• NNPC markets PH refinery as Dangote opts for dollarised sale
• Marketers worry over FX access, seek intervention
• FG may prioritise crude-for-loan repayment amidst low production
Nigeria may need to brace for rising petroleum product prices and increased pressure on the foreign exchange market, as the era of market war-triggered ‘subsidy’ appears to have come to an end.
In a move that could disrupt the market, Dangote Petroleum Refinery on Wednesday announced a temporary suspension of petroleum product sales in naira.
The company cited the need to align its sales proceeds with its crude oil purchase obligations, which are denominated in dollars.
Industry stakeholders have linked this decision to an attempt by Dangote to recover losses from recent fuel price reductions as they argued that the businessman is also preparing for possible difficulties in securing crude from Nigeria, following production decline and renewed attacks on oil facilities.
There are concerns that the Nigerian National Petroleum Company Limited (NNPCL) and Federal Government may prioritise crude supply to the Port Harcourt and Warri refineries as well as meet its crude-for-loans obligations rather than allocate crude to Dangote.
Dangote had benefited from an agreement allowing the Nigerian government to supply crude oil to the refinery in naira. But this deal is set to expire by the end of the month and prevailing situations suggest the government may be hard-pressed to end the programme.
While the Federal Government and NNPCL recently indicated efforts to renew the arrangement, Dangote disclosed that its naira sales had already exceeded the value of locally-denominated crude received, making it necessary to switch to dollar-based sales.
“To date, our sales of petroleum products in naira have exceeded the value of naira-denominated crude we have received. As a result, we must temporarily adjust our sales currency to align with our crude procurement currency,” Dangote stated.
While the naira deal and aggressive intervention in the FX market had largely stabilised naira since January, stakeholders, yesterday, said the currency would be significantly pressured by the market twist.
Except the NNPCL significantly ramps up refining to plug the hole created by Dangote’s new sales decision, Nigeria would need to source more dollars to import refined products to meet local demand. That would increase the pressure on naira, which has been trending downward in the past two weeks.
If Dangote optimises its production to full capacity, it will need to source over $40,000,000 for daily feedstock to sustain its refining. That could further expose the underbelly of the current FX supply crisis. But the impact could be reversed by the company’s decision to equally dollarise its sales.
Nigeria’s premium motor spirit (PMS) consumption stands at about 60 million litres per day. The Nigerian Midstream Downstream Petroleum Regulatory Authority (NMDPRA) said Dangote and other local refineries supply 50 per cent while the other is imported.
The Petroleum Products Retail Outlets Owners Association of Nigeria (PETROAN) has raised concerns over the new development, warning that it could create significant challenges for downstream operators, particularly independent marketers who rely on local currency transactions.
PETROAN’s National President, Billy Gillis-Harry, emphasised the difficulty marketers face in accessing foreign exchange through official channels, forcing them to rely on the black market at unfavourable rates.
“It is going to be difficult for us because we don’t have access to dollars. The only way to get foreign exchange is through the black market, which will create further challenges,” he stated.
While acknowledging that Dangote’s decision appears final, Gillis-Harry stressed the need for industry stakeholders to seek alternative solutions.
“There’s no reason why we shouldn’t be able to fund our products. People will still need to buy from Dangote, but the difficulty lies in securing FX,” he said.
PETROAN is already engaging the Ministry of Petroleum Resources on the issue and expressed surprise at Dangote’s sudden announcement, noting that deliberation on the matter was still ongoing.
“As of today, the matter is still being discussed at the highest levels. The Minister assured us there was no immediate policy change, and we were expecting the conclusion of a pilot phase before any further decisions. So, this announcement came as a surprise,” he said.
In response, NNPC’s Chief Corporate Communications Officer, Olufemi Soneye, maintained that the company does not conduct its commercial business through the media.
“We have consistently stated that NNPCL remains committed to supplying crude for local refining based on mutually agreed terms and conditions,” Soneye said.
NNPCL appears to use the opportunity to position its refinery, as the company immediately issued a report that the Port Harcourt Refinery remains operational and continues to produce refined petroleum products.
The Independent Petroleum Marketers Association of Nigeria (IPMAN) warned that the country could experience fuel scarcity and rising pump prices due to FX challenges.
With the unpredictable disruption in prices, most marketers, who are already counting their losses, have been sceptical about the volume of products they stock and may begin to restrict their purchases when they have clarity about the market.
President of IPMAN, Abubakar Shettima, said independent marketers, who control about 80 per cent of Nigeria’s retail outlets, traditionally purchase and sell petroleum products in naira.
The sudden shift to dollar-only transactions, he noted, would pose a major challenge.
“If we are required to source dollars before we can buy products, there will be scarcity. It is already difficult to access foreign exchange, and if we are forced to buy in dollars, the price of fuel will likely increase,” he warned.
Shettima urged NNPC to maintain its previous arrangement with Dangote Refinery, allowing marketers to purchase products in Naira, as this had contributed to a gradual reduction in fuel prices and improved supply.
IPMAN confirmed that discussions with Dangote Refinery and NNPC are ongoing, with marketers seeking assurances on continued product availability.
“We have already paid for products in Naira and are waiting for them to resume loading. By tomorrow, we will begin engaging NNPC as well,” the official added.
Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, described Dangote’s policy shift as a “disturbing development” that could significantly alter the dynamics of domestic petroleum pricing.
“The sustainability of the widely celebrated deceleration of petroleum product prices is now evidently at risk. We may see a reversal of the trend,” Yusuf warned.
He also highlighted broader macroeconomic concerns, including increased forex demand, potential depreciation of the naira, and pressure on foreign reserves. “All of these could result in adverse macroeconomic outcomes with profound implications for investor confidence,” he said.
An energy expert, Ademola Adigun, noted that the move by Dangote would inevitably lead to higher fuel prices and erase recent price reductions.
“Our prices will rise – that’s the first thing that will happen. All the gains we have made in the last few months in terms of pricing will be lost,” Adigun said.
He added that Dangote’s business model had been focused on market dominance, which he was already achieving. However, economic realities and FX market instability have forced him to reconsider.
“With the instability in the foreign exchange market, Dangote cannot sustain Naira transactions. He’s bleeding financially and needs to recover his investment,” he explained.
On the naira’s recent appreciation, Adigun pointed out that it was not backed by an increase in dollar supply.
“The naira always strengthens in February because China shuts down for the New Year celebrations, reducing demand for foreign exchange. There was no real factor increasing dollar supply, so this recent Naira gain was temporary,” he noted.
