As a Nigerian analyst, this development raises several important issues concerning the nation’s oil industry, fuel pricing, and the promises of the current administration. Nigeria, being a crude oil-rich country, has long faced the paradox of relying heavily on fuel imports despite its abundant natural resources. This has historically driven up costs due to the high landing cost of imported petroleum products, which includes expenses like shipping, insurance, port duties, and other taxes. This creates a pricing structure where Nigerians end up paying significantly more for petrol and diesel, especially as international oil prices and exchange rates fluctuate.
The emergence of the Dangote Refinery, a local refining giant, was expected to alleviate these issues. Being locally based, Dangote’s operations eliminate many of the additional costs tied to importation, such as international shipping and port taxes. This should, in theory, result in a more stable and lower-cost supply of refined products like petrol and diesel. However, the recent statement by the Independent Petroleum Marketers Association of Nigeria (IPMAN) indicating that the price will determine whether they purchase from the Nigerian National Petroleum Corporation (NNPC) or Dangote Refinery suggests that even with a local refining option, pricing concerns remain paramount.
The key question here is: why would price still be a determining factor between local and imported fuel sources, especially when local refining should ideally lower costs? Several factors could be at play:
1. Pricing Mechanism and Market Dynamics: The deregulated petroleum market means that even local producers like Dangote will price their products based on market forces. If the price from Dangote Refinery is not significantly lower than imported products (due to competition, operating costs, or market dynamics), IPMAN may find little incentive to shift entirely to the local refinery.
2. Production Capacity and Supply Reliability: Dangote Refinery is massive, but whether it can meet Nigeria’s entire demand consistently is yet to be fully seen. If the supply from Dangote is not enough to meet the market’s demand, independent marketers may still rely on imports, which could maintain high prices.
3. Profitability and Operational Costs for IPMAN: Independent marketers are also in business to maximize profit. If Dangote’s prices are higher or not as competitive as imported fuel (perhaps due to supply constraints or internal cost structures), IPMAN may find itself forced to import fuel, passing higher prices onto consumers.
4. Government Policy and Subsidy Removal: The Bola Ahmed Tinubu administration has faced significant backlash over the recent fuel price hikes, following the removal of fuel subsidies. These subsidies had previously helped cushion the impact of import costs on Nigerians. The government had promised improved governance and economic relief, yet the reality of increased fuel prices has added pressure on Nigerians already facing economic hardship. The expectation was that with a local refinery coming on stream, prices would stabilize or drop, which hasn’t materialized yet.
IPMAN’s decision to prioritize price when choosing between NNPC and Dangote underscores a deeper structural issue: the government’s failure to properly transition the market from heavy import dependence to local production without significant price shocks. The long-term viability of using a local refinery like Dangote’s is crucial, but until it proves more cost-effective for marketers and consumers, the economic reality for everyday Nigerians remains harsh.
In conclusion, the focus on price by IPMAN is reflective of the economic realities faced by both the marketers and the public. While local refining offers a potential solution to the high cost of fuel in Nigeria, it is clear that there are still uncertainties regarding whether Dangote’s products will offer the kind of relief Nigerians expect. The APC-led government must address these concerns through clear policies that encourage local sourcing while ensuring that pricing remains fair, especially considering the promises made to alleviate economic hardships. Nigerians will be watching closely to see if the government’s economic strategies, particularly in the energy sector, will deliver the promised improvements.
Dr Ademola Adeleke is a Manchester, UK based Nigerian Dental Surgeon.
