The momentous rollout of petrol from Dangote Refinery in Lagos yesterday sparked a pricing row between the private refinery and Nigerian National Petroleum Company (NNPC) Limited.

A document on the landmark transaction indicated that NNPCL issued a Letter of Credit for over $120 million to cover an initial supply of 25 million litres.

Dangote Refinery yesterday released 16.3 million litres of Premium Motor Spirit (PMS) to NNPCL.

The supply was a shortfall of 8.7 million litres from the 25 million litres demanded and paid for by the oil giant.

The refinery released a total of 12,200 metric tonnes of PMS from Tank No. 3201D at its complex based in Lekki Free Trade Zone, Ibeju Lekki, Lagos for the first time.

Both NNPCL and Dangote agreed that the breakthrough transaction was conducted in dollars, but the parties were divergent on the related actual naira cost.

A transaction insider at the NNPCL said yesterday’s supply from Dangote Refinery was at N898 per litre.

But Dangote, in a statement, said the insinuated plant cost per litre of N898 was “misleading and mischievous”.

Reacting to Dangote’s statement, NNPCL Chief Communication Officer, Mr. Olufemi Soneye, confirmed that the price per litre from the refinery is N898.

He said: “If it is not N898, then what is the price? Let them inform Nigerians of the actual cost.

“We have issued Letters of Credit for the product, and there’s an invoice. Let them disclose the price.”

With the supply from Dangote Refinery yesterday, sources said NNPCL is expected to release the template for new retail pricing today.

NNPCL currently runs a retail price of N855 per litre and N865 per litre in Lagos and Ogun states, its closest supply routes.

The retail pricing template provides for a slight premium on the average base price, depending on the distance of the supply route.

A source said the shortfall in the initial supply raises concerns, but Dangote Refinery insisted yesterday that it can meet the nation’s petroleum demand.

To facilitate distribution, the NNPCL mobilised more than 300 trucks and berthed a vessel at the Dangote Refinery complex to transport the fuel.

The trucks loaded the product meant for Southwest-North axis while the vessel will deliver directly to the Southsouth-Southeast axis, in a massive and coordinated effort to saturate the market nationwide with petrol.

A source indicated that NNPCL made the dollar payment because the current feedstocks for Dangote Refinery were sourced through dollar-denominated transactions.

In a tweet on his X handle, billionaire businessman Femi Otedola said: “Kudos to President Tinubu for making this a reality! Fuel queues are now a thing of the past as Dangote Refinery starts loading PMS today (Sunday 15, September 2024).”

Group Chief Branding and Communications Officer, Dangote Group, Mr. Anthony Chiejina, in a statement yesterday, confirmed that the refinery “sold the products to NNPCL in dollars with a lot of savings against what they are currently importing”.

Chiejina said the public should await a formal announcement on the pricing by the technical sub-committee on the naira-based crude sales to local refineries.

The “naira-for-crude, naira-for-product”, a well-applauded financial arrangement brokered by President Bola Tinubu, is expected to take off on October 1, freeing up the economy and all the parties from the risks of foreign currency-based transactions.  

The implementation of the arrangement is under the guidance of the Federal Executive Council (FEC) and immediate direction and monitoring of the Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun and the Chairman of the Federal Inland Revenue Service (FIRS), Mr. Zach Adedeji.

The domestic payment arrangement whereby crude oil is sold to local refineries and petroleum products are purchased in naira, is designed to alleviate pressure on the naira and reduce transaction costs.

The arrangement is also expected to improve the availability of petroleum products in the country while offering competitive pricing to oil marketers.

Chiejina described the takeoff of petrol supply from Dangote Refinery as a milestone achievement, which broke more than five decades of energy insufficiency and insecurity.

Said he: “With this action, there will be petrol in every local government area of the country regardless of their remote nature.

“We assure Nigerians of the availability of quality petroleum products and putting an end to the endemic fuel scarcity in the country.”

However, the supply and retailing of Dangote petrol is expected to be dictated by market forces as enshrined in the Petroleum Industry Act (PIA).

There are indications that the government would continue to modulate the pricing to cushion the effects of global crude volatility.

A source said the absence of absolute market forces explained why NNPCL, as a supplier of last resort to the nation, is taking on the supply of the Dangote petrol.

Vice President of Oil and Gas, Dangote Industries Limited (DIL), Devakumar Edwin, yesterday said 44 per cent of the refinery’s PMS production can meet the demand of the country.

Edwin said the refinery has the capacity not only to meet Nigeria’s demand but to also export and generate foreign exchange (forex).

Said he: “If you look at the refinery as a whole, PMS alone, every day, if we’re processing 650,000 barrels of crude, we can generate more than 54 million litres of PMS. And, of course, the refinery has the capacity to produce various other products too.

“Forty-four per cent of the production can meet the entire requirement of the country, and 56 per cent of the production has to be exported. It is a huge refinery.

“So, it is not only going to be doing import substitution, but it is also going to make forex generation through export revenue. The gantries are actually 86 and it can load 86 trucks at a go.

“My President has been giving presentations that 52 years ago, we were trying to see how to solve the problem of PMS supply and the queues. Now, after 52 years, we have a solution. And the solution is local production of PMS and it is from a Nigerian oil company. As an EPC (engineering, procurement and construction) contractor, it was constructed by a Nigerian company.

“So, it’s a matter of pride that a Nigerian oil company, constructed by a Nigerian-owned company, is able to generate PMS from the local crude and daily will not only meet the entire requirement of Nigeria but can also have surplus to export. So, it is a time and moment of great pride to every Nigerian.”

Providing a context to the interplay of forces that will shape the downstream oil sector going forward, the Executive Vice President of Nigerian National Petroleum Company Limited (NNPCL), Adedapo Segun, at a media parley in Lagos at the weekend, explained that the NNPCL no longer has quasi regulatory powers, making it impossible for the firm to set prices.

“NNPCL is not in the place to set prices. And when you have deregulated markets, the government does not set prices in a deregulated market. It’s only when you have a regulated market that the government sets prices,” Segun said, referencing the provisions of the PIA, the extant rules for the oil industry which came into effect in August 2021.

Segun explained that global crude oil prices will continue to impact domestic transactions, although a fully developed domestic value chain will eliminate certain costs of transactions.

He clarified that contrary to impressions in some quarters, NNPCL is not a regulator but a profit-making commercial entity like other commercial entities in the market, all regulated by a separate body.

“NNPCL is not a regulator. It is just another commercial entity; so I can’t say this is how much anyone will sell, but we will sell at the price we’ve posted,” Segun said.

According to him, the argument of a reduced price, because petrol is being refined locally, may not necessarily hold water because it will always be driven by market forces.

Said he: “It will always be driven by market forces. Again, I’m not holding brief for anyone, but the same argument that we are not incurring the cost of transporting it down here could also be the benefits of the technology for refining it here; however, the benefits of refining locally also have a cost associated with it. When there’s a need for maintenance or to fix things in the facility, it will be sourced from Europe.”

He explained that other marketers are not encumbered in any way from accessing petrol from Dangote Refinery or other suppliers, but they do shy away from the petrol supply business because of the irregularity in the market.

“Nobody has precluded any marketer from bringing in PMS. When the marketers go to NMDPRA to get the permits or license to import, typically they will list the products they want to import and the volume; some of them actually include petrol in their listing and NMDPRA has been approving that.

“They then go to the market, check the market indices and realise that PMS is still being sold below cost; for them it is like ‘if I bring it in, I will make a loss’. They get approval to bring in AGO, ATK and PMS. But what do they end up doing? They’re bringing in only diesel (AGO) and Aviation Turbine Kerosene (ATK); they don’t bring in PMS because the market is still not right for them.

“So it’s not because NNPCL wants to be the sole provider or supplier of PMS. It’s because the other marketers won’t do it until it is profitable. If it’s not profitable, they won’t do it.”

National President of Independent Petroleum Marketers Association of Nigeria (IPMAN), Alhaji Abubakar Maigandi, yesterday said his members were anxiously waiting for the NNPCL to announce the new pump prices of PMS.

He described the production of PMS from the 650,000 barrels per day refinery as a welcome development that will guarantee energy security.

Executive Secretary of Depots and Petroleum Products Marketers Association of Nigeria (DAPPMAN), Mr. Olufemi Adewole, said owing to crashing crude oil prices, imported products might be cheaper than Dangote’s own.

He said: “With falling crude oil prices, except Dangote Refinery had hedged its crude oil purchases, imports might soon be cheaper.”

A former Secretary General of the Nigeria Union of Petroleum and Natural Gas Workers (NUPENG), Joseph Akinlaja, said the price of fuel would reduce if President Tinubu dealt with manipulators in the sector.

He said Nigerians should not expect a drastic reduction in the price of fuel.

Akinlaja, who spoke to reporters in Ondo town, said the current situation with fuel across the country was because all stakeholders want to take advantage to make money for themselves.

Said he: “The current situation with fuel in the country is a result of mismanagement of our system. It is a shame that we have crude oil and we cannot refine it.

“There is no way you can control what you import because of foreign exchange and the rates which include the cost of transportation.”

“The way we have floated our naira makes it hard. It is something that got spoilt a long time ago, including leadership failure.

“In other countries without crude oil, they buy fuel at a relatively cheaper rate because of the way they arranged themselves.” (The Nation)