Nigerians need affordable fuel

FURTHER clarity emerged on Monday on developments in the downstream petroleum market with the Nigeria National Petroleum Corporation Limited’s confirmation that it had ended fuel importation and will source all supplies from Dangote Petroleum Refinery.

The same day, the Independent Petroleum Marketers Association of Nigeria, another key stakeholder with a network of 30,000 fuel retail outlets, stated it had sealed a deal to procure petrol, diesel, and aviation fuel from Dangote. Similarly, the management of Dangote Refinery has invited officials of the Petroleum Products Retail Outlet Owners Association of Nigeria to discuss direct petrol supply arrangements in the next few days.

These developments signal a cooling of tensions between Dangote Refinery and independent petroleum marketers, who had accused the refiner of locking them out of its fuel supply arrangements despite full deregulation. IPMAN and PETROAN had accused Dangote of unfairly pricing petrol. It claimed it could source imported petrol cheaper than the N990 per litre Dangote was offering. Dangote responded by claiming that any fuel imported at a price lower than domestic prices was substandard.

The petrol price politics playing out in the petroleum downstream continues to heap untold hardship on consumers battling unprecedented pump prices. Nigerians are confronted with the irony of record petrol prices despite a massive boost in local refining capacity with a 650,000bpd refinery. Nigerians need fuel that is affordable and available.
While the government has justified fuel subsidy removal and market deregulation as economic imperatives, most households’ income structure and real earnings cannot support the dramatic increase in petrol base prices from N187 per litre to N1,300 within 17 months.

The impact of prices on food and transportation has been exacerbated by a 70-per cent devaluation of the naira since June 2023 and a fivefold hike in electricity tariffs for certain categories of consumers, including industrials.
Headline inflation, which dropped to 32.70 per cent after a peak of 34.19 in June, is expected to regain its upward trajectory in October.
The absence of a well-structured social safety net and weak transmission of the various ad-hoc arrangements so far made to mitigate the impact of the cost-of-living crisis demands a review of strategies that could see a significant drop in petrol prices. The CNG option that has been proposed requires time for that market to mature with widespread uptake.

Since the Bola Tinubu administration has foreclosed the return of subsidies, the crude-for-naira sales arrangements made with local refiners must work for both the refiner and consumers. The government’s intervention should extend to determining all variables that constitute the pump price to prevent the emergent dominant player from holding the market to ransom and dictating prices.

Petrol prices affect all other prices in Nigeria. The current reforms should not mean that upward increases should be allowed unchecked since the government is heavily invested in the Dangote Refinery through various concessions granted at the construction stage, the NNPCL’s $1 billion stake in the company and the latest crude supply arrangement that eliminates the need to procure foreign exchange. The Dangote Refinery’s tax-free status in a free trade zone should mitigate high product prices.

However, creating an efficient market in a deregulated environment requires multiple players. The failure of the NNPC’s four refineries to resume production while investors are being sought to take over their operations and the time it will take for other big refineries to come onstream means that there will be no real competition for Dangote Refinery soon unless some oil marketers import fuel. That option must be kept open to keep the dominant refiner in check.

To further mitigate the impact of petrol prices on private power generation, the government should consider lowering tariffs on alternative energy products and consumables including solar panels, inverters, batteries, and energy-saving light bulbs.