As Nigeria marks a significant milestone with the launch of the Dangote Refinery, the country’s focus turns to a pressing concern: the future of fuel pricing.
The Managing Director of Financial Derivatives Company Limited, Bismarck Rewane, provides critical insights into the dynamics of refinery operations and the realities of fuel pricing amidst global economic pressures.
In a recent interview, Rewane outlined the fundamental principles that govern the pricing of refined products, emphasising that refineries, including the new Dangote Refinery, are fundamentally businesses driven by profit motives.
“One, the refinery or any refinery for that matter, apart from government-owned refineries, are a business to produce as a profit,” Rewane explained.
“They will produce at a point where their marginal cost equals their marginal revenue. They will not sell below cost.”
Rewane’s remarks come against the backdrop of widespread public concern about the affordability of petrol.
Nigerians have long struggled with high fuel prices, scarcity, and inconsistent quality. With the Dangote Refinery now operational, expectations are high that it could ease these issues. However, Rewane cautions against overly optimistic assumptions.
“The market determines the price, including the crude, global crude price, a guaranteed margin, and the cost of processing,” Rewane noted.
“Nobody goes into business to sell below its cost price. If they did that consistently, they would go out of business. So, Dangote would not have been where he is today if he was doing that.”
The Dangote Refinery, touted as the largest single-train refinery in the world, represents a significant achievement for Nigeria’s industrial landscape. Despite this, Rewane urges a realistic approach to expectations.
“Yes, it’s good to know that petrol is being lifted. It is a milestone from our own refineries, which we had before. But now we have the largest single-train refinery in the world. We have it as a result of the initiative of Alhaji Aliko Dangote to accomplish this feat.”
Rewane highlights that while the refinery promises improved quality and reliability, the pricing of petrol will remain subject to market forces.
“Pricing is not necessarily in the hands of Dangote Refinery, but in the hands of the market,” he said.
“It’s time for us to price the commodity at the market and ensure that one, we sustain it, two, the quality is guaranteed, and three, the quantity is there for us.”
The challenge, according to Rewane, lies in balancing market realities with public expectations. He underscores the importance of celebrating the commissioning of the refinery while also reflecting on the broader implications for fuel pricing and availability.
“The downtime of Nigeria’s queuing up and the uncertainty that goes with all of this is actually destructive to value in the country,” Rewane observed.
“I think that we should celebrate the commissioning, but we should also use this as an opportunity to reflect on the pricing mechanism that will keep us in business. If not, it will go the same way as all the other sad stories we’ve had in the past.”
*This piece was written by Affiong Bassey
