Petrol Price Debacle: Options Before the Nation

By Ademola Ishola

One week after the roll out of the much expected gasoline (a.k.a petrol) from the fuel loading gantry of the behemoth Dangote Refinery, the disquiet that the price template that accompanied its arrival into the market is far from abating.

To the ordinary Nigerians and, indeed, many in the middle and upper echelon of the society who had expected that the locally produced fuel would come with a price regime that would ease the pains of high cost of the imported ones, the prices announced by NNPCL, was not just an anti climax to the much awaited succor, but additional afflictions to an already debilitating financial ailments.

In the price regime announced by the NNPCL, the Dangote Refinery gantry pricing is estimated at N898.78 per litre, using Platts10ppm on Friday 13th September and an exchange rate of N1,637 to the US dollar. Other charges such as NMDPRA fee N8.99, Inspection fee N0.97, Distribution Cost (Lagos) N15.00 and Margin N26.48 all added to take the price of a litre of the Dangote ghfuel to N950 per litre in Lagos, while the prices get higher to as high as N1,019 per litre, depending on the distance between Lagos and the destination of the product.

While Nigerians were left in the quandary, wondering what has hit them, more shock awaited them as Dangote Refinery, hours after NNPCL announced the new price template, came out heavily against NNPCL, describing the announced prices as misleading and mischievous. In fact, the Refinery described the press statement of NNPCL as malicious. One week after Dangote disowned the statement and chided NNPCL for issuing it, the management of the Refinery is yet to come out with what the price should be, while even the Technical Committee set up by The Presidency to midwife the crude for naira transaction that the Refinery said would come out with the actual prices is yet to do so.

So in the wake of this seeming confusion and logjam, Nigerians have had to continue to buy fuel at prices ranging between 950 and 1,200 per litre in the last one week, hoping that some interventions from the authorities would clear all the fog surrounding the pricing issue and, possibly, bring some succour to petrol end users.

But analysts weekend contended that while it may be possible that prices could go down in the months ahead when the Dangote Refinery and other local Refineries start buying crude oil in naira and commencing selling refined products to marketers in naira, they however called for cautious optimism in this regard, noting that the country is gradually entering into the era of full deregulation where market forces will determine what prices petrol will be sold.

Perhaps, this exactly was what NNPCL meant when it said, in its Press Statement on the price template that PMS prices are not set by government but negotiated directly between parties “on an arm’s length basis,” in accordance with Section 206 (1) of Petroleum Industry Act, PIA.

Should the government decide, at the end of the day, to go the whole hug with total deregulation of the sector and leave the players to determine prices, that will be in tandem with the persistent advocacy of key stakeholders in the downstream sector such as the Depot and Petroleum Products Marketers Association of Nigeria, DAPPMAN.

In its many interventions on the state of affairs in the downstream sector, especially since the inauguration of the present government when President Bola Tinubu announced that fuel subsidy was gone, DAPPMAN has thrown its weight behind the policy, insisting that deregulation which will engender competition, level playing field and unhindered interplay of market forces, is the way to go.

While the Association supports all the initiatives to bring local refineries to the mix and sourcing of products locally, it nonetheless, insists that marketers and oil traders must not be compelled to patronise any particular fuel producer as that would stifle competition, foist a monopolistic market on the sector and defeat the resolve to achieve lower and competitive prices through efficiency that can only be achieved through level playing field.

Incidentally, even the Crude Oil Refiners-Owners Association of Nigeria, CORAN, also seems to be on the same page with DAPPMAN on this issue for the first time. In an interview in Sunday Punch, the Publicity Secretary of the Association, Eche Idoko, noted that CORAN will tackle the issue of monopoly in the sector.

He said: ” There is a whole lot of politics here and there. Some people are afraid this (supplying petrol to the market) would make Dangote become a monopoly. Dangote is now a member of our association and will abide by the rules of our association. We would also control chances of monopoly to start with.Then the NMDPRA is there as a major gate keeper to control any form of monopoly.”

Industry experts express satisfaction that Associations such as CORAN, which tended to initially misread the position of DAPPMAN and even criticised it are now coming to terms with the submission for a level playing field and healthy competition as the way out of achieving efficiency, which, in the final analysis, will bring down prices of refined products.

It is even impressive that CORAN is today calling for an all inclusive industry where all players are encouraged to play their roles to ensure a downstream sector that will deliver to Nigerians affordable products in the long run.

“The NNPC should see Dangote and the other private players that have come in as a partner and work with them to solve this issue. Let us all work together and not try to gaslight the public against the other person.”

In working together to bring about efficency and achieve affordable prices for petroleum products, CORAN, which hitherto dismissed the depots and even urged oil marketers and depots owners to sell them has come to terms with the fact that such depots are highly required.

“The NNPC needs a strategic arrangement. We have depots in almost all the states in Nigeria. Load those depots with PMS for rainy days.”

Indeed, the consensus among industry operatives today is that deregulation and a free market are critical to achieving a sustainable realistic prices of products. It is further contended that to achieve this, marketers must not be compelled to source their products from Dangote Refinery alone but from other sources such as other local Refineries that may come on stream soon and even offshore when situation calls for it. The submission is that regulators must not allow monopoly to thrive in the downstream sector.

In fact, the move by the government to allow market forces to determine prices is seen by analysts as a bold step that will promote competition, increase transparency and strengthen corporate governance in the downstream sector of the oil industry. This move, it is said, will encourage investment, innovation and efficiency, which will ultimately benefit both the citizens and the nation.

These experts however are also not unmindful of the current high cost of energy, given the low purchasing power of the citizens and the need for the government to see how this can be ameliorated without doing any damage to the resolve to achieve total deregulation in the industry.

It is in this regard that they commend the government’s decision to sell crude oil to refiners in naira, who will, in turn, sell refined products to marketers also in local currency.

Another government policy which was also set apart for commendation was the decision, after years of its demand by DAPPMAN, by government to stop payment of NPA, and NIMASA charges in dollars. Analysts say DAPPMAN deserves commendation for its untiring advocacy for this policy, just as government also deserves praises for the decision to henceforth levy all those charges in naira.

But as commendable as these policies are, these analysts say the government can do more.

For instance, CORAN believes that government should peg the dollar exchange rate for crude oil transactions for local refineries in addition to the sale of crude in naira as a way of bringing down the price of petrol to, according to the CORAN Publicity Secretary, as low as N600 per litre.

Said Idoko: ” If the government intervenes by way of naira sales and pegging the dollar exchange rate for crude transactions at a reasonably low rate (he suggests N1,000 to the dollar), you will see an improvement. This is different from paying money as subsidy. You are only putting mechanism in place to ensure the product is cheap.”

“With this intervention, we can keep price under N600, maintaining this N1,000 as the dollar benchmark for 36 months, after which we will review upward.”

Ernest Ebong, a retired official of one of the International Oil Companies, submitted last Friday on a Social media platform that the federal government, to make a success of the crude for naira policy would have to work hard and focus on achieving the 2 million barrels per day or more production in the next two months.

He noted that to make a success of the policy, the crude oil must be available in the first place. His words: “Years back, when Nigeria was producing almost 2 million barrels daily and the onshore production was at its peak using the Joint Venture arrangement, the federal government accrued crude oil was as high as 1.3 million barrels a day. Given the unfortunate situation in the Niger Delta, IOCs have since relinquished their onshore assets and the nation today is bleeding for it. I’m not sure what accrues to the government today is up to 400,000 barrels per day. Is it from this figure that the government will make 350,000 barrels a day available to Dangote and even more to other refiners and yet sell to foreign buyers to boost our foreign reserves? Government needs to increase the current 1.35 million barrels per day production immediately through incentives to producers and stemming the tide of crude oil theft if we must make a success of crude for naira policy.”

Operatives in the industry say that while the International Oil Companies, IOCs and independent producers are mandated statutorily to give priority for crude sale to local refineries under the Domestic Crude Supply Obligation, DCSO, clause in Section 109 of the Petroleum industry Act, PIA, their long term contractual obligations to foreign oil traders makes immediate seamless implementation of the clause challenging.

On the whole, Energy experts agree that with government’s strong resolve to pursue full deregulation and allow a free market regime and competiton, Nigeria is on the right track, even if citizens would still have to make further sacrifice before arriving at the Promised Land.

*Ishola, an Energy Analyst and Journalist, wrote in from Lagos