The Nigerian National Petroleum Company Limited (NNPCL), the state-owned oil company, started the crude for naira sale to Dangote Refinery and other local refineries on October 1.

On Friday, October 11, the federal government announced full deregulation of all petroleum products.

The deregulation of the sector is to give access to oil marketers to buy refined petroleum products directly from the Dangote refinery.

It is expected to end NNPCL’s monopoly in fixing prices of petroleum products, allowing for demand and supply mechanisms to determine the prices.

With the full deregulation of the market and commencement of crude oil sale in naira to local refineries, petroleum products is expected to sell at moderate prices. However, this is to be hinged on prevailing macroeconomic conditions.

Pump price from N195 to over N1,000 per litre 

On May 29, 2023,  President Bola Tinubu declared an end to subsidy payment on petrol also known as premium motor spirit (PMS), and since then the pump price has risen from about N195 to over N1,000.

The NNPC-L currently sells petrol at N1,030 pump price while other retail outlets owned by oil marketers sell as high as N1,200.

Buying petrol at the current pump  price of over N1,000 per litre seems not to be going down well with many Nigerians, whose purchasing powers have been eroded by the Tinubu-led policies of fuel subsidy removal and exchange rate unification.

Crude oil is priced at international market rate

This is one of the factors that will determine the pump price of petrol at the retail outlets.

Even though the Nigerian government had initiated naira-for-crude sales to local refineries, the pump price of petrol will be estimated with the global market rate.

“What we are doing is paying the naira equivalent of the dollar component in the crude. So, nothing has changed,” the publicity secretary, Crude Oil Refiners Association of Nigeria (CORAN), Eche Idoko, told The ICIR.

The good thing, however, is that Nigerians are expected to enjoy the benefits of what is obtainable in other countries where the product is fully deregulated, he said.

“We may not have a fixed price, the price may keep moving as things change. When crude (price) is reduced, you will see the price dip, when demand increases like during the winter, you will see prices of petrol rise,” Idoko explained.

An energy expert, Oyeyemi Oke, whilst on Channels TV Morning Brief on Monday, October 14, corroborated that the pricing of petrol would be subject to the vagaries of the international market and also the strength of the Nigerian currency.

Based on the fact that crude oil is a commodity priced at the international market, the price would change in line with global conditions as witnessed in the previous week when it rose due to escalating tension between Israel and Iran, he said.

So, what this means for Nigerians is that if care is not taken, we may find ourselves buying petrol beyond N1,200, N1,500 in line with the increase in the price of crude oil in the international market,” Oke explained.

Naira to dollar value

This is another factor that will determine whether Nigerians will enjoy moderate price in the pump price of petrol.

With the naira arrangement for crude oil sale to local refineries, there should be a bit of ease on the naira which will cause the naira to appreciate, Idoko said, pointing out that it could cause petrol pump price to moderate where the naira appreciates against the dollar.

“The amount of naira you will need to exchange the dollar will reduce. Those are the expectations that we are having but I must point out that these are macroeconomic issues. It is not like a scientific situation where you will have a fixed answer,” he said.

He stressed that the price could go up or down considering other variables besides the purchase of crude in naira and prevailing naira-dollar value.

Idoko believes that this will bring self-sufficiency in domestic refining,  and could positively impact the exchange rate market in the long run.

“For now, I think that no one can give you a fixed answer as to what will be the right price for petrol. But if we look at it based on what crude is doing now (price at the international market) then the price you are seeing right now is what it should be in the market actually,” the CORAN secretary added.

Analysing pricing template

On September 16, the NNPCL released a pricing template for petrol purchased from the Dangote refinery.

The templated Dangote refinery’s PMS gantry pricing was at N898.78. A breakdown of the estimate revealed an N8.99 Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) fee, 0.97 kobo inspection fee, and puts distribution cost (Lagos) at N15 and margin at N26.48.

This brings the total cost to N950.22 estimated pump price in Lagos, N1,019.22 in Borno, N999.22 in Kano, Kaduna, Sokoto and Abuja, N960.22 in Oyo and N980.22 in Imo and Rivers.

Commenting on the pricing template, the CORAN secretary said only the refinery and oil marketers could issue a pricing template. He explained that it might be different from one to the other based on their cost variables.

What was disclosed on September 16 was an NNPCL template, Idoko emphasised.

“They (NNPCL) would have done their P&L (profit and loss), looked at the cost variables and arrived at it. Now, it will be different if the Dangote refinery wants to do its own because its cost variables might be different.

“It will even be different, for instance, if my own company want to give you a price template because our staff strengths, earning power, taxes and overhead might not be the same,” he explained.

Also, since oil marketers will now be buying directly from the Dangote refinery, the NNPCL’s template may not hold sway as the market has been fully deregulated.

It is a free market now, we should understand that it is only when it is regulated that we can have a fixed template that we can apply, Idoko said.

He explained, “There are places you buy a biscuit for N200 and you to go another place you buy it for N180 or N150. If you are buying a bottle of coke at the airport, you could buy it for N1,000, meanwhile, if you are buying outside you buy it for N500.”

He stressed that different variables will affect the pump price to be at a particular range but at a fixed amount even within the same location.

Commenting on the pricing template, Kelvin Emmanuel who shares economic insights asserted that with Dangote refinery’s template, Nigeria will be saving N471 billion every month in payments that would have gone into subsidy.

Although the Dangote has not revealed its pricing template, Emmanuel said to get an idea of the ex-refinery price is to look at the Platt system.

“Today, you have (crude oil) anywhere around $680 or $700 per metric tonne. One metric tonne of PMS is 1,341 litres.

“You simply divide the $700 by 1,341, you get a raw ex-refinery price, you add the premium, anywhere between $40 and $80 divide it by 1341 litre. Add it to the plates and you get the ex-refinery price for PMS from Dangote refinery,” Emmanuel explained on an Arise TV Morning Show on Thursday, October 10.

He blamed the government for building in NMDPRA fees, distribution fees, inspection fees and other levies which make hike the ex-refinery price.

Ex-refinery price means the price at which refineries offer petroleum products to their customers at the refinery gate, based on the pricing mechanism, as approved by the government from time to time while ex-pump price is the price at which petroleum product is sold at a retail station dispensing pump.

On his part, Oke said, apart from the lifting cost, there are other costs like the NMDPRA level, gas infrastructure level and estimated cost of haulage that will determine the landing cost for various retail outlets.

He expressed concern that the Dangote Refinery has not disclosed the actual lifting cost of the product from its refinery.

Although Dangote debunked the NNPCL pricing template, the refinery has yet to reveal its lifting price.

The chief branding and communications officer at Dangote Group, Anthony Chiejina did not respond to enquiries on the pricing template, as it is expected that the refinery can speak to it since the market has been fully deregulated.

“With other marketers having direct purchases of petrol from the Dangote Refinery, I feel there will be a lot much transparency and also competition in terms of product availability which may ultimately affect price,” Oke added.

Rising pump price reality

The pump price of PMS has risen by over 400 per cent from N195 to over N1,000 since Tinubu’s administration, Oke noted, lamenting that the minimum wage has not increased by that percentage if one does back-of-the-envelope mathematics.

The Nigerian government recently raised the minimum wage from N30,000 to N70,000, representing a 133 per cent increment, The ICIR  can report.

“My concern is the fact that some of these policies are being introduced in as much as you hear the government say there are palliatives, or other programmes to eliminate the impact, I don’t think that you and I have seen much change or effect of the so-called palliatives.

“That is where the problem is because it raises the question of sustainability, in terms of removing fuel subsidy 100 per cent,” Oke said.

The energy expert submitted that the current petrol pump price doesn’t align with the earning and purchasing powers of Nigerians considering the rippling effects of inflation.

Other elements in the value chain

Other factors that will determine the pump price of petrol will also be the cost of transporting petrol from the Dangote Refinery, situated in Lagos State, to within and across filling stations across the states.

This cost is not only in naira and kobo but also in the state of infrastructure, diesel or CNG cost for tankers conveying the product.

In moving petrol from Lagos, say to Adamawa, will add up to the unit cost of the PMS, Oke added.