By Jason Enitan Bello
In Nigeria’s intricate economic landscape, few figures loom as large as Aliko Dangote. As Africa’s richest man and head of the Dangote Group, he has made significant strides in various sectors, including cement, sugar, and most notably of recent, oil refining. The completion of the Dangote Refinery, one of the largest in the world, has positioned him not only as a significant player in the oil industry but also as a pivotal figure in the local market for Premium Motor Spirit (PMS), commonly known a petrol.
There are, however, a few things that Nigerians must know about PMS princing. The recent controversy about the pricing of PMS in Nigeria must be thoroughly explained so that the matter can be put into proper perspective. It is important to note that the Nigeria National petroleum Company Limited (NNPCL) has a significant, almost mandatory role to play in the supply and distribution of PMS in the country. It is both a regulatory and a commercial agency at the same time. This places it at the very centre of all conversations about PMS in the country.
Ironically, most of such conversations tend to cast the NNPC as the villain. That is absolutely wrong and such assertion, wherever it was made, could only have been the product of ignorance of what goes on in the oil industry. Quite on the contrary, the NNPC has actually been carrying on its duty with a huge sense of responsibility, consideration and compassion for the average Nigerian. The NNPC has, to its credit, done whatever it did just to ensure that it secures the best for Nigerians out of a bad situation.
Firstly, it is essential to recognize that Dangote is a businessman driven primarily by profit motives. The establishment of the Dangote Refinery was not for a philanthropic endeavour. It certainly not as a Father Christmas. It was a strategic business move aimed at capturing a significant share of Nigeria’s oil market.
With the capacity to refine 650,000 barrels of crude oil per day, the Dangote Refinery was intentionally set up to mine the huge market in Nigeria made possible by a population projected to be above 200 million. And same for other markets beyond the shores of Nigeria.
Unlike the NNPCL which serves both commercial and regulatory purposes, Dangote’s operations are solely profit-centric, focusing on maximizing returns on investment for its shareholders.
Therefore, when analyzing market pricing, it is crucial to view Dangote through the lens of business strategy and NNPC through the prism of dual roles of regulation and commercial operations.
It is on that premise that one sees the narratives that often cast the NNPC as the villain in the pricing of PMS as a failure or inability to recognize the broader implications of market dynamics shaped by private sector players like Dangote. NNPC has historically served as both a regulator and a supplier of petrol in Nigeria, functioning within parameters set by government policies and market demands. While NNPC deals with subsidy regimes and pricing controls, Dangote operates independently of these constraints, setting prices based on market competition and production costs.
Thus, branding NNPC as a villain distracts from the reality that pricing in the PMS market is influenced by multiple factors, including supply chain dynamics, production costs, and competitor actions, role of IOCs, the crucial role of foreign exchange and more.
Last week, Comrade Festus Osifo, President of Trade Union Congress (TUC) and Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), gave a lucid insight into the working of the pricing mechanism for PMS. At the end of the day, it was obvious that the NNPC cannot in good conscience be blamed or castigated in any way for the uproar that occurred recently. Dangote’s primary policy dictated by his profit driven position is actually the big bull in the China shop and there’s absolutely nothing anyone can do about it for now, as succinctly espoused by Festus Osifo.
It is also wrong to claim that the NNPC was operating or seeking to remain as a monopolistic organization. During the media chat, Osifo also explained why it is wrong to imagine or say that NNPC was trying to be a monopoly. On the contrary, other marketers have been pushed aside by the Dangote price.
The NNPC started lifting petrol from the Dangote refinery after a protracted period of price negotiations in mid-September. At the close of loading on the same day, NNPC said it bought PMS from Dangote refinery at N898 per litre. However, the Dangote refinery countered the claim, describing it as “both misleading and mischievous”.
But clarifying the pricing, NNPC said petrol would be sold at N950.22 per litre across all its retail outlets in Lagos, while residents in the northern part of Nigeria will pay more for the product, with those in Borno expected to pay the highest petrol pump price of N1,019.22.
That NNPC is the sole buyer of petrol from the Dangote refinery was because the company was “putting some form of subsidy” on the product.
Osifonsaid: “NNPC takes the product at N950 per litre. They would now offer it to marketers around N700 because if they offer it at N950, we will be buying premium motor spirit (PMS) today at about N1,100 to N1,200 official price, even across NNPC retail stations.
“What that means is that NNPC buys it at a cost, but they would go back and put some level of subsidy in it. That is the reason why other marketers cannot go today to the Dangote refinery to buy,” Osifo said.
Truth is NNPC is not preventing other marketers from lifting the product from the Dangote refinery. If NNPC is buying at N950 per litre from Dangote with all the cost inputted in it and they are now selling at N700 plus to marketers, it means that there is a shortfall that NNPC is managing.
Osifo explained that: “But if you ask TotalEnergies, for example, to buy from Dangote, TotalEnergies would buy from Dangote at almost the same price but TotalEnergies would sell to marketers at maybe N1,000 plus.”
What this means is that petrol sold by NNPC to other marketers would be cheaper while the petrol from TotalEnergies would be more expensive.
And that is why they (marketers) are staying away. It is not that NNPC wants to be monopolistic. That is the true position of things in the petroleum industry.
It has to be admitted, therefore, that Dangote’s pricing policies have inadvertently
alienated traditional marketers, who have been integral in the distribution of PMS across Nigeria. As Dangote enters the market with an insistence of running its business based on international price policy, smaller marketers will struggle to compete with such a policy because these smaller players cannot match Dangote refinery. Thus, it is more accurate to consider the challenges that his strategies pose to existing marketers and not blame NNPC.
Where pricing strategies do not align with equitable access across various market segments, smaller marketers will be pushed out of the equation. And this is where the intervention of the NNPC is most valuable.
In conclusion, Aliko Dangote is first and foremost a businessman seeking to capitalize on a lucrative market opportunity. The complexities surrounding the pricing of PMS extend far beyond villainizing NNPC. They are a nuanced interplay between regulatory frameworks, private enterprise strategies, and market competitiveness. Understanding these dynamics provides a more comprehensive view of the contemporary challenges facing Nigeria’s petrol industry, highlighting the need for collaborative growth strategies that ensure inclusivity and affordable better life for Nigerians.
•Bello, an Energy Security Expert, writes from Abuja