NNPCL, Dangote Refinery Impasse: Oil Marketers Seek Alternative Supply

Petrol Importation on the Cards as NNPCL, Dangote Refinery Disagree

“It further dropped to about N950 and now revolves between N950 and N1,100 for both the imported ones and the...”

NNPCL's petrol price deregulation sparks industry shifts. Oil marketers consider imports as Dangote Refinery's prices remain unclear.

Nigeria's Petrol Supply: A New Era

The Nigerian National Petroleum Company Limited (NNPCL) has made a significant announcement that could change the dynamics of the country's petrol supply. According to the statement, NNPCL will only purchase petrol from the Dangote Petroleum Refinery if the market prices exceed the pump prices in Nigeria. This move could pave the way for oil marketers to start importing Premium Motor Spirit (PMS), commonly known as petrol.

NNPCL's New Role in a Deregulated Market

NNPCL has clarified its position in the deregulated market, stating that it will not act as a distributor for any refinery. Instead, domestic refineries like Dangote are free to sell directly to marketers on a willing buyer, willing seller basis. This means that oil marketers can negotiate prices directly with refineries, potentially leading to a more competitive and efficient petrol supply chain.

Implications for the Petrol Market

The NNPCL's announcement has significant implications for the petrol market in Nigeria. With oil marketers potentially importing petrol, the country may see an increase in the availability of the commodity. Additionally, the willingness of domestic refineries to sell directly to marketers could lead to a reduction in petrol prices, making it more affordable for consumers. However, the impact of this development on the market will depend on various factors, including the global oil prices and the exchange rate.

Dangote's Refinery Awaits NNPCL's Engagement

Aliko Dangote, President of the Dangote Group, had expressed optimism about his $20 billion refinery's potential to supply the domestic market. He stated that the refinery was awaiting engagement from the Nigerian National Petroleum Company Limited (NNPCL), with the expectation that NNPCL would be the sole off-taker of its petrol for the domestic market. However, the slow progress in negotiations between Dangote and NNPCL has raised concerns about the refinery's ability to supply the market.

NNPCL's Stance Contrasts with Dangote's Expectations

In a surprising turn of events, NNPCL has clarified that it will not be the sole off-taker of Dangote's petrol. Instead, NNPCL will only purchase petrol from the refinery if the market prices exceed the pump prices in Nigeria. This stance contrasts with Dangote's expectations and has significant implications for the petrol market.

Oil Marketers Explore Alternative Options

As negotiations between Dangote and NNPCL stall, oil marketers have announced that they will source petrol from the cheapest available option. This could include importing petrol, which would undermine Dangote's refinery's potential to supply the domestic market. Oil marketers are seeking to minimize costs and maximize profits, and the slow progress in negotiations between Dangote and NNPCL has created an opportunity for them to explore alternative supply options.

The Independent Petroleum Marketers Association of Nigeria (IPMAN) has yet to reach out to Dangote Refinery regarding their petrol price, according to National Operations Controller, Mustapha Zarma. However, IPMAN plans to contact the refinery's sales department this week to inquire about the current price of Dangote petrol.

“If the price is competitive enough for one to buy and get his return on investment and the required margin, then we wouldn't mind purchasing directly from him to complement what NNPCL is bringing in or what NNPCL would buy from Dangote.”

IPMAN's Mustapha Zarma says the government's decision to deregulate Dangote's petrol prices gives oil marketers the flexibility to buy from any supplier offering competitive prices. He expects a similar dynamic to occur with petrol as with diesel, which some marketers are already importing while others buy from Dangote.

“I believe that we are going to analyse the price of Dangote petrol and see the advantages of buying from Dangote viz-a- viz importation. Whichever we feel is cheaper will automatically attract everybody, especially if importation is cheaper.

“That will bring about competition and I don't think the government will allow price monopoly. They would want a competitive market where the laws of demand and supply would determine the local price of refined petroleum products, just like diesel is right now

“And with that, there is going to be some kind of equilibrium in the pricing and there is going to be guaranteed sustainability of supply,” the IPMAN official stated.

Industry Experts Weigh in on Fuel Importation

Industry experts have expressed doubts about the Federal Government's readiness to halt fuel importation, despite the Nigerian National Petroleum Company Limited's (NNPCL) decision not to be the primary off-taker of petrol from the Dangote refinery. This move has raised concerns about the government's ability to reduce its reliance on fuel imports.

Government Gradually Phasing Out Subsidies

However, experts have observed that the recent increase in petrol pump prices suggests that the government is gradually phasing out subsidies on the product. This development follows NNPCL's revelation that it spent a staggering N7.8 trillion subsidizing petrol, highlighting the unsustainable nature of the subsidy regime.

Implications for the Fuel Sector

The government's decision to phase out subsidies on petrol has significant implications for the fuel sector. As the subsidy regime is gradually dismantled, fuel prices are likely to increase, making it more expensive for consumers. However, this move could also encourage the growth of domestic refining capacity, as companies like Dangote invest in refining infrastructure to meet local demand.

NNPCL's Subsidy Burden Revealed

During the presentation of NNPCL's audited report and accounts for the 2023 business year in Abuja, Chief Financial Officer Umar Ajiya shed light on the significant subsidy costs borne by the company on imported petrol. He disclosed that the government had directed NNPCL to sell imported petrol at a price substantially lower than its landing cost, resulting in a substantial financial burden on the company.

The Cost of Subsidies

Ajiya explained that the government's instruction to sell imported petrol at half of its landing cost had resulted in a significant shortfall for NNPCL. With the official pump price of petrol around N600 per litre and the average landing cost at approximately N1,200 per litre, NNPCL absorbed a staggering shortfall of about N7.8 trillion in the first seven months of the year. This substantial loss highlights the unsustainable nature of the subsidy regime.

Read Also: We Haven't Reached Full Market Price for Petrol Yet — NNPC

The Government's Role in Subsidy Payments

In some cases, the Federal Government covered the subsidy costs or settled them through other means, Ajiya noted. This arrangement has helped to alleviate some of the financial pressure on NNPCL, but it also underscores the government's significant role in subsidizing petrol prices. As the government gradually phases out subsidies, it remains to be seen how this will impact fuel prices and the overall economy.

“What has been happening is that we have been importing PMS, landing at a certain price, and the government is telling us to sell it at half price. So, that gap between that landed price and the half price is what we call shortfall or we call it a subsidy,” the CFO had stated.

Reacting to the latest developments, IPMAN's National Publicity Secretary, Ukadike Chinedu, stated that while marketers are open to purchasing petrol from Dangote Refinery, NNPCL's recent announcement has given them the flexibility to explore alternative suppliers who offer more competitive prices.

“From what is happening now, it means that the Petroleum Industry Act is being implemented, the removal of subsidies has come to stay and the price of petrol is to be determined by the economics demand and supply.

“Now that NNPC has said they are not the sole off-taker of Dangote petrol, it then means that the price of the product would determine where we are going to buy it. If NNPC imports the product and its price is cheaper than that of Dangote, we will buy from NNPC. If Dangote's price is cheaper than that of NNPC, then we will buy from Dangote. So, right now, competition will set in. Remember that diesel price rose as high as N1,600 per litre and Dangote came in with his own at N1,200 per litre, and the importers reduced their price to N1,100 per litre.

“It further dropped to about N950 and now revolves between N950 and N1,100 for both the imported ones and the ones produced locally. By the time competition sets in, the product will sell cheaper,” Ukadike stated.

IPMAN's National President, Alhaji Abubakar Maigandi, has started discussing with investors to secure funding for potential petrol imports, if prices are favorable, “Our National President, Alhaji Abubakar Maigandi, has commenced discussions with some investors who are now in the process of securing funds going by the current trend in the business.

“So, we are talking with some foreign partners because you need to understand that independent marketers are the highest buyers of diesel from the Dangote refinery because we control about 80 percent of the filling stations nationwide. So, if Dangote PMS is cheaper we will buy it, but if importation is cheaper, we will go for it.”