The Nigerian petroleum market is bracing for another potential surge in petrol prices as the landing cost of imported Premium Motor Spirit (PMS) has experienced a significant increase. This rise, coupled with the Dangote refinery’s recent suspension of naira-denominated petrol sales to local marketers, has sparked concerns about the future of fuel prices in the country. The suspension stems from an apparent disagreement between the refinery and the Federal Government over the continuation of the naira-for-crude deal, which allowed Dangote to purchase crude oil with naira and sell refined products in the same currency. The halt in naira sales has already impacted the market, with depot prices rising and some filling stations reportedly stockpiling fuel in anticipation of further price hikes.
The core issue revolves around the naira-for-crude deal, which has been credited with Dangote’s ability to consistently lower petrol prices in recent months. However, the refinery argues that the deal’s suspension has created a mismatch between its sales revenue in naira and its crude oil purchase obligations, which are denominated in US dollars. This discrepancy has forced the refinery to temporarily halt naira sales to align with its procurement currency. While the arrangement benefited consumers with lower prices, it also put pressure on other market players, particularly fuel importers who were forced to sell below cost, leading to significant financial losses. Depot owners, who were also negatively impacted by the price war initiated by Dangote Refinery, oppose the reinstatement of the naira-for-crude deal.
The recent increase in the landing cost of imported petrol further complicates the situation. Data from the Major Energies Marketers Association of Nigeria (MEMAN) reveals an N88 per litre increase in landing cost within a single week, pushing the total to N885 per litre. This figure surpasses both the current pump price of N860 per litre and Dangote’s ex-depot price of N815 per litre. The rise in landing cost is largely attributed to the increasing volume of imported petrol, a trend observed in recent weeks with multiple vessels carrying millions of litres of PMS docking at Nigerian ports. This surge in imports comes at a time when the Dangote refinery, a potential domestic supplier, has suspended naira sales, potentially creating a reliance on more expensive imported fuel.
The current market dynamics underscore the challenges and complexities of transitioning from a regulated to a deregulated downstream petroleum sector in Nigeria. MEMAN acknowledges the resistance to the change, particularly from those accustomed to price controls. The organization emphasizes the importance of adaptation and trust in the process, advocating for robust regulation, industry collaboration, and public transparency to ensure a smooth transition. The deregulation aims to foster efficiency, transparency, and long-term economic growth by allowing market forces to determine prices, rather than government intervention. While the short-term effects may include price fluctuations, proponents of deregulation argue that it will ultimately benefit consumers through increased competition and improved service delivery.
Several stakeholders have weighed in on the unfolding situation. The Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN) has cautioned against the naira-for-crude deal, citing potential risks to Nigeria’s foreign exchange stability and foreign direct investment. They argue that such transactions are typically conducted in US dollars due to the currency’s stability and global acceptance. DAPPMAN supports strengthening the naira but advocates for policies that address the root causes of the currency’s weakness. Meanwhile, the Petroleum Products Retail Outlets Owners Association of Nigeria (PETROAN) has urged the government not to allow dollar-denominated fuel sales within Nigeria, expressing concerns about its potential to further weaken the naira and exacerbate inflation.
The situation remains fluid, with the Federal Government yet to officially comment on the Dangote refinery’s decision to suspend naira sales. The potential for further price increases looms large, as the interplay between the rising landing cost of imported fuel, the Dangote refinery’s stance on naira sales, and the government’s response to the situation will ultimately determine the direction of petrol prices in Nigeria. The market is currently characterized by uncertainty, with stakeholders awaiting clarity on the future of the naira-for-crude deal and the government’s long-term strategy for managing fuel prices in a deregulated market. The ongoing debate highlights the delicate balance between ensuring affordable fuel for consumers and creating a sustainable and profitable environment for businesses operating within the downstream petroleum sector.
