In another twist to the long running saga over Dangote Refinery Limited (DRL) supply of refined petroleum to the Nigerian market, it has just been disclosed that Africa’s biggest refinery will start selling petrol in Nigeria on Sunday 15 of September, 2024.
Marketers will start lifting refined petroleum at the price of N765.99 per litre, a price agreed with the Nigeria National Petroleum Company Limited (NNPCL) after disputes about the role of NNPLC as sole off taker and the price at which NNPCL will buy Dangote Refinery petrol.
The agreement was revealed by BusinessDay newspaper. BusinessDay’s source disclosed that Dangote Refinery officials were still in a meeting with the NNPLC in Abuja at the time of publication.
The Long Wait for Dangote Refinery Petrol
Dangote Refinery announced in early September that it had commenced the production of Premium Motor Spirit (PMS), popularly called petroleum. It also announced that the NNPCL will be the sole off taker i.e. buyer of its petrol. Nigerian motorists enjoy a subsidy of about 40% off the pump price of petrol; the Dangote production cost of Dangote Refinery petrol is over N1,100 while the subsidised pump price is N855 per litre.
Without the government removing the subsidy or the government and/or the NNPCL announcing that Nigerian crude oil refiners like DRL will sell petrol at market prices alongside the subsidised petrol from the state-owned oil company, in effect a dual market, it would be near impossible for Dangote Refinery to sell its petrol at the market price. The dispute and delay have been amidst an acute scarcity of petrol all over Nigeria.
Dangote Refinery – Nigeria National Petroleum Company Limited Means that the Petrol Subsidy Stays
“NNPC Trading Limited will continue to handle the shortfall of 15 million litres to fulfil Nigeria’s daily petrol demand, which is estimated to be between 40 and 50 million litres,” the BusinessDay source explained. The marketers will be able to sell the product at the current price range of N855 to N897 per litre which allows for the addition of transportation costs.
Marketers have been instructed to begin dispatching their trucks to Dangote Refinery on Friday to avoid loading bottlenecks.
The Petrol Subsidy Stays and the Downstream Market Remains Controlled by the NNPLC
In complete contradiction of its assertion only 6 days ago that the downstream petroleum sector is deregulated and will operate according to “global prices”, the NNPLC will continue to fix the price of petrol and also act as the sole off taker of Dangote Petrol. Arbiterz had last Saturday interpreted the NNPLC’s opacity on pricing Dangote Refinery as possibly a strategy to extricate itself and the Nigerian government from the onerous burden of financing the 40% discount for Nigerian motorists on petrol.
It is conceivable that subsidised Dangote Refinery petroleum could be smuggled abroad. Successive schemes to check the smuggling of cheaper Nigerian petroleum to the country’s neighbours have failed in the last 40 years. Ademola Adigun points out that Dangote would be content to get paid for the petroleum he supplies marketers and will not take upon himself the role of a detective that monitors where the marketers sell the petrol.
NNPLC has accumulated $6.8 billion in arrears with international oil traders and Nigeria continues to struggle to attract the sort of foreign investment that could sustainably finance its external payments needs. The agreement between the NNPCL and Dangote Refinery to sell petrol from Africa’s largest oil refinery will keep the fiscal and economic burden of the fuel subsidy intact. Questions also arise on the agreement with Dangote Refinery and indeed risks to the refinery.
Will the 25 million litres that Dangote Refinery is due to start supplying to marketers on Sunday September 15 2024 be produced exclusively from the crude oil that the NNPCL has agreed to supply to Dangote Refinery in naira? If not, how will the imported component of this 25 million litres per day be accounted for ? Does Dangote Refinery run any risk of the NNPCL running up debts as it has with international oil traders?
It appears that such risks, including potential payment defaults and foreign currency exposure, are mitigated by the agreement between NNPLC and Dangote Refinery. Under this arrangement, NNPLC supplies crude oil to Dangote Refinery in naira, while Dangote Refinery pays for refined petrol in naira. This agreement is underwritten by the African Export-Import Bank (Afreximbank), which some industry analysts view as providing a payment guarantee to Dangote Refinery, potentially in dollars and with interest. The Dangote Refinery has huge running costs in dollars- buying parts and services abroad and also buying crude oil-that make it unviable to for it to sell products in naira.
The NNPLC has not only been making contradictory decisions and statements, it is failing to explain clearly to Nigerians the implications of its decisions.
