The recent reduction in the ex-depot price of Premium Motor Spirit (PMS) by the Dangote Petroleum Refinery has sent shockwaves through the Nigerian fuel market, potentially costing importers an average of N2.5 billion daily. The price cut, which came into effect on February 27, 2024, has sparked concerns among fuel importers and marketers, as they are now facing significant financial losses due to the price disparity between the new ex-depot price and the higher landing cost of imported petrol.

Price Reduction by Dangote Refinery

Dangote Refinery announced a reduction in the ex-depot (gantry) price of petrol by N65, from N890 to N825 per litre, marking the third price reduction in the first two months of 2024. The new prices, which were implemented on Wednesday, February 27, are now applicable to retail outlets nationwide, including MRS, Heyden, and Ardova. According to the refinery, Nigerians can now purchase petrol at the following prices across different regions:

• MRS Holdings stations: N860 per litre in Lagos, N870 in the South-West, N880 in the North, and N890 in the South-South and South-East.
• Ardova Petroleum and Heyden stations: N865 per litre in Lagos, N875 in the South-West, N885 in the North, and N895 in the South-South and South-East.

Despite the benefits for consumers, the price reduction comes at a significant cost to importers and marketers, many of whom are now forced to sell at a loss.

Higher Landing Costs for Imported Petrol

Industry figures show that the average landing cost of imported petrol is over N100 higher than the new ex-depot price at Dangote Refinery. The Major Energies Marketers Association of Nigeria reported that the landing cost of petrol was N927 per litre as of last week, N102 higher than the N825 ex-depot price at Dangote Refinery.

This price gap puts importers in a difficult position. According to the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), Nigeria’s daily PMS consumption is approximately 50 million litres, with more than half of this amount being sourced from foreign imports due to the inability of local refineries to meet domestic demand. The NMDPRA revealed that local refineries are only contributing less than 50 percent of the country’s daily petrol consumption.

Based on these figures, it can be deduced that about 25 million litres of petrol are imported into Nigeria daily. With a landing cost of N927 per litre, this would amount to approximately N23.18 billion. However, with the new price of N825 per litre from the Dangote refinery, the same quantity of petrol would cost only N20.63 billion, resulting in a daily loss of N2.5 billion for importers. If this trend continues, importers could face losses of up to N75 billion monthly and N918 billion annually.

Implications for Fuel Importers and Marketers

Fuel importers are feeling the heat from Dangote’s price cut. Several dealers have expressed frustration, noting that they may be forced to sell petrol below their costs due to the competitive pricing from Dangote. “Some of us who have imported PMS are feeling the heat of Dangote’s decision to slash prices. Though it is a good thing to reduce petrol prices, it is taking a toll on our business,” one dealer explained, speaking on condition of anonymity.

Marketers are also concerned about the impact of the price cuts on their existing stock. “Some of us just bought products, either from MRS or other sources, and all of a sudden, the price was reduced. It comes with a cost,” said Hammed Fashola, National Vice President of the Independent Petroleum Marketers Association of Nigeria (IPMAN). Fashola added that while the price cuts were beneficial to consumers, they were also causing financial strain on marketers who had already purchased stock at higher prices.

Dangote’s Strategy to Discourage Fuel Imports

Some fuel retailers believe that Dangote’s price cuts are part of a broader strategy to discourage fuel importation. “Dangote understands the competition in the business, and this latest reduction will further discourage fuel imports. There will be losses as we may have to drop our prices too,” a retailer said. They noted that as the Dangote Refinery continues to reduce prices, many importers may eventually stop importing fuel, opting to source locally produced petrol instead.

This shift in pricing dynamics could eventually lead to a greater reliance on domestic refineries, such as Dangote’s, for fuel supply, which would reduce Nigeria’s dependency on foreign imports. However, retailers are calling on Dangote to create a level playing field for all market players, ensuring that smaller importers are not driven out of business by aggressive price cuts.

Economic Impact and Expert Opinions

Economists and industry experts have weighed in on the issue, with some suggesting that the losses incurred by importers are a necessary part of a competitive market. Professor Adeola Adenikinju of the University of Ibadan pointed out that Dangote’s continued reduction in prices may force importers to internalize their losses, as the market becomes more competitive. “Every business has its own risk. For those who have gone to imports, these are very volatile products,” he said.

However, Adenikinju cautioned against monopolistic tendencies, urging the government to ensure that Dangote’s pricing policies do not drive competitors out of business. “The government has to be sure that there’s no attempt whatsoever to take out any other competitors,” he warned. He also called on the Nigerian National Petroleum Company Limited (NNPC) to strengthen its operations and provide a viable alternative to Dangote’s dominance in the local fuel market.

Conclusion: A Competitive and Volatile Market

As the price of petrol continues to fluctuate, both importers and local refineries like Dangote are playing a crucial role in shaping the future of Nigeria’s fuel market. While consumers benefit from the price cuts, importers are grappling with significant losses, and the market is becoming increasingly competitive. The key challenge moving forward will be balancing the interests of all players in the industry, ensuring that consumers have access to affordable fuel while maintaining a fair and competitive environment for both local and foreign suppliers.