Nigeria continues crude-for-petrol exchange despite rising fuel landing costs. Learn about the strategy and its impact on the economy.

According to former Chief Operating Officer of the now-defunct Nigerian National Petroleum Company Limited (NNPC), Mr. Bello Rabiu, Nigeria is still involved in a trade where it exchanges 450,000 barrels per day (bpd) of crude oil for around 1 million metric tons (MT) or 1.341 billion liters of petrol through its state oil company.

According to Rabiu, the items are provided through a crude swap called Direct Sale Direct Purchase (DSDP) agreement. The deal involves international traders and NNPC, which has exclusive control over petroleum imports into Nigeria.

As petroleum downstream operators, represented by the Major Energy Marketers Association of Nigeria (MEMAN), revealed that petrol landing costs have risen to N1,117 per litre in Nigeria, an ex-NNPC official commented. Meanwhile, Abiodun Adedipe – Founder and Chief Consultant at B. Adedipe Associates Limited – suggested that difficulties within the Nigerian petrol supply value chain are largely due to a lack of feedstock for local refineries such as Dangote Refinery’s 650k bpd capacity plant which has the potential to satisfy domestic demand.

During a webinar arranged by MEMAN, the trio addressed stakeholders’ concern for an equitable and competitive petroleum downstream market that would maintain reasonable product supplies and prices. In Rabiu’s speech, he asserted that deregulation could not be achieved solely through the removal of petrol subsidies as stated by government officials. He emphasized the necessity to establish a fiercely competitive market atmosphere where businesses can provide products at commercial rates while ensuring adequate supply levels for customers.

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As an independent consultant, Rabiu criticized NNPC’s exclusive importation of petrol and deemed it a violation of deregulation procedures. According to him, the current supply capacity for Nigerian petroleum products stands at one million MT (1.341 billion litres), which is sourced via the DSDP program where both local and international traders are hired by NNPC to transport their crude oil before delivering refined products in Lagos. This monopoly has left no other alternative sources available due to limited foreign exchange options for direct imports – making NNPC Nigeria’s sole provider of PMS today.

As the sole supplier and importer of PMS in Nigeria, NNPC holds a significant influence over petrol prices. Other players merely add their margins to determine pump price based on location. However, this setup has resulted in one dominant player wielding complete control over importation and pricing across the nation – which is contrary to the provisions laid out by Petroleum Industry Act (PIA) 2021. As such, Rabiu suggests that it’s time for a review of current business models and institutional arrangements surrounding deregulation policy so multiple participants can operate under an open competitive environment with numerous supply sources-from both domestic refineries as well as imports-aiming towards delivering products at lowest possible rates at retail outlets or pumps alike while maintaining balance among all stakeholders involved!

Nobody, except NNPC, knows the true expense of importing a liter of PMS into Nigeria under the existing model. Following full price deregulation and complete removal of subsidies for PMS, Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) no longer releases pricing templates to allow citizens to obtain information about official landing costs from Lagos onwards,” he stated. This lack of transparency has resulted in comprehensive unaccountability and significant revenue losses that cannot be gauged due to opaque processes.

We should have transparency regarding both Customs duty and the amount of fuel being imported into Nigeria. NNPC claims that there is no more subsidy in the pricing of PMS, but an observable difference between AGO and PMS open market prices suggests otherwise. Mr. Clement Isong, Executive Secretary of MEMAN stated during a session that current landing cost for petrol stands at N1,117 per litre across the nation with some elements either subsidized or recovering hidden costs within open market prices of PMS nationwide.

He revealed that the landing cost of diesel is N1,157 per litre and Aviation Turbine Kerosene (ATK) is N1,217 per litre. He clarified that administrative costs and freight expenses were among the factors included in these costs. Isong shared plans to publish daily landing cost data moving forward and advised private investors to consider benchmarking while emphasizing there should be an open flow of marketing information.

He stated that MEMAN will now regularly publish the landing cost of PMS, ATK, and AGO for each day. Additionally, they will release a weekly newsletter as well as quarterly industry reports and annual reports from now on.

Adedipe urged the federal government and NNPC to expeditiously declare policy guidelines pertinent to the market regarding operation and commercial arrangements for utilizing the $20 billion facility.

According to him, the Ibeju-Lekki refinery’s entrance into Nigeria’s downstream petroleum sector is a game-changer on its path towards complete deregulation. He further explained that the world’s largest single-train refinery will soon be a significant provider of petroleum products in Nigeria with certain identified consequences.

Adedipe raised an issue about the lack of communication from government policy makers, regulatory authorities and NNPC regarding Dangote Refinery’s operational readiness as well as its new business model and commercial arrangement.

Adedipe encouraged the regulators to facilitate a situation that allows market forces to influence the pricing of petroleum goods and services over an extended period.

He stated that, in the short term, regulatory intervention is necessary to guarantee a seamless integration of Dangote Refinery into the supply chain.

He proposed that this initiative ensure the safeguarding of consumers and the sale of products at prices reflecting their actual cost.

He suggested that it may be fitting to implement guided deregulation and reintroduce a pricing template now in order to promote efficiency and stimulate competitive market behavior.

To pave a better path for Nigeria and its downstream sector, the economist advised that the government work closely with all parties involved to successfully execute the Petroleum Industry Act (PIA) 2021, ultimately reducing expenses associated with product refining or importing in Nigerian markets.

He implored the regulators to involve all relevant parties and release suitable directives ensuring fair competition, which will result in cost recovery for refiners as well as petrol importers.

Adedipe strongly recommended the industry players to join forces against anti-competitive practices, including colluding and exploiting market share in setting petroleum product prices.

He advocated for the implementation of transparency in the downstream value chain so that consumers can understand and appreciate what they are paying for. He further recommended proper handling of price fluctuations through monthly announcements of guided prices to ensure effective management.

Furthermore, the analyst suggested repositioning and providing ample funding for NNPCL Pipelines and Storage Company through a Public Private Partnership (PPP) agreement. This would transform it into an impartial transportation and storage entity that offers open access to NNPC as well as other oil marketing corporations.