The recent discourse over Nigeria’s fuel market has spotlighted one key question: Can imported fuel legitimately be sold for less than the price of fuel refined at the new Dangote Refinery? This debate has sparked controversy, with players from the Independent Petroleum Marketers Association of Nigeria (IPMAN) to politicians weighing in. Amidst claims of illegal refineries, foreign-owned plants linked to prominent figures, and under-the-table deals, the truth behind Nigeria’s fuel pricing structures has become more complex than ever. This article provides an in-depth analysis of the factors affecting fuel prices in Nigeria, examining whether imported fuel can indeed be cheaper than domestically refined fuel from Dangote’s $20 billion refinery.
The Dangote Refinery: A Game Changer for Nigeria?
Located in the Lekki Free Zone, Lagos, the Dangote Refinery is the largest single-train refinery in the world, with a 650,000 barrels-per-day (bpd) capacity. The facility was constructed to meet Nigeria’s fuel demand and reduce the country’s reliance on imported petroleum products, which cost Nigeria billions in foreign exchange annually. Since its commissioning in 2023, the refinery has set its prices slightly below those of the Nigerian National Petroleum Company (NNPC) but has faced competition from imported products marketed at lower prices.
The price of Premium Motor Spirit (PMS), or petrol, at the Dangote Refinery is reportedly around N960 to N990 per litre, depending on logistics factors like delivery method and volume purchased. This pricing has raised questions among marketers and consumers alike, particularly as imported fuel has occasionally been offered for less than Dangote’s rates.
The Economics of Imported Fuel vs. Domestic Refining
Factors Influencing Fuel Import Costs
Fuel importers incur several costs that theoretically make importing fuel more expensive than refining domestically. Key costs include international market prices, shipping and logistics, insurance, foreign exchange rates, and import duties. Given these additional expenses, it would seem improbable for imported fuel to be sold at prices lower than those set by Dangote.
However, several factors have created conditions under which imported fuel is occasionally priced lower:
- Global Oil Price Variability: International oil prices fluctuate, and Nigerian importers sometimes purchase fuel during periods of low global prices, temporarily allowing them to sell at lower prices than domestic refineries.
- Exchange Rate Management: The exchange rate volatility in Nigeria also affects pricing, as importers with access to lower exchange rates may import fuel at relatively lower costs. This exchange rate manipulation is a significant issue, given Nigeria’s dual-rate system.
- Potential Subsidisation Abroad: Some exporters, particularly those in regions like the European Union, where surplus fuel is often available, can offer exports at competitive rates, which may, at times, undercut domestic pricing.
Controversial Ownership in Fuel Importation and Refining
Allegations of Political Ties to Foreign and Local Refineries
Nigeria’s fuel import industry has long been mired in allegations of political interests and offshore ownership, leading to concerns about conflicts of interest and monopolistic practices. Recently, it has been reported that some Nigerian politicians and business magnates, allegedly including members of the Tinubu family and other political elites, have stakes in refineries in countries like Malta. For instance, Oando, one of Nigeria’s largest energy companies, is said to own refineries in Malta and other locations, and these international links have raised suspicions that some of these stakeholders might be involved in undercutting local fuel prices.
These allegations, although unproven, fuel the debate over imported fuel pricing. If Nigerian political figures are indeed involved in foreign refineries, they may be able to import fuel into Nigeria at lower prices, potentially giving them leverage to undermine domestic refineries like Dangote’s.
Local Illegal Refineries in the Niger Delta
Adding another layer to the controversy is the issue of illegal refineries in the Niger Delta. These unregulated operations are reported to produce substandard fuel, which is then sold at considerably lower prices. While authorities periodically crack down on these refineries, many of them are allegedly owned by influential figures who use political connections to evade law enforcement.
This illegal fuel often finds its way into the market through independent marketers, contributing to lower fuel prices that compete with Dangote’s refinery output. However, the sale of such substandard products raises concerns over environmental damage, health risks, and the undermining of legitimate refining efforts.
The Role of NNPC and Government Regulations
The Nigerian National Petroleum Company (NNPC) is a critical player in the fuel pricing structure. As Nigeria’s state-owned oil company, NNPC is responsible for setting benchmark prices for domestically refined products and managing the allocation of foreign exchange for fuel importers.
NNPC’s pricing policies are designed to support local refineries, including Dangote’s, by discouraging the undercutting practices associated with foreign imports. However, recent deregulation has opened the market, allowing independent importers more flexibility. This deregulation has enabled imported fuel to enter the market at varying prices, complicating efforts to stabilise domestic fuel costs.
The “Decade of Gas” and NNPC’s Push for Local Refining
The Nigerian government’s “Decade of Gas” initiative has aimed to transition Nigeria to a gas-powered economy, encouraging investments in refining capacity and modular refineries. While the initiative aligns with Dangote’s long-term goals, challenges remain. Modular refineries and other local facilities have been slow to scale up, leaving a significant gap between domestic demand and supply.
NNPC’s backing of the Dangote Refinery reflects the government’s commitment to reducing import reliance, yet imported fuel at lower prices continues to compete with domestic refining efforts, especially when coupled with political influences in the import market.
Unregulated Pricing and the Question of “Stolen Crude”
A controversial topic that has emerged in the pricing debate is the issue of crude oil theft. In Nigeria, stolen crude has frequently been siphoned and sold to illegal refineries. While it is difficult to trace these products directly, the low price of fuel refined from stolen crude often disrupts the legitimate market, affecting both NNPC’s and Dangote’s pricing.
Reports suggest that some illicit operators obtain crude oil at a fraction of the legal cost, enabling them to refine and distribute fuel at cheaper rates. This illegal activity poses a direct threat to NNPC and licensed operators, who bear the full cost of legal crude.
Potential Impact of a Stricter Regulatory Environment
To counter this issue, the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) has increased its efforts to identify and eliminate substandard fuel from the market. However, enforcement remains inconsistent, often allowing illegal operations to persist. A more robust regulatory framework could address price manipulation and eliminate substandard products, though it will require political will and transparency.
Can Imported Fuel Be Sold for Less? The Verdict
In a regulated market, it would be improbable for imported fuel to be sold cheaper than domestically refined fuel when accounting for the cost of import logistics, taxes, and foreign exchange. However, Nigeria’s current market realities include a range of factors that disrupt traditional pricing logic:
- Political and Private Ownership of Foreign Refineries: The involvement of Nigerian elites in foreign refineries adds a level of complexity to pricing, as these figures may have incentives to import fuel at lower prices, undermining local players.
- Substandard and Illegal Fuel: The sale of substandard fuel from illegal refineries significantly affects the market, enabling some sellers to undercut prices legally set by NNPC and Dangote.
- Currency Manipulation and Global Price Volatility: Fluctuations in the exchange rate and global oil prices allow for price discrepancies, with importers occasionally benefiting from lower rates.
While imported fuel may temporarily be sold at lower prices than Dangote’s due to these factors, a structured regulatory environment could stabilise the market. Stricter oversight of imports, exchange rates, and illegal refining activities would enable domestic players like Dangote to compete more effectively, ultimately supporting Nigeria’s goal of energy independence.
The Path Forward
The question of whether imported fuel can genuinely be sold for less than locally refined fuel is complex and mired in controversy. From alleged political ownership in foreign refineries to the issue of stolen crude, various elements contribute to an unpredictable pricing structure.
The Dangote Refinery remains a cornerstone of Nigeria’s energy independence strategy, but for it to reach its full potential, Nigeria’s regulatory authorities must implement stronger oversight and crack down on illegal imports and refineries. Achieving a balanced market that favours domestic production over imports will require a unified effort between government, NNPC, and independent marketers to protect the local refining industry while ensuring fair and transparent pricing for consumers.
In a landscape where politics and profits intertwine, establishing a level playing field may be challenging. Still, for Nigeria to achieve true energy independence, a sustainable, transparent approach to fuel pricing and regulation is essential.
