The much expected commencement of sale of fuel by Dangote Refinery could ensure product availability but may not crash the price of the product substantially as expected by Nigerians, experts have opined.
They spoke to Saturday Telegraph yesterday, and they include an oil and gas governance consultant and Publisher, Africa Oil+Gas Report, Mr. Toyin Akinosho.
The President/Chief Executive of the Dangote Group, Aliko Dangote, while speaking at the Africa CEO Forum Annual Summit in Kigali, said that Nigeria will stop importation of fuel into the country by June, when Dangote Refinery should have commenced production of the product. However, this did not materialise.
But speaking , when he received a Senate delegation led by Senate President, Godswill Akpabio, on a tour of the $20 billion facility, he said that the commencement of fuel supply would be by mid-July 2024 and attributed the shift to ‘a little bit of delay.’
Dangote said: “We had a bit of delay, but PMS will start coming out by July 10, 15, but then we want to keep in the tank to make it to settle. By third week of July, we will be able to sell it in the market.”
Many Nigerians have expressed the hope that the refinery will crash fuel prices.
But an oil and gas governance consultant, Mr. Ademola Adigun, said that Dangote could sell fuel between N600 and N620 per litre.
Adigun said: “Low pricing from Dangote? I do not know where they got it from. I kept on asking how is it possible? They will have fuel at reasonable prices but how will it be so low? How will it be about N400 per litre on all basis? Why? Where is it going to come from? The transmission margin on a petroleum product is not very high? So what is going to make it very low?
“I do not know how much Dangote will be selling fuel, but I estimate that it may be N600 or N620 at best prices. It is an estimate. It depends on other factors such as crude prices and foreign exchange rate.”
Speaking further, Mr. Toyin Akinosho, warned that Dangote may not crash fuel price.
He said that Dangote may not sell directly to major oil marketers and Independent Petroleum Marketers Association of Nigeria (IPMAN). He opined that Dangote will sell directly to the Nigerian National Petroleum Company Limited.
He stated that given the current crude oil price at the international market and the weak value of the Naira to the dollar, the cost of fuel may be between N1,300 and N1,400. He stated that Dangote refinery will sell to NNPC Ltd, and that the latter will now sell to the public at a subsided price of about N600.
Akinosho added that NNPC Ltd in collaboration with the Federal Government will find a way to balance the shortfall.
He said: “If I have ever seen any amount anywhere that is less than $1 equivalent, I will mention it. I will say, how about this place where they are selling below $1 equivalent. But there is no such place. Anywhere I know that there is any little cost that is lower, it is always clear that the government is spending a lot of money to keep it low. It is not up to whoever that is producing PMS. That is the truth. So Dangote himself cannot bring down the price of PMS. The level that the people are talking about may not be realistic. In Egypt, the cost of PMS per litre is still higher than $1 and that is where the Egyptian government tries to as much as possible to keep it low. Whether in Cuba, it is not less. In Venezuela, they tried a lot to keep it arbitrarily low, but it is not anywhere lower than $1.
“The cost of fuel which is a product of crude oil distillation is tied to the cost of the crude oil. Now product prices are in the excess of $80 and you cannot have less than $1. In US it is over $2, but let us factor in that it is an extreme market economy. In Europe, it is over such a number.
“In developing countries, where the government is saying that our people are struggling, let us allocate money and keep it low. That does not depend on the producer who is in private sector. The producer will depend on whether the government still thinks we should have a subsidy. So if the cost of crude oil is about $30 per barrel, that is low enough for the price to be about N400 per litre as it is. But right now, where we should be, the least is between N1,500 and N2,000. The government is subsidising roughly by N800 per litre. That is why we are at N600.
“If the naira/dollar exchange rate was high like N500/$1, then we would be so strong such that N500 will be probably higher than $1. But that is really the challenge that happened. Because we crashed the forex, we have a challenge of how much we will sell.
“Dangote is not going to sell to the public directly. It is going to sell to NNPC and NNPC will under-recover. If NNPC supposes to pay N2,000 to the federation account, it will take maybe N500 for paying Dangote more than what it should. That is what is going to happen.
“From what Dangote has done with diesel, he will attempt to ensure that fuel is relatively low, but the fuel cost now is artificial. So let us estimate that it will be N1,000 because typically fuel is higher than the cost of diesel in the market.
“If diesel is really supposed to be N1,500 and he has brought it to N1,200, then fuel should be probably N1,800 and if he brings it down a bit, maybe to N1,300 and N1,400 and when NNPC sells to us “at N600, they will be taking roughly N7,000 from the government account. That is the way it is going to happen. I do not expect it to crash.
The solution really to our problem is the influx of foreign exchange. When people are talking that we should have Dangote to have more of Nigerian crude rather than imported crude, my point is that when he imports, the import is cheaper than Nigerian crude because Nigerian crude is high grade, Typically when they say that the cost of crude is $81 for Nigerian crude, it will be like $78 in most of these other places. When you bring the crude in, you will still have a bit of a discount. But Dangote said that because of the high quality of Nigerian crude, they should take advantage of that since it is here but it means that their machines will be able to crack it more efficiently than it will crack something that has a lot of sulphur or is heavy. That is why it wants Nigerian crude even though it is more expensive.
“He can not bring price to N300, he cannot even bring it to N700 but will sell the fuel at a certain cost to the NNPC that will not retail it. Why we are having a difficult conversation whether he will sell to marketers or not, because what that means is the marketers will be going to queue up for subsidy and that can be abused. That is why government, once subsidy is involved, Dangote should sell directly to NNPC. So the NNPC is the one that takes care of subsidy. Let the corruption happen in one place than in many places. That is the reason for Buhari Administration saying it is under recovery and not subsidy.”
But the Public Relations Officer, of the Independent Petroleum Marketers Association of Nigeria (IPMAN), Chinedu Ukadike, said the Dangote Refinery when it starts selling fuel to them could crash the pump price of fuel to between N515 and N550 depending on the location.
He said the marketers were expecting that Dangote Refinery will sell petrol between N480 and N500. He added that once that happens, oil marketers will sell at a pump price of between N515 and N550 depending on the location.
He also said Dangote Refinery will break fuel importation monopoly by the Nigerian National Petroleum Company of Nigeria.
Ukadike said: “We are happy. We congratulate Dangote. What he has done in diesel, is good enough because since he came in, diesel has remained within the benchmark of N1,000 and N1,100. So that has helped marketers and transporters to be able to move their petroleum products and reduce unnecessary expenses and costs. Diesel was almost N1,600 until Dangote announced its price to N1,200 and later N900 per litre, it will give marketers a sense of belonging and enhance competition in terms of the distribution in the downstream chain.
“Definitely there will be a reduction in petrol price. We are anticipating and optimistic that Dangote will give us petrol at the price regime of around N480 and N500 and once that is done, we are good to go. Once that is done, we could sell between N515 and N550 depending on the location.”
He added: “Independent marketers are delighted because this is the end of monopoly in the distribution of PMS in Nigeria. The monopoly of the Nigerian National Petroleum Company Limited, (NNPC Ltd) as a sole importer will be challenged and the deregulation or removal of subsidy will be practised in Nigeria once there is monopoly through regulation. Since the President has announced the removal of subsidy that has polarised the market, it is still the NNPC that is still importing petroleum products into the country. Now the coming of Dangote will cushion the effect of PMS prices and the monopoly on NNPC Ltd.
“It is not only that marketers will have an alternative to be able to buy petroleum products from one source or the other. We are also trying to talk to other private investors to come in and utilise the potentials of Nigeria as an oil producing state and continue to produce petroleum products for onward distribution to the international market.”