Why Petrol, Diesel Prices May Not Drop Despite Dangote Refinery — Experts

Experts have indicated that the commencement of production at the Dangote Petroleum Refinery may not lead to a substantial decrease in petrol and diesel prices.

Despite the refinery's strategic location in Lagos, Nigeria, the input costs for its operations are heavily import-dependent, and the volatility of foreign exchange rates is expected to hinder any significant price reductions for these premium commodities.

This perspective was shared by Hector Igbikiowubo, Publisher of Sweet Crude Reports, and Ugodre Obi-Chukwu, Founder of Nairametrics, during an appearance on “Inside Sources with Laolu Akande,” a socio-political program aired on Channels Television on Friday.

Both Igbikiowubo and Obi-Chukwu praised Aliko Dangote, Africa's richest man, for overcoming numerous challenges to realize his vision of building a functional refinery.

They stressed that Dangote's achievement underscores the Federal Government's lack of excuses for not revitalizing Nigeria's four dormant refineries and urged the Nigerian National Petroleum Company (NNPC) Limited to increase crude supply to the Dangote refinery.

Recently, Dangote announced that his refinery would continue to import 24 million barrels of West Texas Intermediate crude due to insufficient local crude production and supply by the NNPC.

The experts noted that while the private refinery might not solve all of Nigeria's energy security needs, its operations would significantly improve the availability of premium petrol products in the country.

Igbikiowubo stated, “The Dangote Refinery cannot solve the problem because the Dangote Refinery will continue to pay for crude oil in USD (United States Dollar).

The question now is how come the NNPC isn't allotting all of its 445,000 barrels per day to the Dangote Refinery for refining? Why is it convenient to export crude oil when you have a facility like the Dangote Refinery up and running? You make more money if you export refined petroleum products than if you export crude oil.”

Obi-Chukwu concurred, noting that the operational costs of the Dangote Refinery, dominated by the US dollar, might not translate into lower costs for end consumers.

He explained, “As much as the refinery is local, most of the input cost for that refinery is still going to be imported. Whether it is the personnel that will service the refinery.

“Whether it is the spare parts that will be changed and serviced. Even the crude itself is also being imported. A lot of the breakdown of the cost still has foreign components in there.

“So, it is quite unlikely that you might see a substantial amount of savings to the end consumers. Nevertheless, even if we get 10% savings, it is still better than what we currently have.”

The refinery, which began operations last December with a capacity of 350,000 barrels per day, aims to reach its full capacity of 650,000 barrels per day by the end of the year.

It has started supplying diesel and aviation fuel to marketers in the country, with petrol supply expected to commence by mid-July.

The experts stated that, while the Dangote Refinery is operational, the country's four refineries, which are located in three different locations across the country, should be brought online to ensure the country's energy security.

The four dilapidated state-owned refineries are located up north in Kaduna, with three units in the southern region – Port Harcourt and Warri.

Despite billions of naira spent on turnaround maintenance, attempts to get them working over the last two decades have failed.

The newspaper publishers believe that the Bola Tinubu administration should do everything in its power to make the state-owned refineries operational.

Igbikiowubo said, “The essence of having the NNPC refineries working is to guarantee energy security for the Nigerian state.”

He said though the NNPC has about 20% stakes in the Dangote Refinery, the refinery does not belong to the Nigerian state.

“We should have a coherent energy security in place,” he said. “If you have refineries, those refineries should work.

Igbikiowubo said privatisation of the state-owned refineries does not guarantee energy security as the private company is interested in profit-making for its shareholders and not necessarily ensuring that the populace gets the premium commodities easily and at cheap rates.

“Where is NITEL today? It was privatised. Where is Daily Times today? It was privatised. We need to be accountable. The money sunk into the refineries, what happened to them?”Igbikiowubo asked.

“Last year, the petroleum minister granted an interview that the Port Harcourt Refinery would be up by December. This is June and nothing has happened. He is not being held to account.”

He said subsidy removal should be predicated on local refining and not import-dependent products controlled by the vagaries of foreign exchange.

“You have a group of persons who are benefiting with the status quo and they will do everything to ensure the status quo remains,” said the Sweet Crude Reports publisher.

The publisher of Nairametrics posited that privatisation can work – and it has worked before in other sectors of the country – if done the right way.

“We've practiced one model before, the government trying to run the refineries. It hasn't worked. What we see now is funds being misappropriated from the very limited funding space that we have as a country and these funds are being squandered. So, there is no point. The same thing with the Ajaokuta Steel.

“You have to privatise properly with a clear mandate and key performance indicators, including public list on the Nigerian Stock Exchange (NSE),” he said.

He urged the government to set the right policies to allow private businesses to flourish

Last updated on July 16th, 2024 at 12:10 am

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