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Dangote refinery kick-off raises concerns over NNPC’s price-control regime

THE Dangote Petrochemical Refinery’s scheduled resumption date for the sale of premium motor spirit (PMS) to marketers is raising further questions about the price control regime of the Nigerian National Petrol Company (NNPCL) despite deregulation of the petroleum downstream sector.

The NNPCL has been enforcing a price-control regime that does not allow major marketers to enforce a market-driven price even when prices go up at the international market.

The management of the refinery has officially shifted the date to start production of premium motor spirit (PMS), otherwise known as petrol or fuel, and the sales of the product to oil marketers to July next month against the earlier announced date, however, there are concerns about where Nigeria is headed on petrol price-pegging and product supply across the country.

The chairman of Dangote Group, Aliko Dangote, confirmed the postponement of the production and sales to newsmen on Monday, June 10.

He said, “We had a bit of delay, but PMS will start coming out by 10 to 15 July. But then we want to keep it in the tank to ensure it settles. So by the third week of July, we’ll be able to come out to take it into the market.”

This decision has again raised questions over price control enforcement by the NNPCL which is not a healthy development in a deregulated market.

Over the decades, the country’s owned NNPCL has been the sole importer of petroleum products and one of the empires fixing the price of petrol.

However with the onboarding of the Dangote refinery to sell petrol products to oil marketers, there are concerns about whether the regulator will fix petrol prices for Dangote refinery as it should be in a regulated market or liberalize it as naturally required in a deregulated environment.

Analysts have argued that it is not clear whether Nigeria wants to practice regulated and deregulated markets at the same time.

Some of them said it is also not certain whether there will be a subsidy scheme for the Dangote refinery, or whether the company will sell at whatever price it deems fit, which is the case in a price-deregulated market.

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“Dangote is a businessman and would not sell below the market. You saw the Customs Comptroller-General confirmed that smuggling is back. How can smuggling not be back when we continue to sell below the market price? Are we waiting for the system to collapse on our heads before we do the right thing? I am tired because we have said these things severally. We are already in a mess, let us not pretend about it. “Former Chairman of the Major Oil Marketers Association of Nigeria, Adetunji Oyebanji told The ICIR.

Already, the Petroleum marketers have started registering with the Dangote refinery to load fuel. In a price-control regime, there are concerns about what the price the marketers who buy from Dangote would sell when NNPCL controls a larger chunk of the market.

These are the real issues with the onboarding of the Dangote refinery, the former chairman of the Society of Petroleum Engineers (Nigeria Council), Joe Nwakwue, told The ICIR.

He said as marketers position to load petrol from the Dangote refinery, it is not clear yet what the regulator will do to ensure that at whatever price sold to marketers, it will not send the wrong signal into the market.

“It may not necessarily be the prices that we have today in the market. I sense that they are going to come out at a price higher than what we are buying currently. That is something that has to be handled and managed carefully,” Nwakwue urged.

He pointed out that with diesel, it was easy for the Dangote refinery to fix the price as the market was already there, fully deregulated.

When the Dangote refinery started supplying diesel to the marketers, the price was about the same as the market price, it later dropped its price and that drove down the market price of diesel.

But with petrol that is still price regulated to some degree, the expert said it would be a different ball game.

“So, we have to see the attitude of the regulator to the onboarding of the PMS from the Dangote refinery.

“I will say that needs to be handled very carefully because it would kind of signal to the market where we are headed. Whether we are headed to a price-deregulated market or we are still stuck in a price-regulated environment.”

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The ICIR reports that with the Dangote refinery onboarding of petrol sales to marketers, Nigeria will now have a dual supply channel, a move away from NNPCL’s monopoly to a market that has an alternative.

The onboarding of the Dangote refinery in lifting petrol products to the oil marketers also raises concern about filling the supply gap to avoid the recurring situation of petrol scarcity, putting the NNPCL on its toes to start considering the objectives of cutting down on fuel imports and exit in the long run.

“On the supply side, it is a good thing as we are getting one more participant in the market and that provides some supply reliability.

“The other issue around supply is that Dangote refinery is going to supply at a price that works for the company,” Nwakwue said.

With its 650,000 capacity nameplate, the Dangote refinery has enough capacity to supply local demands and still has enough for export.

“I imagine that there has to be a trade-off at some point. The NNPC should wind down the volume it has been importing and allow Dangote to fill the gap.




     

     

    “It makes business sense; it will help in our exit from importation because we need to think about exit importation as an objective,” he said.

    Experts have argued that the NNPCL should not exit the importation scheme until another producer or refinery comes on stream.

    ‘I imagine again that the NNPC refineries are coming on stream. So, how we wind down importation and onboard the products from Dangote, the products from the PortHarcourt, Warri, and Kaduna refineries is something somebody has to sit down and schedule.

    “It requires some planning and careful thoughts because there are price implications to ensure that the market does not have a hiccup and that consumers do not have shortfalls or shortages at any point in time.”

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    Harrison EDEH

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