• NNPC stations dispense at N855, others N960-plus per litre
• Stakeholders raise fear over inflation, rise in poverty, production cost
• Listed firms will plunge into loss position, dividend cut by 100%, shareholders lament
Nigerians, yesterday, started their day with a mix of good news and not-so-pleasant one regarding the lingering fuel crisis in the country. On one hand, is the announcement from the Dangote Refinery about the commencement of production, and on the other, is the adjustment in the pump price of petrol due to uncertainty about the downstream operations.
Like many Nigerians, marketers were equally caught unawares, as pump prices were first adjusted in many retail outlets, while others simply stopped the sale of the white product in anticipation of what seemed like the commencement of full deregulation of the downstream sector.
The President of Dangote Industries, Aliko Dangote, yesterday hinted that the company’s Premium Motor Spirit, or petrol, should be in filling stations within the next 48 hours depending on NNPCL, saying, “It is an arrangement which is designed and approved by the Federal Executive Council led by His Excellency, President Bola Ahmed Tinubu.”
“As soon as it is finalised, which he (Tinubu) is pushing, once we finish with NNPC, it can be today, it can be tomorrow. We are ready to roll into the market.”
Insiders familiar with the ongoing negotiations noted that some of the conditions are being reviewed, especially concerning pricing, nature of supply to the market and contract of sale under the Naira-for-crude initiative of the Federal Government.
With a decision yet to be reached as of the time of filing this report, many Nigerians continue to lay siege to fuel stations in search of affordable petrol, even as black marketers take advantage of the situation.
Indeed, the pump price of Premium Motor Spirit (PMS) otherwise called petrol jumped to about N1,000 per litre yesterday as marketers implemented the review on the backdrop of the commencement of petrol sale from the Dangote Refinery.
Both in Lagos where the product was cheapest at about N600 per litre due to proximity to the port and production site as well as places like Katsina up north, pump prices soared to about N960 per litre in some outlets, including those belonging to members of Major Energy Marketers Association of Nigeria (MEMAN) while NNPC dispensed at N855 per litre.
In the early hours of the day, when sources familiar with the PMS pricing template at NNPC revealed the upward review of the pump price, disclosing that NNPC Retail would sell in Abuja at N897, in Kano at N904, while Yola could trade at N924 per litre, both MEMAN and independent marketers were totally in the dark about the development.
The Managing Director of NNPC Retail, Huub Stokman, denied authorising the message announcing the increment, as some marketers shut down their stations while others immediately adjusted their prices.
Mobil fuel station at Agric road, Igando immediately changed its price to N930 per litre while Mobil at Ijesha in Surulere sold at N868 per litre. The station had initially sold at N910 not reflecting the displayed price while a private station First Blefvic Petroleum at Igando was selling at N960 and Mide Petrol at Ikotun, Igando Road sold at N940.
While the NNPC has kept mum, its retail outlets on Murtala Muhammed Way, Yaba, yesterday morning adjusted their price to N833. Despite the increase in the pump price, The Guardian gathered that the government may still incur about N7.8 billion subsidy daily or N235 billion monthly from the previous average of N500 billion, which was earlier incurred.
The actual cost of the white product at the pump was projected at N1,100 per litre. With the current average price of N904 per litre, it means that there is a shortfall of N196 against the 40 million litres of PMS consumed in the country daily.
The Guardian gathered that NNPC had stopped loading across all its depots since the beginning of September immediately after it released a statement acknowledging an initial denial of $6.8 billion debt.
With lingering fuel shortages in the country, Nigerians are looking forward to fuel from Dangote refinery. Dangote, speaking after announcing the rollout, said that the refinery would significantly impact not just Nigeria, but the entire sub-Saharan Africa.
For the Nigerian market, the refinery would supply an initial 25 million litres of PMS into the domestic market this September. The company is now expected to subsequently increase this amount to 30 million litres daily from October 2024.
Once fully operational, Dangote said the refinery is expected to enhance domestic production of Premium Motor Spirit (PMS) and reduce the country’s reliance on imported fuel.
Dangote emphasised that the refinery’s output would meet the demand of both Nigeria and sub-Saharan Africa, easing fuel shortages and stabilising supply. He also expected the refinery’s operations to reduce Nigeria’s foreign exchange burden by decreasing import dependency and contributing to economic stability. Starting in October 2024, Dangote’s company will stop importing polypropylene, fully satisfying local demand.
He also highlighted the high quality of the fuel produced, which will improve vehicle engine longevity. Additionally, the refinery will enable accurate tracking of Nigeria’s petrol consumption, ending practices like round-tripping and false documentation of fuel imports.
The presidency expressed optimism that the Dangote refinery and the other local refineries will be game changers and provide some relief in the country’s current fuel supply crisis.
Special Adviser to the President on media and strategy, Bayo Onanuga, on his official X (formerly Twitter) account yesterday, noted that the coming upstream of these local refineries would benefit the country and its economy on all fronts.
Onanuga said that NNPC cried out recently because it could no longer sustain the petrol price differential on its balance sheet without becoming insolvent and greater implications on the ability of the three tiers of government to function as the state-owned oil company has failed to pay into the Federation
Account, the money that should go to the government. Onanuga said there are no easy choices, noting that something must be done to make NNPC survive and keep the engines of government running as well as petrol flowing at the pumps.
The Nigeria Labour Congress however expressed betrayal by President Bola Tinubu as a result of the recent significant hike in fuel prices. In a statement signed by its President, Joe Ajaero, yesterday, the Labour Centre expressed shock and dismay at the clandestine increase in the pump price of Premium Motor Spirit (PMS), describing it as a “deep sense of betrayal.”
The NLC recalled that one of the reasons for accepting the N70,000 national minimum wage was the understanding that the pump price of PMS would not be increased.
The Congress accused the government of reneging on its promises and implementing “ferocious right-wing market policies” that have driven Nigerians to their “all-time low.”
“In the coming days, the appropriate organs of the Congress will be meeting to take appropriate decisions which will be made public”, the NLC said. Speaking on the development, especially the implications of the prevailing development, renowned energy expert, Professor Wunmi Iledare, highlighted the complexities of Nigeria’s inflation crisis, identifying the country as suffering from both demand-pull and cost-push inflation.
According to Iledare, “Increasing wages and the rising prices of raw materials contribute to higher inflation. Unfortunately, attempting to charge lower than the market-clearing price due to inflation only postpones the inevitable economic challenges.” Iledare pointed out that the current pump price of Premium Motor Spirit (PMS) at N897 per litre remains below the market-clearing price.
“Just look at the price of Automotive Gas Oil (AGO),” he added, drawing a comparison to illustrate his point. He warned that pricing PMS below the market-clearing price could lead to shortages and the proliferation of a black market, both of which could have consequences as severe as inflation itself.
“I would not be overly concerned about the inflationary impact of PMS prices trending toward the market-clearing price until that price is reached, as this is essential for fiscal stability,” Iledare noted.
Furthermore, Iledare emphasized the importance of balancing the three dimensions of the misery index—inflation, unemployment, and negative economic growth. He stressed that Nigeria needs to focus more on effective manpower deployment rather than solely on manpower development to stabilise the economy.
Former President of the Chartered Institute of Bankers of Nigeria (CIBN) and an economics professor at Babcock University Prof. Segun Ajibola said if the dollar cost per litre is converted to Naira, it’s doubtful if the N850 to N1,000 plus per litre at filling stations could have been avoided.
Ajibola warned that if the government remains resolute in fully removing the subsidy on petrol, “the bad news is that today’s hike in the price of petrol may not be the last. He expressed concern over the erosion of real incomes, which has significantly impacted households even before the latest price increase.
Ajibola noted that operators in the real sector are struggling with inflationary pressures and the diminishing value of the Naira.
“Interest rates are consistently on the rise, compounding the cost-push inflation burdening corporate operators and bank borrowers,” he added.
Ajibola painted a grim picture of rising poverty, stating, “Poverty in all its forms is on an upward trend.” He cautioned that any increase in nominal wages might only create a false sense of security, as “salaries earners, pensioners, bank depositors, shareholders, artisans, and others on regular nominal income have suffered significant erosion of their real incomes.”
To address these issues, Ajibola urged the government to prioritize reducing the dollarisation of the Nigerian economy, starting with the oil sector. He stressed the urgency of reviving the nation’s refineries, suggesting that the government explore options for engaging experienced global managers to oversee their turnaround and daily operations under well-considered terms and conditions.
“The government is introducing far-reaching measures to reposition the economy,” Ajibola acknowledged, “but the matter of energy supply must be tackled head-on for these initiatives to have the desired effect.”
He criticised the current electricity pricing by Distribution Companies (Discos), which he believes is pricing Nigerians out of access to power through a poorly implemented banding template. “Now, we face the same issue with petrol,” he lamented.
While stakeholders forecast minimal price drops, the Independent Petroleum Marketers Association of Nigeria (IPMAN) has shifted the focus from pricing to product availability, emphasising the importance of ensuring a consistent supply of petroleum products.
Energy Partner at Bloomfield, Dr Ayodele Oni told The Guardian that the reduction in PMS price would not be substantial as significant price reductions are unlikely as long as crude oil prices remain high.
He mentioned that with the production at the refinery, the nation should anticipate the disappearance of fuel queues shortly after PMS reaches the pumps, which is expected to occur within a week.
“The reduction will not be substantial, as long as crude oil prices are high (and the government does not give subsidy) because crude oil is the base product that is refined. If the base product is expensive, what is refined will be, too. You need to also consider the cost of logistics, haulage etc. The prices will be at, near, or higher than current prices unless the government gives some form of subsidy,” he said.
National President, IPMAN, Abubakar Maigandi commended the refinery and described it as a good move which would enhance the availability of the products. He added that the completion of other NNPC refineries would add more efforts to the removal of scarcity in the country.
“What I want Nigerians to understand is that already the subsidy has been removed and the next thing is to find another solution that will alleviate supply into the masses just the way President Tinubu has introduced this CNG. So, it’s all part of efforts to see that the pressure has been reduced from the PMS but what we are looking at now, let’s first of all have availability. When the product is available, then we can think about the price, provided that the product is available, the price is going to be reduced,” he said.
Energy Expert, Prof. Dayo Ayoade told The Guardian that it will take considerable time for the Dangote Refinery to fully ramp up production, given the vast size of the market. He also pointed out that logistical challenges in transporting the product from Lagos to other parts of the country could lead to temporary scarcity.
“Don’t forget that a lot of our product pipelines are in poor shape, many of them have been destroyed. Some of these products will be taken by tanker. So, scarcity will be with us for a short while, while we get fixed out for logistics, moving the products from Dangote refinery in Lagos to around the country, so that will take some time and you can’t put the time limit on it. It depends on how efficient that NNPC and its cohorts decide to act,” he said.
Ayoade mentioned that the cost of the products would be significantly influenced by the recent decision by FEC allowing NNPC to sell crude oil to the refinery in Naira.
“NNPC is struggling for funding because it’s in a poor financial state, will they even have the naira? if the product is sold to Dangote in Naira, it means that the PMS will also be in Naira, will this influence the price? Well, Dangote must not only get the price of refining the products, but he must also get a profit on top.
“So that’s where the danger lies. I guess there would be some kind of discussion between Dangote refinery, NNPC and the regulators to find a price, but I cannot be confident that it will be at the 600, 700 Naira margin that has been in the market so far, maybe a little bit more, certainly, I don’t think it’s cheaper,” he said.
Billionaire businessman, Femi Otedola reacting to the production of PMS from Dangote Refinery commended Tinubu and Dangote, stressing that Tinubu unwaveringly supported in realizing the monumental achievement.
Reflecting on his long-standing friendship and business partnership with Dangote, Otedola recalled their ambitious attempt 25 years ago to transform Nigeria’s energy landscape through the Blue Star Consortium, which sought to acquire stakes in the Kaduna and Port Harcourt refineries. Despite their vision being thwarted by the government at the time, Otedola commended Dangote’s relentless pursuit of their shared dream.
“Today, you have achieved what many said was impossible,” Otedola said, emphasizing the refinery’s role in ending Nigeria’s dependence on foreign fuel imports and challenging the influence of local cabals who profited from the nation’s economic vulnerabilities.
Otedola also drew parallels between Dangote’s transformation of the cement industry and the anticipated impact of the refinery on the fuel sector, predicting a similar decline in fuel imports. He urged depot owners to adapt to the new reality or face obsolescence.
On how the new hike will affect listed firms, the Managing Director of Academy Press Plc, Olugbenga Ladipo stated categorically that many listed firms would plunge into loss position while dividend payout would be affected by 100 per cent with the current situation. He argued that one major reason most quoted companies have turned moribund in the past was due to rising production costs, occasioned by the high cost of diesel and fuel.
According to him, listed firms are currently faced with a dilemma of not being able to pass over 50 per cent Year-to-date increase in production cost to customers who are already pushing back against price hikes due to poor purchasing power.
President of NewDimension Shareholders Association of Nigeria, Patrick Ajudua said the implication is that FMCG firms still struggling to survive the effect of huge foreign exchange (FX) losses will adjust revenue and expenditure forecast for the current financial year to remain in business.
He decried that the high level of uncertainty in the nation’s operating environment has severely eroded shareholders’ returns on investment in the form of dividends, noting that the new hike would spur fresh exit of companies from the Nigerian market.
A stockbroker with Planet Capital, Dr Paul Uzum said companies that are producing items with elastic demand for the products would struggle to survive, noting that many of these firms are posting losses now.
Black marketers equally took advantage of the situation as they sold a litre for N2000 in Lagos and some parts of Abuja. Also, motorists have hiked their fares as the fuel price has increased. The fare hike has gone up by 50 to 100 per cent in some parts of Lagos. Some motorists said the hike would further increase the suffering of the masses.
