Fuel marketers in Nigeria are raising alarms over the increasing cost of Premium Motor Spirit (PMS) at the Dangote Refinery, citing thin profit margins and escalating regulatory costs. Ridwan Akande, Country Managing Director (CMD) and Chief Sales Strategy Officer (CSSO) of Galonaire Energy Limited, has highlighted the financial strain on fuel marketers caused by high borrowing costs and unavoidable regulatory fees.
A profitability analysis provided by Galonaire Energy Limited shows that for a recent purchase of 2,000,000 litres of PMS from Dangote Refinery at ₦899.50 per litre, the associated costs have left marketers operating at a net loss of ₦4.00 per litre. This amounts to a total loss of ₦8,000,595.89 on the transaction.
Rising Costs and Regulatory Challenges
Mr Akande explains that the high-interest rate of 39% on bank loans adds significant pressure to marketers’ finances. “We borrowed ₦1.799 billion for this transaction, and the five-day interest alone came to ₦9.6 million. This is just the beginning of the expenses,” he said.
Other compulsory costs include:
- COT (Commission on Turnover): ₦0.45 per litre
- NMDPRA Fee: ₦4.50 per litre
- MDGIF Fee: ₦4.50 per litre
- Collateral Management Fee: ₦0.25 per litre
These expenses, amounting to ₦14.50 per litre, bring the total landing cost of PMS to ₦914.00 per litre. However, with the current market selling price pegged at ₦910.00, marketers are operating at a loss.
The Dilemma of Competitive Pricing
According to Akande, selling PMS at ₦910.00 per litre is unsustainable unless marketers forgo using bank loans, which is nearly impossible in the current economic climate. He added, “To stay competitive, marketers must rely on loans. However, the margins have shrunk to the point where a one-naira profit cannot justify the operational stress and financial risk involved.”
Implications for the Nigerian Market
The challenges highlighted by Akande are reflective of broader issues faced by Nigerian fuel marketers. One anonymous marketer commented, “With additional costs such as offtaker’s permit expected to increase by at least ₦1.00 per litre, the market is heading towards higher prices or reduced participation by small marketers.”
Industry stakeholders are calling for a review of the regulatory framework and loan terms to ensure the sustainability of fuel distribution in the country. As Mr Akande warns, “Expect price increases again beyond the current levels. This is inevitable under the present circumstances.”
The rising costs of PMS, combined with regulatory and financial pressures, are eroding the profitability of fuel marketers in Nigeria. Without intervention, these challenges may lead to higher fuel prices for consumers or reduced market participation, further straining the nation’s energy sector.
