Federal Govt Committee prepares to meet  Dangote Refinery over Pricing of petrol

The Federal Government’s committee, established to oversee the implementation of crude oil sales to local refineries in naira, is set to revisit the issue of Premium Motor Spirit (PMS) pricing, specifically for the petrol to be produced by the Dangote Petroleum Refinery next month.

Officials from both the oil marketing sector and the Implementation Committee, led by Finance and Coordinating Minister Wale Edun, have indicated that the panel will conduct a series of meetings over the next few weeks to address this matter.

The committee plans to finalize a framework to set a benchmark for the price the Dangote refinery will pay for crude oil in naira.

The Federal Government will then need to determine whether to subsidize the cost of petrol from this refinery or allow it to be sold at market rates.

Oil marketers have expressed concerns that petrol from the Dangote refinery may be priced higher than current pump prices, which range from N600 to N700 per litre depending on location.

They argue that if the Federal Government does not intervene, it could become challenging for dealers to purchase the petrol at the plant.

According to recent data from the Major Energies Marketers Association of Nigeria, the landing cost of petrol is approximately N1,117 per litre.

This figure represents the true market price, suggesting that petrol from the Dangote refinery might be priced similarly. Currently, the Nigerian National Petroleum Company Limited (NNPC) is the exclusive importer of petrol into Nigeria, as other marketers have ceased importing due to difficulties in securing the necessary US dollars.

At a recent presentation of NNPC’s audited accounts for 2023, Chief Financial Officer Umar Ajiya revealed that the company has been absorbing significant costs related to petrol subsidies.

He noted that NNPC has been providing petrol at about half of its landing cost under a government agreement, covering the shortfall through a reconciliation arrangement with the government.

Ajiya also mentioned that no subsidies have been paid to marketers in the past eight to nine years.

While the official pump price is about N600 per litre, the average landing cost is around N1,200 per litre.

Ajiya reported that NNPC has covered a shortfall of approximately N7.8 trillion in the first seven months of the year.

“I think there is one fact that I need to make very clear, in the last eight or nine years, this company, even as a corporation as it were, has not paid anybody a dime or one naira as subsidy.

“No one has been paid a kobo by the NNPC in the name of subsidy. No marketer has received money from us by way of subsidy,” Ajiya said.
He said the government directs NNPCL to sell the petrol it imports, at a price that is half of the landing price.  According to him, at times the Federal Government pays the money and it could as well net off for it.

“What has been happening is that we have been importing PMS, landing at a certain price, and the government is telling us to sell it at half price. So, that gap between that landed price and the half price is what we call shortfall or we call it a subsidy,” the CFO explained.

It is worth noting that the Federal Government’s committee, established to facilitate the sale of crude oil to local refineries in naira, has finalized an agreement with Dangote Petroleum Refinery regarding the launch of petrol distribution this September.

Additionally, the Federal Government has announced that the sale of crude oil to Dangote Refinery and other local refineries will officially begin on October 1, 2024.

Recently, reliable sources from oil marketing circles, the Federal Ministry of Petroleum Resources, and the Presidency have informed our correspondent that discussions are set to take place in the coming weeks regarding the pricing of petrol from the $20 billion Dangote plant.

The government faces a decision between two primary options: either subsidizing the cost of petrol to avoid placing a financial strain on the Nigerian National Petroleum Company (NNPC) or allowing the price set by the Dangote refinery, which is anticipated to be high, to be reflected in consumer prices.

“The only way the government can intervene is to subsidise. There is nothing NNPC can do. I mean this. Do you want to kill the NNPC? Do you want the company to continue carrying the subsidy burden after the explanation it gave last week? It is not sustainable.

“Except you are saying NNPC will start doing whatever it can and nobody will expect profit from the company,” a source at the FMPR, who spoke in confidence due to lack of authorisation to speak on whether the NNPC would intervene in PMS price from Dangote, stated.

Asked to state a possible solution to the matter, the official replied, “The solution is for Nigerians to pay the real cost of petrol. But then you know, other things will come into play, because, you know, our economy is not that good. Things are not good for everyone.

“However, it is for Nigerians to pay the real cost of petrol or for the government to bring back subsidies. I don’t know, but it’s just those two things. They may consider this at the meeting, but for now the major discussions centre on crude supply in naira, which should be finalised in a few weeks.”

The source said the sale of crude to Dangote in naira had been settled, stressing that “his (Dangote) own portion will be sent to him. But they are still working on the framework, I know, we’ve been having meetings. So we’re having meetings. So hopefully, I think by next week we should be able to get a clearer picture on the modalities. We meet almost every two or three times a week.”

The source noted that one major challenge is the lack of the United States dollar, but stressed that the committee “will benchmark the exchange rate for crude sale to Dangote.”

The official added, “All the framework will be sorted and you know AfreximBank is with us in this.”
Also commenting on the development when contacted and asked if marketers had reached a price for Dangote petrol ahead of its release next month, a senior official of the Major Energies Marketers Association of Nigeria explained that though members of the association were willing to load from the plant, it would be tough due to the price.

“There are two things: the first one is logistics and cost-taking. We’ve been taking AGO (diesel), ATK (aviation fuel) by vessel and truck. By now, we all know ourselves and we understand how it works. So that one is not a problem. When PMS starts, it will not be changed from what we were doing before. The methodology of picking it from them (Dangote) has already been worked out and it is already in place and play.

“Now, when it comes to price, that’s the second thing and the third one is, in what currency are we paying? That one is going to be between Dangote and the government because as the government has just confessed to you, there is a subsidy. So, Dangote cannot clear the subsidy by himself. In order to deal with it, I think the government is trying to intervene, though still in denial.

“However, I do not think the subsidy is a good policy. I do not think anything has changed concerning the subsidy. Subsidy shortchanges the country. The government still must recognise that things are very tough on Nigerians right now and must find a way. If it wants to remove the subsidy, what can it do to mitigate the challenges?”

The official, who also spoke in confidence, said the government had introduced the Compressed Natural Gas initiative to tackle the cost of subsidy on PMS.

“So, what he’s (President Bola Tinubu) trying to do is he’s trying to push CNG which is possible so that he can stop paying subsidies for PMS. The CNG uptake is going a lot slowly; but that is the solution, to move quickly with the alternative CNG, especially for commercial transportation and long-distance movement of foodstuffs from the bread baskets to the urban centres so that you can manage your inflation.

“But, can the government continue with a subsidy of N7.7tn? I don’t think so, and anybody who says that is not being fair to Nigerians. The government is just a temporary group of people in power; they will soon go when their time finishes but our country will still be here.

“It is government policy. Currently, the government policy is that there is no subsidy; there is no subsidy provided for in the budget. How much will Dangote sell for? Dangote is not prepared – I don’t think – to sell at below the cost of production. So, we will need to wait to see what the government will do,” the source stated.

Asked whether there would be an intervention from the government, the official replied, “There may be an intervention, yes. Refined crude will still be at the international market price, as it should be.”

On whether marketers are ready to buy petrol at the international market price form Dangote, the MEMAN official said, “No, marketers will not buy at higher than our pump prices and sell at our prices. But we don’t know how marketers will buy it.”
When probed further to tell if there is a pricing template for petrol now from Dangote, the official said, “No law allows you to have a pricing template; we have PIA (Petroleum Industry Act). The prices of diesel and aviation fuel are the market price. There is no official market price for PMS as we speak, no.”
On his part, the National Operations Controller of the Independent Petroleum Marketers Association of Nigeria, Mustapha Zarma, said unless there is an intervention by the government in the price of Dangote petrol, marketers will not be able to buy it if the policy on capping is not lifted.

“Nobody can start discussing petrol pricing modalities with Dangote now because you cannot buy their product. At the prevailing retail price in Nigeria now, you cannot buy their PMS. So they can only go into agreement with the government on pricing. Otherwise, the policy on capping of petrol prices will have to change.

“There is a cap on the price of petrol in Nigeria now, and I don’t think that as a businessman who is into business to make a profit, Dangote will want to sell his product below the market price. We all know NNPC has been shouldering subsidies on petrol.”

About two weeks ago, the finance ministry’s official X (formerly Twitter) account posted that the committee on crude oil sales in naira was convening to assess progress on major initiatives.

During the meeting, crucial roles were assigned to various stakeholders, including the Nigerian Midstream and Downstream Petroleum Regulatory Authority, the Central Bank of Nigeria, the Nigerian Upstream Petroleum Regulatory Commission, and the African Export-Import Bank, to facilitate a smooth implementation process.

The post read, “The Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, today led the Implementation Committee meeting on the transition to crude oil sales in naira.

“The meeting reviewed progress on key initiatives, including the upcoming commencement of naira payments for crude oil sales to the Dangote Refinery starting October 1, 2024.”

Additionally, Dr. Zacch Adedeji, the Executive Chairman of the Federal Inland Revenue Service, and the Chairman of the Technical Sub-Committee reported that “The first delivery of PMS from Dangote is anticipated next month under the existing agreements.”

It is important to recall that the finance minister previously inaugurated a technical sub-committee to create the framework for selling crude oil to local refineries in naira.

This effort supports a recent presidential directive aimed at boosting Nigeria’s refining capacity and fostering economic growth.

Crude oil supply to domestic refineries has been problematic for several months, especially with the introduction of the multi-billion dollar Dangote Petroleum Refinery.

Domestic refiners, including the $21 billion Dangote refinery, have consistently voiced concerns about inadequate crude oil supply to their facilities.