THE RIPPLE EFFECTS OF COMPETITION

The decision by NNPCL to respond quickly to Dangote Refinery price slash signifies a turning point in Nigeria’s oil market dynamics, argues DAMILARE OLOWE-TIAMIYU

In an encouraging turn of events last week, the Nigerian oil landscape witnessed a significant shift when, first, Dangote Refinery announced a reduction in petrol prices. This move was quickly followed by the Nigerian National Petroleum Corporation Limited (NNPCL), which responded with an even more substantial price cut given its status as a national oil company and its concomitant social cum welfare concern for Nigerians. The triggering of this new price regime competition between the two major players in the distribution and marketing sub-sector of Nigeria’s oil industry, not only highlights the dynamics of market forces but also showcases the numerous economic advantages that can arise from a competitive market, ultimately benefiting the average Nigerian consumer.

The following is a brief recap of what went down last week. The NNPCL announced a reduction in the ex-depot price of Premium Motor Spirit (PMS) popularly called petrol to N899 per litre in what industry watchers saw as a direct response to Dangote Refinery’s price of N899.50k.

For clarity, ex-depot price is the amount marketers pay for the product at the depots.

NNPCL new price is down from the former N1,020, and it comes on the heels of the

discount announced by Dangote earlier in the week which it explained was for the holiday period. The discount price was N970. Retailers will, however, sell petrol for N935. “To alleviate transport costs during this holiday season, Dangote Refinery is offering a holiday discount on PMS. From today, our petrol will be available at N899.50 per litre at our truck loading gantry or SPM. Furthermore, for every litre purchased on a cash basis, consumers will have the opportunity to buy another litre on credit, backed by a bank guarantee from Access Bank, First Bank, or Zenith Bank,” the company announced. 

There is, however, a snag as the reduction is to be executed only by an individual company that Dangote described as a partner in the deal — MRS, throughout the country. 

“To ensure that the price reduction gets to the end consumer, we have signed a partnership with MRS to sell petrol from its retail outlets nationwide at N935 per litre,” the

group said on its official X account.

But the NNPCL’s price cut will be executed by all and sundry as the Petroleum Products Retail Outlets Owners Association of Nigeria (PETROAN ) announced.

 “The Nigerian National Petroleum Company Limited has taken a significant step in response to the competitive impact of deregulation in the downstream sector,” PETROAN’s Natil Public Relations Officer, Dr. Joseph Obele, said.

 He added that: “The company recently reduced the ex-depot price of Premium Motor Spirit from N1,020 to N899 per litre.

 “The price reduction by NNPCL is seen as a response to the competitive impact of deregulation, which has led to increased competition in the downstream sector.”

PETROAN said: “This price has already commenced in Lagos, and it will be offered nationwide from Monday.”

This new price competition regime, it must be emphasised, is made possible by the dynamics of market forces.

Admittedly, competition is the engine that drives innovation, quality improvements, and price reduction—all, elements that are particularly crucial in sectors like petroleum. When Dangote Refinery, which has positioned itself as a key player in the oil industry, made its decision to reduce petrol prices, it set off a chain reaction. Every reasonable stakeholder will naturally be attracted to this new offering. It is gladdening to note that the NNPCL did not for a second display signs of lagging behind as it effectively and promptly responded with even more than commensurate cuts in its price. That NNPCL quickly reassessed its pricing strategy to keep pace with goings on in the market is a fundamental display of its loyalty and concern for the good and wellbeing of Nigerians. The happy thing is that at the end of the day, this back-and-forth movement illustrates a classic scenario of competitive pricing, where businesses strive to offer the best value to consumers.

One of the most immediate advantages of this healthy competition is the tangible savings that consumers experience at the pump. Petrol price cuts translate directly into lower transportation costs. The average Nigerian, whose daily life is significantly affected by fuel prices, will benefit from decreased expenses in personal and public transport. This dynamics could lead to an increase in disposable income for households, allowing consumers to allocate their finances towards other essential needs such as food, education, and health care.

Lower petrol prices have a cascading effect on inflation rates. When transportation costs decrease, it often leads to reduced prices for goods and services. In Nigeria, where fuel is a principal driver of logistics and distribution, the price reduction implemented by these refineries could contribute to a moderation in inflationary pressures on the economy. A stable or reduced cost of living can enhance the quality of life for many Nigerians, fostering an environment where people can thrive rather than merely survive.

Furthermore, the price wars encourage investment. Lower operational costs can prompt small and medium enterprises (SMEs) to expand their businesses. When fuel prices drop, transportation and operational costs for businesses decrease, allowing them to reinvest savings into their growth strategies. This could catalyze job creation, leading to a robust economy that benefits the nation as a whole.

As manufacturers and producers observe a more favorable cost of transport and operations, they may be encouraged to produce more locally instead of relying on imports. This attention to local production could potentially create a more self-sufficient economy, bolstering local industries and enabling them to compete more effectively on both domestic and international fronts.

In the long run, competition fuels innovation. To remain competitive, companies like the NNPCL and Dangote Refinery must continually seek ways to improve efficiency and reduce costs. This pursuit of operational excellence can lead to the adoption of advanced technology, sustainable practices, and improved customer service. Consequently, as these companies innovate, the overall quality of products and services in the market improves, creating a win-win scenario for consumers.

Additionally, the actions taken by NNPCL and Dangote might prompt regulatory bodies to create a more balanced market. As more stakeholders enter the market, the need for sound regulatory mechanisms will become increasingly important. This could lead to better governance and management of resources, ensuring that consumers reap the benefits of competitive practices while maintaining fair market conditions.

Socially, the implications of reduced fuel prices can foster community development. With lower transport costs, people can engage more with their communities, whether for work, education, or leisure. It encourages a culture of mobility which is critical for social engagement and economic participation.

However, while the initial price reductions are a moment of celebration, it is crucial for stakeholders to remain vigilant about potential market fluctuations that could follow. Economic conditions like crude oil price changes and global market shifts could impact the sustainability of these reductions. Continuous collaboration among industry players, government, and regulatory bodies will be necessary to ensure that these competitive practices can be maintained in the long term.

In conclusion, one must restate that the recent decision by NNPCL to respond quickly and positively to Dangote Refinery petrol prices slash, signifies a turning point in Nigeria’s oil market dynamics. It underscores the benefits of healthy competition, which can lead to reduced costs for consumers, stimulate economic growth, and foster a spirit of innovation. As Nigerians navigate these changes, the collective advantages of lower petrol prices should serve as a catalyst for broader economic transformation, leading to enhanced living standards and a more sustainable economic future.

 Olowe-Tiamiyu, an Energy Security Consultant, writes from Abuja