When Nigeria’s largest single-train refinery–the Dangote Refinery–paused its sales for several days, panic would have set in. Nigeria has a long and torrid history with fuel scarcity and queues despite being one of Africa’s largest oil producers. Despite the pause, Nigeria’s petrol stations remained open. Prices remained generally steady, and petrol queues at fuel stations stayed orderly. However, this resilience did not come from the Dangote Refinery. Instead, it was from an unsung network of independent marketers, depot operators and importers that have supported Nigeria for decades.
This latest episode of an averted crisis reveals a much deeper truth for Nigeria’s born-again downstream oil sector: that Nigeria’s energy sector will never be secure if there’s one single player, no matter how big.
One Faulty Basket
The Dangote Refinery is capable of processing 650,000 barrels per day once it achieves full operational capacity and has been labelled as Nigeria’s ticket to energy independence. Yet, it has taken legal action to block petrol imports, suing the regulators for issuing import licences to rivals. This shows a troubling agenda: market domination by any means necessary. The refinery claimed its outputs met domestic demand, but did not allow independent inspections to determine the truth. When the refinery stopped its sales, Nigeria’s stability did not rely on the $20 billion infrastructure, but on the decentralised ecosystem of smaller players that imported and distributed petrol. One marketer told me that “vesting all energy eggs in one basket invites disaster, price manipulation, supply chain issues and systemic complacency.” History has shown us that monopolies, even those that were born from patriotism, breed inefficiency. An example is the NNPC refineries that have not operated for decades and instead led Nigeria to rely on imports. The Dangote Refinery also seems like it is following this pattern; the early products have faced scrutiny for quality issues. And it has used the law to try to invalidate the import licences of its competitors, threatening to replicate the same dependency it was supposed to resolve.
Making a Case for a Diversified Market
Nigeria’s reprieve from the crisis last week underscores how vital a pluralistic energy sector is. The same independent marketers that are dismissed in the market and called mere middlemen are in fact Nigeria’s shock absorbers. They source fuel locally and internationally, store it in depots and distribute it through their networks to the remote ends of Nigeria while selling in Naira and shouldering the foreign exchange shocks.
They have an agility that contrasts with the centralised model of the refinery as the sole seller of petrol in Nigeria. If the centralised model is unchallenged, it can leave Nigeria hostage to technical failures, corporate whims and labour disputes. The Federal Competition and Consumer Protection Commission has warned that monopolies stifle innovation and inflate prices, harming consumers and the economy.
The Petroleum Industry Act was supposed to prevent this by liberalising the sector. But, its implementation has seemingly faltered. The NMDPRA, which is tasked with balancing local refining and market competition, seems conflicted at best and ineffective at worst. The Dangote Refinery is a marvel of industrial ambition and risks becoming a monopolistic chokehold on an important sector of Nigeria.
Three Steps Toward Smarter Regulatory Activities
The Nigerian government needs to act decisively to avert any future potential for a monopoly. The Dangote refinery did not sell petrol to Nigeria, and the country was fine.
Enforce Transparent Metrics for “Sufficiency”
The NMDPRA needs to adopt third-party audited benchmarks to determine competitive pricing and establish when imports are necessary. Today’s criteria for declaring a supply shortfall are opaque, and extra pressure falls on the independent marketers to stabilise the market. The opaqueness also enables arbitrary decisions that tend to favour Dangote’s claims over the market reality. Nigeria needs independent auditors to verify production data and ensure accountability.
More Power to the FCCPC
Nigeria’s antitrust watchdog, the FCCPC, needs more power, political and otherwise, to investigate monopolistic practices in the petroleum sector without fear of retaliation from strong market participants. The FCCPC’s exclusion from licensing disputes leaves a void in regulatory activities. The PIA needs to align with the FCCPC to ensure the industry serves the public.
Invest in Modular Refineries and Market Diversity
Nigeria needs smaller-scale agile refineries that would decentralize oil production in Nigeria. This will ultimately reduce import reliance and spur innovation. There must be an incentivisation of these projects through tax breaks, infrastructure support and streamlined licensing.
Nigeria stands at a critical inflection point. We need more refineries that don’t have hegemonistic ambitions. Last week’s non-crisis crisis showed that Nigeria’s resilience is in its diversity. Even as the Dangote refinery prepares to shut down for maintenance, it is the entire market of importers, depot operators and independent marketers that will rally to supply the market and prevent scarcity and market failure. The government’s task is not to crown a king but instead, cultivate a Nigeria of multiple refineries, importers and distributors working and competing to provide Nigerians with the best product in the market.
