Evidently, the committee established by the Federal Government to oversee crude oil sales in naira to domestic refineries will have further deliberations on determining the pricing of Premium Motor Spirit (also known as petrol) that is due for distribution by Dangote Petroleum Refinery within a month.
Several officials, consisting of oil marketers and Implementation Committee members for crude oil sales in naira led by Wale Edun, the Minister of Finance and Coordinating Minister of the Economy, have verified that a series of meetings on this matter will be conducted throughout this week and beyond.
They further announced that the committee will establish a structure to set a standard for the Naira amount payable by Dangote Refinery for crude. Additionally, they stated that it would be up to the Federal Government to determine whether petrol subsidies from the plant should be provided or if Nigerians should purchase at market value.
Nonetheless, according to oil marketers’ announcements, the price of Dangote petrol is slated to exceed current pump prices for such a commodity. They emphasized that purchasing from the plant would become dauntingly challenging for dealers if governmental interference regarding pricing does not occur.
The cost of petrol varies between N600 and N700 per litre, depending on the location of purchase within Nigeria. Recent data from the Major Energies Marketers Association revealed that the landing price for PMS is reported to be N1,117/litre.
According to marketers, this represents the true market value of the commodity and they clarify that pricing for products from Dangote refinery should reflect approximately this amount.
Due to the inability of other marketers to access the required United States dollar for petrol imports, only the Nigerian National Petroleum Company Limited is responsible for importing petrol into the country.
During the recent disclosure of NNPC’s audited report and accounts for the 2023 fiscal year in Abuja, Umar Ajiya – Chief Financial Officer of NNPC acknowledged that the oil company is burdened with a significant subsidy on petrol imports.
According to him, the NNPC has been supplying PMS for retail distribution at approximately half of its landing cost as per their agreement with the government.
He clarified that the deficit between the landing price and sales price had been managed via a reconciliation agreement with the government. Furthermore, he stated that no payment for petrol subsidy under any marketer’s name had occurred in approximately eight to nine years by the company.
The official pump price for petrol is approximately N600/litre, however, the average landing cost amounts to around N1,200/litre. Ajiya disclosed that within the first seven months of this year alone, his company had absorbed a “shortfall” amounting to roughly N7.8tn.
It is important for me to clarify that over the past eight or nine years, this company – even in its capacity as a corporation – has not provided any subsidies by giving out money, neither in dimes nor nairas.
Ajiya stated that the NNPC has not disbursed any kobo as subsidy payment and no marketer has been remunerated with subsidy funds.
According to him, the government instructs NNPCL to sell imported petrol at half its landing price. He further stated that sometimes the Federal Government makes payments while it can also offset against other expenses.
The CFO elaborated that they have been procuring PMS at a specific cost and when the government instructs them to sell it at half of the price, there is an evident shortfall known as subsidy.
An agreement has been reached between the Federal Government’s committee tasked with overseeing crude oil sales to local refineries in naira and Dangote Petroleum Refinery for a September launch of petrol.
On October 1, 2024, the Federal Government will start selling crude oil to Dangote Refinery and other local refineries as per their announcement.
Our correspondent was informed on Sunday by reliable sources within the oil marketer community, as well as representatives from both the Federal Ministry of Petroleum Resources and the Presidency, that discussions between government officials and plant management concerning petrol prices from the $20 billion facility would be taking place in upcoming weeks.
According to them, the government’s choices are limited – either provide petrol subsidies without burdening NNPC or permit Nigerians to purchase at market price once it is released by Dangote refinery, which will inevitably be costly.
There is no other course of action available for the government except to provide a subsidy. NNPC has no power in this matter, which I firmly believe. Are you advocating for the demise of NNPC? Why should they be burdened with subsidizing after their explanation from last week? It’s not something that can be sustained over time.
According to an anonymous source from the FMPR, unless NNPC plans on operating without any profit expectations, it is unclear if they will intervene in Dangote’s PMS prices. The source spoke confidentially as they were not authorized to comment on the matter.
When asked about a plausible resolution to the issue, the official suggested that Nigerians should pay for petrol at its actual cost. However, he acknowledged that this could lead to additional complexities since the economy is currently unfavorable and many individuals are struggling financially.
It is either Nigerians bear the actual cost of petrol or subsidies are reinstated by the government. The meeting may discuss this matter, but currently, talks revolve around settling crude supply payment in naira within a few weeks.
According to the source, Dangote’s purchase of crude oil in naira has been finalized and his payment will be sent soon. However, they are still finalizing some details and having meetings every two or three times a week to discuss it further. The framework should be complete by next week for better understanding of how things will proceed.
According to the source, a significant obstacle is the absence of US currency. However, they emphasized that the committee will use Dangote’s exchange rate for crude sales as a reference point.
The official stated that AfreximBank is on board and the framework will be systematically organized.
When asked if marketers had agreed on a price for Dangote petrol prior to its upcoming release, a high-ranking official from the Major Energies Marketers Association of Nigeria provided commentary regarding the development. The official clarified that while association members were willing to load up at the plant, it would pose significant difficulty due to pricing concerns.
Logistics and cost-taking are two primary concerns. We have been using vessels and trucks to transport AGO (diesel) and ATK (aviation fuel). Our system is well-established, so there should be no issues with continuing this process when it comes time for PMS. The approach of obtaining PMS from Dangote has already been established, implemented, and functioning smoothly without any changes needed.
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Regarding pricing, it is the secondary consideration but then comes the inquiry of which currency we will be utilizing. This issue falls within Dangote’s and the government’s purview as there exists a subsidy that has been acknowledged by authorities. It would not be possible for Dangote to single-handedly remove said subsidy, prompting intervention from government officials who are currently refusing culpability in this matter.
In spite of everything, my opinion on the subsidy as a good policy has not changed. The detrimental effects from it persist for the country. Although things are difficult for Nigerians presently, the government ought to acknowledge this and devise alternative solutions if they intend to rid themselves of subsidization. How can these issues be alleviated?
Speaking on condition of anonymity, the official stated that the government had launched an initiative promoting Compressed Natural Gas as a solution to address the financial burden of subsidizing PMS.
President Bola Tinubu aims to eliminate subsidies for PMS by encouraging the adoption of CNG. The uptake for CNG, however, remains slow. To manage inflation and expedite the transition towards alternative fuels like CNG, it is crucial to prioritize its implementation in commercial transportation and long-distance delivery systems for food supplies from rural areas to urban centers.
Is it feasible for the government to sustain a N7.7tn subsidy? I doubt it, and anyone making such a claim is being unjust towards Nigerians. The current administration is ephemeral; they will eventually leave as their term expires, but our nation will persist.”
According to the source, the current policy of the government is that there will be no subsidy and it has not been allocated in this year’s budget. Dangote may not sell below its production cost which raises questions about its selling price. The source suggests waiting for an official stance from the government on this matter.
When asked about the government’s potential intervention, the official responded affirmatively. They stated that while refined crude would remain at its international market price as per normal procedures, an intervention could indeed occur.
According to the MEMAN official, marketers are not willing to purchase petrol from Dangote at international market prices and then sell it at lower pump prices. However, the purchasing behavior of these marketers is still unknown.
Upon further inquiry about the existence of a petrol pricing template by Dangote, the official responded that there is no such thing permitted by law. Instead, they abide by Petroleum Industry Act (PIA), which dictates market prices for diesel and aviation fuel. Currently, there exists no official market price for PMS at this moment in time.
According to Mustapha Zarma, the National Operations Controller of the Independent Petroleum Marketers Association of Nigeria, unless there is government intervention concerning the price of Dangote petrol and lifting the capping policy, purchasing it will not be possible for marketers.
Dangote’s petrol pricing modalities cannot be discussed presently as their product is unavailable for purchase. With the current retail price in Nigeria, it isn’t possible to buy their PMS thus an agreement on pricing can only be reached with the government. Otherwise, there would need to be a policy change regarding capping of petrol prices.
It is currently mandated that petrol prices in Nigeria are capped. Given his status as a profit-driven businessman, it seems unlikely for Dangote to sell his products below market price under these conditions. It’s common knowledge that the NNPC has historically been responsible for subsidizing petrol costs.
Approximately two weeks ago, the finance ministry’s official X page (previously known as Twitter) published a post revealing that the objective of the committee on crude sale in naira was to evaluate advancements related to essential initiatives.
During the meeting, stakeholders such as the Nigerian Midstream and Downstream Petroleum Regulatory Authority, Central Bank of Nigeria, Nigerian Upstream Petroleum Regulatory Commission, and African Export-Import Bank were assigned key responsibilities to guarantee a seamless implementation.
Today, Mr. Wale Edun, who is the Minister of Finance and Coordinating Minister of the Economy, presided over a meeting conducted by the Implementation Committee regarding the switch to crude oil transactions in naira as stated in a post.
During the meeting, advancements on crucial projects were assessed. One of which was the planned initiation of naira payments for crude oil sales to Dangote Refinery commencing from October 1st, 2024.
Additionally, Dr. Zacch Adedeji, Executive Chairman of the Federal Inland Revenue Service, and the Technical Sub-Committee Chair reported that “Under current agreements, we anticipate receiving Dangote’s initial PMS shipment next month.”
This effort coincides with the recent guidance from the president, targeted at boosting Nigeria’s refining capabilities and driving economic progress.
Supplying domestic refineries with crude oil has been problematic for several months, especially following the establishment of Dangote Petroleum Refinery at a multi-billion dollar investment.
Refineries that process domestic crude oil, including the Dangote refinery valued at $21 billion, have frequently expressed dissatisfaction with inadequate supplies of raw materials for their operations.
