The market price for petrol would rise above N400 per litre even if the Dangote Refinery and those owned by the Nigerian National Petroleum Company Limited (NNPC) were to come on stream, an analysis of oil prices, import duties and refinery contracts show.
President Muhammadu Buhari’s government strategy of kicking the can further down the road when it comes to developing a pragmatic approach to dealing with galloping fuel subsidy cost guarantees that it haunt the new government coming in next year.
The coming on stream of the Dangote and NNPC refineries as expected next year will only remove freight charges of N24 at the central bank exchange rate and N34 at the parallel market rate. Some port charges could be saved but costs will increase to distribute the products around the country.
There is no conceivable situation where the Dangote Refinery, if it comes on stream in mid-2023 as expected, will sell refined petrol below N400/litre if oil prices hover around $100 per litre.
Expected to produce 55 million litres of refined petrol daily, the Dangote Refinery and refurbished NNPC refineries could significantly reduce petrol imports.
The Dangote Refinery is a private enterprise, with the NNPC holding 20 percent stake on behalf of the government. The NNPC says it would supply half of the crude required by the plant, and if this is sold at market price, it would be impractical to continue paying subsidies.
A cash-strapped Federal Government cannot afford to give its own share of the crude from joint venture operations free to Dangote Refinery.
According to Mele Kyari, group chief executive officer of NNPC, in a recent briefing, said the NNPC refineries alone cannot meet a quarter of Nigeria’s current capacity put at 66 million litres daily due rising consumption fuelled by growth in population.
Kyari had said that the NNPC planned to outsource the operations and management of the country’s four refineries after fixing them, a condition for obtaining the financing for the repairs. He said the NNPC already had contracts in place for their management after the refineries become operational.
“We will get the refineries back and run it as a business, we borrowed money to fix it and repayment for loans obtained is tied against the productivity of the refineries,” said Kyari.
This contract compels the refinery management to run profitably in order to generate enough money to repay the loans.
This is why marketers under the aegis of the Major Oil Marketers Association of Nigeria (MOMAN) say the Federal Government has no other option than to end the subsidy in light of current economic realities.
Petrol prices index website, globalpetrolprices.com, that compiles petrol prices around the world puts the average price of petrol around the world at $1.36 per litre.
However, there is substantial difference in these prices among countries. As a general rule, richer countries have higher prices while poorer countries and the countries that produce and export oil have significantly lower prices, it said.
“The differences in prices across countries are due to the various taxes and subsidies for gasoline. All countries have access to the same petroleum prices of international markets but then decide to impose different taxes. As a result, the retail price of gasoline is different,” the analysts said.
According to the data, petrol price in Nigeria is cheaper than eight other places in the world but the only difference is that these other countries have functional refineries.
Years of mismanagement and corruption has left Nigeria’s refineries in a decrepit condition as government officials jump on lucrative petrol import contracts leading the refineries to rot.