The Premium Times has “exclusively” reported that the Nigerian National Petroleum Company Limited (NNPC) is withdrawing from its exclusive “sole off taker” role for Dangote Refinery petroleum, thus allowing local oil marketers to negotiate and buy petrol directly from Dangote Refinery.
Premium Times reported that a senior official of the NNPCL confirmed the end of the sole off taker arrangement and the transition to a fully deregulated market in which free market prices obtains, “Yes, it is true,” the official stated. “We can no longer continue to bear that burden.”
Willing Seller, Unwilling Buyers- the Nigerian National Petroleum Company Limited and Dangote Refinery and Nigeria’s Fuel Subsidy
Dangote Refinery started producing petroleum in early September 2024 after several missed production deadlines and about 28 years of Nigerians relying on imported refined petroleum products.
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This was supposed to be a celebrated milestone for Nigeria as Dangote Refinery boosts production to its 650,000 barrels per day production capacity and ends Nigeria’s perennial fuel scarcity. But Nigeria’s four decades’ old fuel subsidy proved to be a problem.
Dangote Petroleum Refinery, built by Nigeria’s preeminent tycoon, Aliko Dangote, at the cost of $20 billion, could not sell its petrol directly to Nigerian oil marketers and ultimately to Nigerian motorists unless the federal government through the NNPCL either removed the fuel subsidy or agreed to provide a subsidy to cover the difference between Dangote Refinery’s cost of production and the subsidy the Nigerian government providers to petrol buyers.
It seems there was difficulty negotiating between Dangote Refinery and the Nigerian National Petroleum Company Limited about pricing Dangote Refinery petrol (its cost of production plus the subsidy).
This led to a “war of press releases.” Dangote Refinery, a private enterprise insisted that the petroleum retailing (aka downstream petroleum sector) is regulated and that the NNPCL will fix the prices of its petrol.
The NNPCL, on the other hand, insisted that the market is now deregulated, making the odd assertion that it would buy Dangote Petrol only if it is not more expensive than the pump price i.e. the subsidised price in Nigeria.
Aliko Dangote Votes for Subsidy Removal
On September 23 2024, Mr. Aliko Dangote said in an interview with Bloomberg TV that “subsidy is a very sensitive issue.
Once you are subsidizing something, then people will bloat the price, and then the government will end up paying what they are not supposed to be paying. “It is the right time to get rid of subsidies.”
He might have come to realise that relying on the government to recover a substantial part of his cost, i.e the subsidy element, is risky or that the margins selling petrol in the subsidy regime is not worth the trouble.
The Fiscal Burden of the Petrol Subsidy- Free at Last?
If the subsidy has at last been removed, the average price of petrol in Nigeria will be around N1,010 per liter (with variations around the country based on the cost of transportation). Nigerian labour unions and the media, who have traditionally vehemently opposed the eradication of the fuel subsidy, will not stay quiet.
But the government now has potentially strong arguments to defend the removal of the subsidy – the main one being the need to boost local refining of petrol products and turn Nigeria into a hub of production and exports and how this can support the country’s industrialisation ambitions. Dangote Refinery is already displacing European diesel exports in West Africa.
The Nigerian government and Dangote Refinery have not helped to move the Nigerian public away from its fascination with “cheap” petrol by focussing on and exaggerating the “savings” in foreign exchange that Nigeria can make from local refining or from supplying crude oil to Dangote Refinery in naira.
This “savings” focus has fed the expectation that Dangote Refinery petrol will be significantly cheaper.
Preventing the Dangote Monopoly: How Deregulated Petrol Marketing Will Work
Marketers have not been left out in the war of press releases, they have alleged that Dangote Refinery is trying to create a monopoly, a situation in which it can sell petrol to marketers at any price it wants. It seems that in the now finally deregulated petrol marketing regime, the possibility of Dangote Refinery indulging in “price gouging” will be prevented because oil marketers will also be able to import petrol.