NNPC-Dangote Refinery petrol pricing dispute not our business

On Wednesday, the presidency revealed that it will not intervene in the ongoing dispute between the Nigerian National Petroleum Company Limited (NNPCL) and Dangote Refinery over the pricing of petrol. Both parties have asserted differing positions on how prices should be set in a newly deregulated market.

Presidency Reaffirms Deregulation of Petroleum Marketing

In a press briefing at the State House, Mr. Bayo Onanuga, Special Adviser to the President on Information and Strategy, highlighted that oil marketers and refiners have the freedom to determine their prices based on market dynamics. He emphasized that the petroleum market has undergone deregulation, suggesting that competition between NNPCL and Dangote Refinery ultimately benefits consumers.

Onanuga stated, “The PMS price regime has been deregulated. Dangote is a private company, and NNPC must remember it is a limited liability company. Whatever disagreements they have is their issue.”

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He further clarified that under the Petroleum Industry Act, the NNPC operates independently, despite being owned by the Federal Government, state governments, and local councils.

Onanuga concluded, “It is the consumers who benefit if a price war ensues. If NNPC’s price is too high, the independent market can import fuel and sell at prices they find reasonable and profitable. The government will not interfere in this matter. Dangote operates as a private entity, and NNPC, as a limited liability company, is entitled to set its own prices.”

Disagreement Between Dangote Refinery and NNPCL

The conflict between Dangote Refinery and NNPCL revolves around the pricing of petrol in the context of deregulation. Dangote Refinery has maintained that the downstream sector remains regulated, arguing that it cannot set the price of petrol due to the prevailing government controls. Conversely, NNPCL has claimed that the sector is now fully deregulated, allowing both Dangote and other domestic refineries to sell petrol at market prices based on a “willing buyer, willing seller” framework.

Prior to starting supplying petrol to the market on September 15, Dangote Refinery had expressed frustration over the NNPCL’s reluctance to finalize agreements on pricing, which led to delays in the lifting of petrol from its facilities. In its statement, Dangote emphasized that it is prepared to supply petrol but is hindered by unresolved pricing negotiations with NNPCL.

Despite Mr. Onanuga’s statement, the presidency is the critical factor in the ongoing dispute on pricing petrol between Dangote Refinery and the Nigerian National Petroleum Company Limited (NNPCL). The petrol subsidy places Dangote Refinery in a precarious position, as it cannot sell petrol directly to the market without contending with the artificially low, subsidized prices set by the government.

The subsidy not only constrains the possibility of Dangote Refinery entering the market directly (to sell to marketers and ultimately consumers) but also creates a power imbalance in the pricing discussions with the NNPCL. The state-owned oil company is motivated to pay Dangote Refinery as low a price as possible. The subsidy, estimated in the region of 6 trillion naira (before the September upward review of petrol prices from N617 per litre to N855- N897) is a huge strain on the government’s finances.

But the petrol subsidy it has maintained on the pump price of petrol in Nigeria also prevents Dangote Refinery (and oil marketers and other refineries) from trying to supply the product at prices that cover their costs.

The Nigerian National Petroleum Company Limited pays for the subsidy on petrol with dividends that should be paid to the government from its operations, mainly exporting crude oil. But the removal or retention of the subsidy is fundamentally a political decision beyond its control which the Presidency has to make. The presidency has however continued to deny that the subsidy exists.

While the NNPCL and now the Presidency, assert that the market is deregulated, the subsidy system continues to make market pricing and competition and efficiency impossible. Aliko Dangote, the billionaire owner of the eponymous Dangote Refinery, seeing the difficulty of reaching a comfortable agreement with the NNPCL/Federal Government of Nigeria on pricing called for an end to the subsidy regime during an interview with Bloomberg TV on Monday September 23.

Dangote said, “Subsidy is a very sensitive issue. Once you are subsidizing something then people will bloat the price and then government will end up paying what they are not supposed to be paying. It is the right time to get rid of subsidies”.

Observers would be wondering whether the presidential spokesman’s reaffirmation of NNPCL’s position that the downstream oil sector, i.e. refined petroleum products marketing, is deregulated is a signal that the Federal Government is about to finally hands-off and end the nearly 50 year old petrol subsidy. It is possible that the statement is a signal to Dangote Refinery that the presidency will not lean on the NNPCL to offer it a “comfortable” price.

Petrol sells for near the market price in many parts of Nigeria and the subsidy inflates demand for petroleum in Nigeria. It is frequently said that “no one knows the actual consumption of petrol in Nigeria” as between 30-40% of subsidised petrol is smuggled to neighbouring countries where the product is sold at market prices.