The landing cost of Premium Motor Spirit (PMS), commonly referred to as petrol, in Nigeria has long been a matter of public concern. With the current cost of N1107 per liter, understanding the breakdown of this price reveals the complex web of expenses incurred before the fuel reaches Nigerian consumers.
Days ago, the Secretary General of the Organisation of the Petroleum Exporting Countries (OPEC), Haitham Al Ghais stated that the primary driver of high fuel prices in Nigeria is not just production costs, but rather substantial government-imposed taxes.
Each cost element reflects the broader economic and logistical processes involved in importing petrol. However, the advent of the Dangote refinery, the largest in Africa, promises a shift that could change the game entirely—but not without resistance.
The Components of the Landing Cost
- FOB Cost (N434.32): Free On Board (FOB) is the cost of purchasing the fuel from the international market. This is the price of petrol without any additional shipping or insurance costs, and it makes up the bulk of the total landing cost.
- Freight Cost (N86.48): This represents the cost of transporting the fuel from the source country to Nigeria. Shipping fuel across long distances involves significant logistical expenses.
- Insurance Cost (N10.58): Shipping cargo, especially volatile materials like fuel, requires insurance to protect against risks such as accidents, weather conditions, or damage during transit.
- Lightering Cost (N23.45): This cost involves the transfer of fuel from larger vessels to smaller ones that can navigate Nigeria’s ports, which are often not deep enough to accommodate large ships.
- Jetty Depot Fees (N15.35): After arriving in Nigeria, the fuel needs to be unloaded at jetties. These fees cover the costs associated with using these facilities.
- Storage Fees (N12.58): Storing the fuel in depots before it’s distributed to various locations incurs charges, especially in areas where storage infrastructure is limited.
- Financing Costs (N34.67): These are the interest and charges incurred by importers for taking loans or using credit to finance fuel purchases.
- Foreign Exchange Costs (N23.45): Given that Nigeria imports fuel using foreign currency, exchange rate fluctuations can significantly impact costs.
- NPA Charges (N10.58): The Nigerian Ports Authority (NPA) charges fees for services rendered during the import process, including ship docking and port services.
- NIMASA Charges (N5.29): The Nigerian Maritime Administration and Safety Agency (NIMASA) also levies charges related to the safety and regulation of shipping activities.
- Customs Duties (N51.17): Importing fuel incurs taxes and duties at Nigerian borders, contributing to the overall landing cost.
- Other Levies and Charges (N50.00): This is a blanket sum for additional taxes, regulatory fees, and miscellaneous charges that often fluctuate depending on policies and regulations.
Total Landing Cost: N1107.00
At a glance, it’s clear that several costs significantly contribute to the high price of petrol in Nigeria. But with the Dangote refinery now operational, many of these costs could be eliminated or reduced.
How the Dangote Refinery Changes the Game
The Dangote refinery promises to refine petrol locally, cutting out the need for importation. As a result, many of the costs that contribute to the current landing price will be irrelevant. Specifically, the following costs will no longer be necessary:
- Freight Cost (N86.48)
- Jetty Depot Fees (N15.35)
- Storage Fees (N12.58)
- Financing Costs (N34.67)
- Foreign Exchange Costs (N23.45)
- NPA Charges (N10.58)
- NIMASA Charges (N5.29)
- Customs Duties (N51.17)
With these costs eliminated, the landing price of petrol would drop drastically, bringing immense relief to consumers and the overall economy.
Resistance from Parastatals and Vested Interests
Despite the obvious benefits, there is significant pushback against the Dangote refinery from various interest groups. The refinery’s ability to reduce costs means that entities like the NPA, NIMASA, and others that rely on the importation process for revenue stand to lose millions in fees and charges. This creates a conflict between the potential savings for Nigeria’s consumers and the economic interests of these organisations and the “cabals” that have long benefited from the status quo.
It’s not just about the economics, it’s about control. Over the years, fuel importation in Nigeria has become a business for a few powerful individuals and organisations, who stand to lose their grip on the industry if the Dangote refinery becomes the primary source of petrol for the nation. This explains the bureaucratic delays and subtle resistance that have hampered the refinery’s progress.
While the Dangote refinery presents a clear opportunity for Nigeria to reduce its reliance on imported fuel and cut costs, breaking the entrenched interests of those benefiting from the current system is no easy task. If Nigeria is to experience the full benefits of local refining, policymakers must navigate the political and economic pushback carefully while ensuring that consumers are prioritised over profit-driven interests.
While balancing the intricate dynamics of power, economics, and national interest, the success of the Dangote refinery could, in the long run, not only reduce the cost of petrol but also open the door to Nigeria achieving energy independence—transforming the country’s energy landscape for good.
