Reduction in Diesel Price: Experts Thumb up for Deregulation, Naira Flotation

Nigeria’s oil and gas industry stakeholders have commended President Bola Tinubu over his administration’s economic policies, attributing the recent reduction in price of diesel to the gains of the policies.

According to them, the president’s fuel subsidy removal and unification of various foreign exchange rates which initially signposted economic hardships, are beginning to bear the desired fruits in the oil sector and, by extension, the nation’s economy.

They explained that the cocktail of monetary policies and measures put in place by the Central Bank of Nigeria, which has helped to strengthen the Naira has turned out to be the game changer for the oil industry.

Buttressing the foregoing, Minister of Finance and Coordinating Minister of the Economy, Mr Wale Edun had on Tuesday April 16th in an interview on Channels Television said the Nigerian economy is moving in the right direction as policies of President Bola Tinubu’s administration have started slowing down food inflation.

The finance minister spoke from Washington DC where he is attending the IMF-World Bank Spring Meetings.

He said, “The Economic Team of President Bola Ahmed Tinubu is here to showcase the progress made so far through his bold, courageous and strategic reforms of the Nigerian economy in order to get it stabilised and attract investment to keep it gr growing again.
“We’ve all seen what has happened in terms of stabilising the exchange rate and inflation which is headed in the right direction.

“If you look closely at the numbers that came out yesterday (Monday), you will see that there is a slowing of the rate of increase of food inflation, things are moving in the right direction, government revenues are up, even oil revenues are up but not as much as we will like.”

It is in the context of this remarkable positive economic turn around that oil industry players situate the recent reduction in pump price of diesel by the Dangote Refinery. They noted that the price reduction was a result of the federal government’s economic policies which have engendered the market realities of a reduction in the price of diesel.

Recall that on April 16, Dangote Refinery said it had reduced the price of Automotive Gas Oil (AGO), also known as diesel, to N1,000 per litre.

“The Dangote Refinery has contributed hugely to Nigeria’s downstream sector since coming on board no doubt but ascribing the sole credit for recent pump price reduction in diesel is share ignorance. People need to understand that the Dangote Refinery is a business outfit that has loans to service and repay. It only reduced, ( not crashed) the price of diesel because the exchange rate dropped. In just a matter of days, exchange rate went from N1300 to N1000 against the Dollar and that’s more than a 20% adjustment. The normal thing is for commodities (including diesel) to reflect that shift/Naira appreciation because if Dangote Refinery don’t shift their price to remain competitive, marketers will buy from other foreign traders. If the naira weakens again today, Dangote diesel and petrol prices will go up automatically,” a popular columnist Ugoji Egbujo explained in a social media post.

Another industry stakeholder faulted a report published by S&P Global that relaxed quality controls for diesel at the Dangote refinery resulted in reduced domestic prices.
According to the report, high-sulphur diesel from the Dangote refinery led to the decision by the refiner to lessen domestic prices by 37 percent.

Low-sulphur diesel is below 500 ppm, and is considered cleaner for the environment; while high-sulphur diesel is used for off-road purposes because it causes progressive damage to the engine of machinery.

The publication said more relaxed quality controls for the diesel supply have helped to undercut imports.

“By permitting Dangote to sell diesel above the 200 ppm sulfur cap, the regulator has provided a route to market for early supplies from the refinery ahead of secondary unit start-ups for gasoline and low-sulfur diesel, deflating local fuel prices and clawing back revenue for the project,” the report said

But an Economist, Lanre Jimoh, dismissed the report as the antics of European refiners who now see Dangote Refinery as a potent competitor whose arrival into the market marks the beginning of a serious threat to their total market domination.

According to Jimoh: “The principal factor that led to the reduction in diesel price is a result of favourable home economic policies which is favourable to the business. Nothing to do with low quality or low standard of diesel production by Dangote Refinery. “

He said further: “You can even expect lower prices in the months ahead with the recent announcement of a policy that will allow local refiners to buy crude oil in both dollar and naira.”

Buttressing this position, the Depot and Petroleum Products Marketers Association of Nigeria, DAPPMAN, in a News Release, commended the government economic measures which have now translated to positive developments for the downstream sector of the oil industry.

“Government policies are now bearing fruits as can be seen from the recent reduction in the price of diesel, a development occasioned by the rising strength of the Naira and the deregulation policy. If the government maintains this momentum, the future looks truly bright for the industry. “