The ongoing row between the Nigerian National Petroleum Company Limited (NNPCL) and Dangote Refinery over fuel pricing highlights deep-rooted structural issues in Nigeria’s energy sector and raises broader questions about fuel subsidy policies, local refining capacity, and economic sustainability. At its core, the dispute reflects two opposing visions of how fuel prices should be determined in a country heavily dependent on imported petroleum products and plagued by inefficiencies in domestic refining. The friction between these two major players arises from disagreements over the pricing mechanisms for refined fuel. NNPCL, accustomed to controlling pricing strategies (including the now-defunct subsidy regime), faces a new reality in negotiating with an independent, profit-driven entity like Dangote Refinery. The situation becomes even more complex in light of Nigeria’s recent removal of fuel subsidies – a move that exposes the full brunt of global fuel prices on Nigerian consumers, an issue Dangote has yet to address as it sets its own prices.
The NNPCL halted the importation of Premium Motor Spirit (PMS) aka petrol, after the Nigerian Midstream Downstream Petroleum Regulatory Authority (NMDPRA) discontinued the issuance of import allocation amid the loading of PMS from Dangote refinery. Dangote Refinery, Africa’s largest privately-owned refinery, represents a critical component in Nigeria’s efforts to reduce its dependency on imported fuel. With a capacity of 650,000 barrels per day, the refinery was heralded as a game-changer that could revolutionize Nigeria’s energy sector by addressing decades of underinvestment and mismanagement of its state-owned refineries. On the other hand, NNPCL, Nigeria’s national oil company, controls upstream and downstream activities, and has historically dominated the importation and distribution of petroleum products.
The NNPC released estimated prices of petrol obtained from the Dangote Refinery in its retail stations across the country, stressing that in line with the provisions of the Petroleum Industry Act (PIA), petrol prices are not set by government, but negotiated directly between parties. “The NNPC can confirm that it is paying Dangote Refinery in USD for September 2024 PMS offtake, as Naira transactions will only commence on October 1, 2024. The NNPC assures that if the quoted pricing is disputed, it will be grateful for any discount from the Dangote Refinery, which will be passed on 100 per cent to the general public.” The NNPC stated that fuel from the Dangote refinery will sell for N950.22 per liter in Lagos; N960.22 in Oyo; N980.22 in Rivers; N992.22 in Abuja; N999.22 in in Kaduna; N999.22 in Kano; N999.22 in Sokoto and N1,019 in Borno, based on the September pricing template. A breakdown indicated that the final price from the Dangote refinery was N898.78, while distribution in Lagos is N15 per liter, inspection fee is N0.97, NMDPRA fee is N8.99, with an expected margin of N26.48.
But the new prices have become the source of controversy and anger after Dangote refinery disowned the N898 price per liter announced by NNPC spokesman, Olufemi Soneye. “Our attention has been drawn to a statement attributed to NNPC spokesperson, Mr. Olufemi Soneye, that we sell our PMS at N898 per liter to the NNPC. This statement is both misleading and mischievous, deliberately aimed at undermining the milestone achievement recorded today (yesterday), September 15, 2024, towards addressing energy insufficiency and insecurity, which has bedeviled the economy in the past 50 years.
We urge Nigerians to disregard this malicious statement and await a formal announcement on the pricing, by the Technical Sub-Committee on naira-based crude sales to local refineries, appointed by His Excellency, President Bola Tinubu, which will commence on October 1, 2024,” a statement by Dangote Group Chief Branding and Communications Officer, Anthony Chiejina, said.
Historically, Nigeria’s petroleum pricing has been manipulated by subsidies, which kept fuel prices artificially low for decades. This policy, while initially aimed at cushioning Nigerians from global price volatility, created an unsustainable fiscal burden, costing the government billions of dollars annually. Additionally, fuel subsidies bred inefficiencies and corruption, as fuel importers, often working with government officials, inflated fuel import bills and diverted subsidized fuel across borders. When President Bola Tinubu announced the removal of these subsidies in May 2023, it marked a watershed moment. Deregulation was intended to encourage investment in local refining and allow market forces to determine prices. In this new landscape, Dangote Refinery was poised to become the key player, producing and selling locally refined fuel to the Nigerian market. However, Dangote’s production cost, and by extension, its fuel prices, has raised eyebrows. Reports suggest that the refinery’s pricing might not be as competitive as initially expected, largely due to global oil prices, operational costs, and the complexities of crude procurement. This has led to a clash with NNPCL, which aims to keep fuel prices lower to avoid a potential backlash from a populace already strained by rising living costs. Quite predictably, the Independent Petroleum Marketers Association of Nigeria (IPMAN) have challenged the new pump prices, arguing that it was counter-intuitive for the NNPCL to sell petrol produced locally from Dangote refinery at pump prices higher than imported fuel.
This disagreement exposes a fundamental tension between free-market economics and national policy objectives. While Dangote Refinery, as a private entity, has the right to determine its pricing based on operational realities, NNPCL’s mandate includes ensuring affordable fuel for Nigerian consumers. In a fully deregulated market, Dangote should be able to set prices that reflect the actual cost of refining and distribution, which is often influenced by global market conditions. But Nigeria’s context is unique. With over 133 million Nigerians living in multidimensional poverty, steep increases in fuel prices directly impact the cost of living, transportation, and food prices. The removal of subsidies, while economically necessary, has already led to public outcry as fuel prices soared. This puts immense pressure on NNPCL to negotiate better terms with Dangote or continue sourcing cheaper imported fuel, undermining the very objective of local refining.
The expectations placed on Dangote Refinery are monumental. Beyond providing fuel, it is seen as a national asset capable of reducing Nigeria’s foreign exchange demand (as less fuel would need to be imported) and ensuring fuel availability. However, the refinery’s operational challenges and pricing models seem to suggest that Dangote alone cannot solve Nigeria’s fuel challenges without a broader restructuring of the sector. There are also concerns that Dangote’s refinery could become a monopoly in Nigeria’s fuel sector, giving it undue influence over national energy security. If Dangote is the sole supplier of refined fuel, it could dictate prices in ways that undermine the government’s ability to stabilize the market. The challenge for regulators, therefore, is to ensure that while Dangote operates profitably, it does so within a competitive and transparent framework that protects consumers from price gouging.
The NNPCL-Dangote rift underscores the urgent need for comprehensive energy sector reforms. The government needs to create a robust regulatory framework that ensures fair pricing, transparency, and competition in the refining sector. This would prevent any one player, even Dangote, from having undue market control. To prevent Dangote Refinery from becoming a monopoly, the government should encourage the development of other refineries, both public and private, to foster competition and keep prices in check. While Dangote Refinery is a significant step forward, Nigeria’s state-owned refineries remain largely moribund. The government should prioritize either rehabilitating these facilities or selling them off to private operators who can manage them efficiently. Given the impact of rising fuel prices on ordinary Nigerians, the government must implement social protection programs, such as targeted subsidies for public transportation or direct cash transfers to the poorest households, to cushion the impact of deregulated fuel prices. Finally, reducing Nigeria’s over-reliance on oil is crucial. Investments in renewable energy, agriculture, and manufacturing can help buffer the economy against the volatility of global oil prices, which continue to impact fuel costs domestically.
The row between NNPCL and Dangote Refinery is emblematic of larger structural challenges in Nigeria’s energy sector. While Dangote’s refinery is a step toward self-sufficiency in fuel production, its pricing strategy needs to align with the realities of a deregulated market. At the same time, NNPCL must navigate the delicate balance between ensuring affordable fuel for the public and allowing market forces to operate freely. How these two apparently mutually exclusive actors resolve their differences will shape the future of Nigeria’s fuel pricing and, by extension, its economic stability
