Nigeria’s Continued Reliance on Fuel Imports Despite Deregulation and Domestic Refining Capacity
Nigeria’s dependence on imported petroleum products persists despite the removal of fuel subsidies, the implementation of market reforms, and the commencement of operations at the Dangote Refinery. The Central Bank of Nigeria (CBN) disbursed a substantial $1.25 billion to oil sector operators for fuel imports and related expenses between January and September 2024. This figure represents a significant 40% increase compared to the $891 million allocated during the same period in 2023. This continued reliance on imports raises concerns regarding the effectiveness of policies aimed at boosting domestic production and reducing the nation’s vulnerability to external market fluctuations.
The CBN’s allocation of $1.25 billion for fuel imports comes at a time when domestic refining capacity is theoretically expanding. The Dangote Refinery, with its significant production potential, should logically reduce the need for imports. However, marketers appear to prefer importing fuel, potentially due to existing contractual obligations, logistical challenges in distributing locally refined products, or pricing differentials that favor imports. This preference for imports undermines the intended impact of the Dangote Refinery and raises questions about the competitiveness of the domestic refining sector.
The substantial expenditure on fuel imports exerts significant pressure on Nigeria’s foreign exchange reserves and contributes to the volatility of the naira against the US dollar. Fuel imports consume a large portion of the nation’s forex earnings, leaving fewer resources for other critical imports and investments. This situation highlights the urgent need to transition towards greater self-sufficiency in petroleum product production to stabilize the nation’s economy and reduce its vulnerability to external shocks.
A detailed breakdown of the monthly forex allocations reveals fluctuating import volumes. While the CBN disbursed varying amounts each month, the overall trend indicates a continued reliance on imports. The data underscores the need for a comprehensive investigation into the factors driving this persistent demand for imported fuel despite the availability of domestic refining capacity.
The substantial cost of fuel imports is reflected in the National Bureau of Statistics’ data. In the third quarter of 2024, Nigerians spent a staggering N5.14 trillion on importing mineral fuels, representing 35% of the total import bill for the period. Similarly, in the second quarter of 2024, petrol imports reached a record high of N3.22 trillion, marking a 100% increase compared to the same period in 2023. These figures highlight the heavy financial burden imposed on the nation by its dependence on fuel imports.
Several factors contribute to the high cost of petrol in Nigeria, even with local refining capacity. Downstream players point to dollar-denominated charges on locally refined petrol and the cost of importing crude oil as key drivers of high prices. Charges such as jetty fees, levied by the Nigerian Maritime Administration and Safety Agency (NIMASA), are still denominated in dollars, adding to the cost burden. Industry stakeholders, including the Crude Oil Refinery Owners Association of Nigeria (CORAN), advocate for these charges to be denominated in naira to reduce costs and support the domestic refining sector. The transition to naira-based charges could potentially alleviate some of the cost pressures and encourage greater utilization of locally refined products. This shift could also contribute to stabilizing the price of petrol in the domestic market.
