Dangote Refinery, hailed as the answer to Nigeria’s dependence on petroleum refined abroad, is up against a major obstacle: local retailers are refusing to buy its fuel.
Ademola H. Adigun, an expert in oil and gas, claims that the refinery’s strict pricing, payment terms, and business model are the main causes of this issue because they do not take into account the realities of Nigeria’s downstream industry.
The refinery’s cash-only sales model is one of the main causes of this problem. Unlike the international petroleum market, where credit and financing options are common, the Dangote Refinery requires buyers to pay upfront in dollars, using letters of credit (LC) with no financing options.
Challenges for Local Marketers
For Nigerian marketers, who frequently operate on slim margins and primarily rely on credit to make purchases, this is an obstacle. Adigun emphasizes that “no marketer will work for nothing,” highlighting how difficult this strategy is for local consumers.
This strict policy favours foreign traders over local marketers. As noted by Adigun, dealers in Lome, Togo, have the ability to purchase fuel in bulk from Dangote Refinery, with payments made in US dollars.
Using the refinery’s terms to their advantage, these larger-scale foreign buyers resell the products to Nigerian marketers. For local marketers, it becomes more costly by the time the fuel gets back to Nigeria due to the additional expenses of credit and exchange rate. Despite the higher price, many Nigerian marketers are left with no choice but to buy from these traders, as the refinery’s direct sales terms are too rigid for them to manage.
Public Observations
Integrating comments from the public, one observer summarized the situation: “The Dangote Refinery’s strict cash-only sales model and high prices make it difficult for Nigerian petroleum marketers to buy directly. As a result, they end up buying through foreign traders who offer better payment terms but at a higher cost. This creates additional costs for consumers and keeps local marketers dependent on international players.”
Ironically, reducing Nigeria’s reliance on petroleum refined abroad was a major objective in the construction of the Dangote Refinery.
However, as things stand, local marketers are finding it simpler to purchase fuel from overseas vendors than from a domestic refinery. The situation hurts the refinery’s local market potential and drives up prices for Nigerian consumers.
Potential Solutions
Improving local marketers’ access to financing is one potential solution to this problem, as suggested by others.
Banks could be very important in helping marketers meet the refinery’s strict payment terms by providing better credit lines and other financial support. Another aspect is government intervention.
It may be necessary for the Nigerian government, which has long aimed to increase domestic refining capacity, to intervene and provide more advantageous terms for local merchants so they can buy directly from the Dangote Refinery and avoid using foreign intermediaries.
Another major obstacle is the pricing structure of the refinery. “The products are too expensive for the market,” Adigun emphasizes. After paying outrageous prices for fuel from Dangote, marketers in the downstream industry—where profit margins are already narrow—are left with little to no space to make money. The cycle of dependence on external fuel supplies will continue if local marketers are unable to find more affordable options due to rigid pricing that does not take market realities into account.
The challenges facing the Dangote Refinery are numerous, starting from a rigid business model that caters more to international buyers than local marketers.
This model needs to change for the refinery to fulfil its promise of reducing Nigeria’s dependence on foreign-refined petroleum. Only then can Dangote Refinery become a true game-changer in the Nigerian oil sector.
