KEY POINTS

• Nigerian fuel marketers are facing difficulties securing favorable pricing for petrol directly from the Dangote Refinery.
• Marketers are concerned that the pricing structure may not align with their ability to set competitive market prices.
• Despite the challenges, there is optimism that the Dangote Refinery will help stabilize the country’s fuel supply and reduce import dependency.

Some Nigerian fuel marketers are facing challenges with pricing as they prepare to start negotiating to buy the product directly from the Dangote Refinery.

As the refinery is expected to revolutionalise the energy sector in Nigeria, many of the marketers are worried about the prices that are being offered for the products since this will determine their ability to compete in the market.

The Dangote Refinery called Africa’s largest single-train refinery has the capability to reduce Nigeria’s reliance on imported fuel and also to provide fuel supply security.

However, as fuel marketers seek to negotiate for better terms, they are facing some pricing challenges that may make it difficult for them to offer fuel at reasonable market prices.

Pricing issue among marketers

For years, fuel marketers in Nigeria have depended on imported fuel to supply the country’s demand but with the emergence of the Dangote Refinery, it was believed that locally refined petroleum products would provide better terms.

However, the early information on the pricing schemes offered from the refinery is not as liberal or cheap as the marketers expected. This has led to questions on profitability especially for the small independent marketers who may find it hard to compete for the prices set by the larger fuel distribution firms.

Business Day has reported that the current pricing model that is being considered may not allow marketers to pass on the cost savings to the consumers as was expected when local refining was being proposed.

However, there is emerging concern that the price of petrol may not come down significantly as it is currently pegged with domestic production.

Some of the marketers have said that if the prices set by the Dangote Refinery are high, they will have no option than to continue importing the product especially if suppliers from other countries offer better terms.

This could be counterproductive to the refinery’s vision of cutting down Nigeria’s reliance on imported fuel.

The role of the Dangote refinery

Nevertheless, it is important to note that Dangote Refinery carries a enormous potential for the overall improvement of energy security circumstances and reducing the level of petroleum products import in Nigeria.

When it is fully commissioned, the refinery can provide most of the country’s local fuel consumption hence reducing on importation. This it is believed will have a positive effect on the balance of payments of Nigeria and decrease the monetary pressure of importing refined petroleum.

However, for the refinery to realize its full potential, it will have to offer prices that are reasonable for fuel marketers within the region. The benefits of local refining must therefore be reflected in the pump prices for fuel and where possible they should be stable or even lower than the current prices.

Analysts have predicted that the negotiations between the Dangote Refinery and the fuel marketers will persist in the following months in search of a pricing formula that will suit all the parties.

The government may also have to intervene in a bid to protect local fuel marketers from being locked out of the market by unfavorable terms by subsidizing prices or regulating them.

Optimism for future stability

There are short term market price risks but many are positive that the Dangote Refinery will assist in rebalancing the supply of Nigeria’s fuel and bringing down the country’s reliance on imported petrol.

While marketers continue to engage the refinery in a dialogue, it is expected that both will come to a middle ground that will help to keep the refinery as a key player in Nigeria’s energy sector.

For now, fuel marketers are waiting to see how the price will be set and whether the Dangote Refinery will be a viable option to import fuel.

The success of the refinery is central to Nigeria’s future energy security and despite the problems, there is hope that these issues can be addressed for the good of the whole sector.