There are indications that the Federal Government committee set up to ensure the implementation of the Naira crude oil sales to local refineries will further discuss the pricing of premium motor spirit (commonly called petrol) that Dangote Refinery is set to announce next month.
Oil traders and some officials of the Naira Crude Oil Sales Implementation Committee led by the Minister of Finance and Coordinating Minister for Economic Affairs Wale Edun confirmed that the committee will hold a series of meetings on the development this week and in the coming weeks.
They also said the committee will establish a framework to set a benchmark for how much Naira Dangote Refinery will pay for crude oil, adding that the Federal Government should decide whether to subsidize or allow petrol from the plant’s payments, as Nigerians will buy the product at market price.
However, oil traders said the price of Dangote petrol will be higher than the current pump price of the product, stressing that unless the Federal Government intervenes in the price, it will be difficult for traders to buy the product from the plant.
Petrol is being sold for between 600 and 700 naira per litre across the country depending on the area where it is purchased. According to data recently released by the Major Energies Marketers Association of Nigeria, the landed cost of the commodity was N1,117 per PMS litre.
Petrol Traders explain that this is the actual market price of the commodity and that the cost of the product from the Dangote refinery should be around this.
The Nigerian National Petroleum Corporation is the sole importer of petrol in the country. Other traders have stopped importing the product as they could not obtain the US dollar required to import petrol.
Last week, however, the company’s Chief Financial Officer Umar Ajiya, while presenting the NNPC’s audit report and financial statements for the 2023 fiscal year in Abuja, admitted that the oil company is bearing a heavy subsidy burden on petrol imports. He said NNPC provides PMS to retailers at about half the landed cost as per the agreement with the government.
He explained that the compensation agreement between the government and the company covered the difference between the land price and the selling price. He said the company has not paid any money to any dealer in the name of petrol subsidy for the last eight to nine years.
The official pump price of petrol is about N600 per litre while the average landed cost is about N1,200 per litre. Ajiya said the company has covered a “deficit” of about N7.8 trillion in the first seven months of this year.
“I think there is one fact that I need to make very clear, in the last eight or nine years, this company, even as a corporation as it were, has not paid anybody a dime or one naira as subsidy.
“No one has been paid a kobo by the NNPC in the name of subsidy. No marketer has received money from us by way of subsidy,” Ajiya said.
He said the government had instructed NNPCL to sell imported petrol at half the landed price. According to him, in some cases, the federal government would pay money to offset it.
“What has been happening is that we have been importing PMS, landing at a certain price, and the government is telling us to sell it at half price. So, that gap between that landed price and the half price is what we call shortfall or we call it a subsidy,” the CFO explained.
On August 20, 2024, Journalists reported that the Federal Government Committee set up to ensure the implementation of the sale of crude oil to local refineries for Naira had signed an agreement with Dangote Oil Refinery to introduce gasoline in September this year.
The Federal Government also announced that the sale of crude oil to Dangote Refinery and other local refineries would commence on October 1, 2024.
On Sunday, reliable sources in the oil industry, the Federal Ministry of Petroleum Resources, and the Presidency confirmed to our correspondent that the cost of gasoline from the $20 billion power plant would be discussed between the government and the plant managers in the coming weeks.
They said the government’s choice was either to subsidize petrol at no cost to the NNPC or allow Nigerians to buy the product from Dangote refinery at market price, which would naturally be at a higher price.
“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.
“Except you are saying NNPC will start doing whatever it can and nobody will expect profit from the company,” said the FMPR official, speaking privately because he was not authorized to talk about whether NNPC will intervene on Dangote’s PMS prices.
When asked about a possible solution to the issue, the official said, “The solution is for Nigerians to pay the real cost of petrol. But then you know, other things will come into play, because, you know, our economy is not that good. Things are not good for everyone.
“However, it is for Nigerians to pay the real cost of petrol or for the government to bring back subsidies. I don’t know, but it’s just those two things. They may consider this at the meeting but for now the major discussions centre on crude supply in naira, which should be finalized in a few weeks.”
The source said the sale of naira crude oil to Dangote has been settled, stressing that “his (Dangote) own portion will be sent to him. But they are still working on the framework, I know, we’ve been having meetings. So we’re having meetings. So hopefully, I think by next week we should be able to get a clearer picture on the modalities. We meet almost every two or three times a week.”
The official noted that one of the biggest challenges is the absence of the US dollar, but stressed that the committee will “benchmark the exchange rate for crude sale to Dangote.”
The official further added, “All the framework will be sorted and you know AfreximBank is with us in this.”
An executive of the Association of Major Energy Marketers in Nigeria also commented on the development when contacted, asking if traders had agreed on a price for Dangote oil ahead of its launch next month. He explained that the association’s members are keen to load oil from the facility but it is becoming difficult because of the price.
“There are two things, the first one is logistics and cost-taking. We’ve been taking AGO (diesel), ATK (aviation fuel) by vessel and truck. By now, we all know ourselves and we understand how it works. So that one is not a problem. When PMS starts, it will not be changed from what we were doing before. The methodology of picking it from them (Dangote) has already been worked out and it is already in place and play.
“Now, when it comes to price, that’s the second thing and the third one is, in what currency are we paying? That one is going to be between Dangote and the government because as the government has just confessed to you, there is a subsidy. So, Dangote cannot clear the subsidy by himself. In order to deal with it, I think the government is trying to intervene, though still in denial.
“However, I do not think the subsidy is a good policy. I do not think anything has changed concerning the subsidy. Subsidy shortchanges the country. The government still must recognize that things are very tough on Nigerians right now and must find a way. If it wants to remove the subsidy, what can it do to mitigate the challenges?”
The official, who also spoke privately, said the government introduced the Compressed Natural Gas Initiative to reduce the cost of subsidy on PMS.
“So, what he’s (President Bola Tinubu) trying to do is he’s trying to push CNG which is possible so that he can stop paying subsidies for PMS. The CNG uptake is going a lot slowly; but that is the solution, to move quickly with the alternative CNG, especially for commercial transportation and long-distance movement of foodstuffs from the bread baskets to the urban centres so that you can manage your inflation.
“But, can the government continue with a subsidy of N7.7tn? I don’t think so, and anybody who says that is not being fair to Nigerians. The government is just a temporary group of people in power; they will soon go when their time finishes but our country will still be here.
“It is government policy. Currently, the government policy is that there is no subsidy; there is no subsidy provided for in the budget. How much will Dangote sell for? Dangote is not prepared – I don’t think – to sell at below the cost of production. So, we will need to wait to see what the government will do,” the source explained.
When asked if there would be any intervention from the government, the official replied: “There may be an intervention, yes. Refined crude will still be at the international market price, as it should be.”
When asked if traders are willing to buy petrol at Dangote’s international market price, the MEMAN official said, “No, marketers will not buy at higher than our pump prices and sell at our prices. But we don’t know how marketers will buy it.”
When asked if there is currently a price template for Dangote petrol, the official said, “No law allows you to have a pricing template; we have PIA (Petroleum Industry Act). The prices of diesel and aviation fuel are the market price. There is no official market price for PMS as we speak, no.”
Mustapha Zarma, national operations manager of the Independent Petroleum Marketers Association of Nigeria, said unless the government intervenes on the price of Dangote petrol, traders will not be able to buy Dangote petrol unless the cap is lifted.
“Nobody can start discussing petrol pricing modalities with Dangote now because you cannot buy their product. At the prevailing retail price in Nigeria now, you cannot buy their PMS. So they can only go into agreement with the government on pricing. Otherwise, the policy on capping of petrol prices will have to change.
“There is a cap on the price of petrol in Nigeria now, and I don’t think that as a businessman who is into business to make a profit, Dangote will want to sell his product below the market price. We all know NNPC has been shouldering subsidies on petrol.”
About two weeks ago, a post on the official X-page (formerly Twitter) of the Ministry of Finance said the meeting of the Naira Crude Oil Marketing Committee was to review the progress of key initiatives.
The meeting outlined the key roles of stakeholders such as the Nigerian Midstream and Downstream Petroleum Regulatory Agency, Central Bank of Nigeria, Nigerian Upstream Petroleum Regulatory Commission, and African Export-Import Bank to ensure smooth implementation.
The post read; “The Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, today led the Implementation Committee meeting on the transition to crude oil sales in naira.
“The meeting reviewed progress on key initiatives, including the upcoming commencement of naira payments for crude oil sales to the Dangote Refinery starting October 1, 2024.”
Furthermore, the Executive Chairman of the Federal Inland Revenue Service, Dr. Zack Adedeji, Chairman of the Technical Sub-Committee: “The first PMS delivery from Dangote is expected next month under existing agreements.”
On August 15, Journalists reported that the Minister of Finance had convened a technical sub-committee tasked with developing a framework for Naira crude oil sales to local refineries. The initiative is in line with recent presidential directives aimed at boosting Nigeria’s refining capacity and spurring economic growth.
