FG, Dangote Refinery in Talks Over Petrol Pricing Ahead of September Rollout

The Federal Government has begun discussions to establish the pricing of Premium Motor Spirit (PMS) that will be produced by the Dangote Petroleum Refinery, set to commence operations in September 2024.

This development follows the government’s recent decision to initiate crude oil sales to local refineries in naira starting October 1, 2024.

According to sources from oil marketers and the Implementation Committee on crude oil sales, headed by the Minister of Finance, Wale Edun, a series of meetings will be held in the coming weeks to finalize the pricing framework for petrol from the Dangote Refinery.

One major point of discussion is whether the government will provide subsidies for the petrol produced by the Dangote Refinery or if Nigerians will be required to pay market prices.

Oil marketers have indicated that without government intervention, the cost of petrol from the Dangote Refinery could exceed current pump prices. Presently, petrol sells for between ₦600 and ₦700 per litre across Nigeria, while the landing cost is approximately ₦1,117 per litre.

The Nigerian National Petroleum Company (NNPC), the sole importer of petrol in Nigeria, has been selling petrol at about half of the landing cost through a subsidy arrangement with the government. NNPC’s Chief Financial Officer, Umar Ajiya, recently revealed that the company had covered a “shortfall” of approximately ₦7.8 trillion in the first seven months of 2024 due to these subsidies.

The Federal Government’s committee overseeing crude oil sales to local refineries recently reached an agreement with the Dangote Refinery, with plans to begin petrol distribution from the $20 billion plant in September.

Further discussions between government officials, the refinery’s management, and stakeholders in the oil sector will shape the final pricing strategy, as Nigeria aims to balance market realities with the need to alleviate the impact on consumers.

“The only way the government can intervene is to subsidize. There is nothing NNPC can do. I mean this. Do you want to kill the NNPC? Do you want the company to continue carrying the subsidy burden after the explanation it gave last week? It is not sustainable,” a source at the Federal Ministry of Petroleum Resources stated anonymously.

When asked about a possible solution, the official replied, “The solution is for Nigerians to pay the real cost of petrol. But given the current economic situation, other factors will need to be considered. The primary discussions currently center on crude supply in naira, which should be finalized in the next few weeks.”

The source confirmed that the sale of crude to Dangote in naira has been settled, with final modalities still being worked out. Meetings are held regularly, and a clearer picture is expected soon.

A significant challenge remains the lack of U.S. dollars, but the committee plans to benchmark the exchange rate for crude sales to Dangote. “All the framework will be sorted, and AfreximBank is also involved in this,” the source added.

An official from the Major Energies Marketers Association of Nigeria (MEMAN) explained that while the logistics for taking delivery from Dangote Refinery are already in place, the pricing and payment currency are still to be decided.

“Dangote cannot cover the subsidy cost by itself, and the government is considering its options, though it remains in denial about the subsidy,” the official stated.

The official also noted that the government is promoting a Compressed Natural Gas (CNG) initiative to reduce the subsidy burden on PMS. However, the uptake of CNG has been slow, and the government needs to accelerate this transition.

The National Operations Controller of the Independent Petroleum Marketers Association of Nigeria, Mustapha Zarma, stated that without government intervention in the price of Dangote petrol, marketers would not be able to purchase it under the current policy.

“There is a cap on the price of petrol in Nigeria now, and I don’t think Dangote will want to sell his product below the market price. We all know NNPC has been bearing the subsidy cost on petrol,” Zarma said.

A recent post on the finance ministry’s official X (formerly Twitter) page mentioned that a committee meeting was held to review progress on key initiatives, including the upcoming commencement of naira payments for crude oil sales to the Dangote Refinery starting October 1, 2024.

The Executive Chairman of the Federal Inland Revenue Service, Dr. Zacch Adedeji, and the Chairman of the Technical Sub-Committee confirmed that “The first PMS delivery from Dangote is expected next month under existing agreements.”