realised now that stronger footprints in the upstream and downstream sectors will help the fortunes of the project. That should make it apply itself more to opportunities for investment or partnerships in the near future. Indeed, the future of such a gigantic project lies in strengthened collaboration across the sectors. That, properly managed should see to Nigeria eventually putting behind her decades-long regime of exporting crude and importing refined petroleum products, which, at the height of it, constituted over 30 per cent of total imports for the country.
With refined petroleum products off the shopping list, and some earnings coming from the export of products by the Dangote Refinery and other projects, that should have a positive impact on Nigeria’s FX liquidity position, easing the pressure on the naira, leading to its appreciation, and some respite will come to roll back the excruciating effects of the unprecedented increase in the price of petrol and the cost-of-living crisis triggered by the floatation policy that has defied prescriptions and projections hit-and-miss free market experts. All things being equal, that is.
SOURCE: pmexpressng.com
