An examination of oil pricing, import taxes, and refinery contracts reveals that even if the Dangote Refinery and those operated by the Nigerian National Petroleum Company Limited (NNPC) came online, the market price for gasoline would soar above N400 per liter.
As long as President Muhammadu Buhari's administration puts off finding a practical solution to the spiraling expense of gasoline subsidies, it will come back to haunt the new administration that takes office in 2019.
Only the freight costs of N24 at the central bank exchange rate and N34 at the parallel market rate would be eliminated when the Dangote and NNPC refineries start operating as anticipated next year. Although some port fees could be avoided, the price of distributing the products across the nation will rise.
There is no way the Dangote Refinery, assuming it opens as planned in the middle of 2023, could offer refined gasoline for less than N400 per litre if oil prices stay around $100 per litre. What the Dangote refinery could do at least, is to reduce petrol imports with 55 million litres daily capacity.
The average price of petrol around the world currently hovers around $1.35 per litre.
The NNPC owns a 20% share on behalf of the government in the privately owned Dangote Refinery. If the crude is sold at market price as promised by the NNPC, it would be impractical to continue providing subsidies. Half of the crude needed by the plant is said to be supplied by the NNPC.
The NNPC refineries alone, according to Mele Kyari, group chief executive officer of NNPC, cannot match a fourth of Nigeria's existing capacity, estimated at 66 million liters per day, due to rising consumption fueled by population growth. Additionally, the Federal Government is unwilling—or possibly unable—to freely provide the Dangote refinery with its own part of the crude from joint venture activities.
In order to get the funding for the renovations, Kyari had stated that the NNPC intended to contract out the country's four refineries' management and operations after mending them. He claimed that contracts for their management once the refineries are operational were already in place with the NNPC.
“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.©Standard Gazette, 2021. Unauthorized use and/or duplication of this material without express and written permission from this site’s publisher is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Standard Gazette with appropriate and specific direction to the original content.