The Nigerian National Petroleum Company (NNPC) Limited has recently made a significant decision to quit its role as the sole distributor of petrol from the Dangote Refinery. This move comes amid rising petrol prices and mounting pressures from financial strains within the national oil firm.
The NNPC’s latest petrol price hike is viewed by many as a step towards fully deregulating the downstream sector of Nigeria’s oil market. However, insiders suggest that the decision was primarily driven by the financial burden NNPC faces due to subsidy payments and its role as a middleman.
The Dangote refinery, which officially began petrol production on September 3, 2024, initially planned to sell its petrol exclusively to the NNPC. However, after logistics challenges delayed petrol lifting from the refinery, the first deliveries only began on September 15.
An insider explained that the supply from the refinery fell short of expectations. “While the petrol discharge from the station may have sliced off a portion of the country’s fuel import requirements, it was still far below expectation,” the source said. The refinery delivered only 102,973,025 litres, significantly less than the 400 million litres it promised.
This volume was barely enough to meet the country’s demand for just two days, leading to further challenges for the NNPC, which had to absorb nearly N13 billion to keep prices manageable for consumers.
The price of petrol has fluctuated significantly due to changes in the foreign exchange (FX) market. According to reports, the NNPC’s petrol prices changed six times within 15 days as the unit price per litre adjusted with the FX rate.
An insider explained that NNPC, as the sole off-taker of the product, paid varying prices for petrol during this period. The prices per metric tonne ranged from $714.15 to $759.40, depending on market conditions. Consequently, the naira price for petrol fluctuated between N882.18 and N960.85 per litre.
This volatility in pricing was directly tied to the prevailing foreign exchange rates. For instance, the cost of petrol rose sharply by mid-September due to an increase in the FX rate, forcing the NNPC to sell petrol at a fixed price of N749.99 to stabilize the market.
The “Unbearable Burden” of Subsidy Payments
On October 7, the NNPC’s decision to step back from its role as a middleman was confirmed, as insiders described this position as an “unbearable burden.” The company is grappling with a $6 billion debt owed to international fuel suppliers.
NNPC’s financial struggles continue to threaten petrol supply across the country. Aliko Dangote, chairman of Dangote Industries Limited, has publicly called for an end to subsidy payments, labeling them as unsustainable. This sentiment has resonated with the NNPC, which is under increasing pressure to streamline operations.
The federal government had previously mandated that the Dangote refinery sell petrol exclusively to NNPC, leaving independent marketers with no direct access to the product. This arrangement faced criticism from various quarters, including the House of Representatives, which called for a more open market.
With the NNPC exiting its role as the sole distributor, market experts predict that petrol prices may rise at the pumps nationwide. “The prices are expected to increase initially, but we hope they will stabilize in the coming days,” said an insider. The shift is anticipated to allow competition among marketers, potentially leading to a more stable supply chain.
As the NNPC hands over distribution rights, independent marketers are expected to buy petrol directly from the Dangote refinery at prevailing market prices. This change could lead to an increase in costs for consumers, especially in the short term.
Public Reaction to Price Hikes
Many Nigerians are concerned about the rising petrol prices. The country has been grappling with fuel scarcity and inflation, making petrol price hikes a contentious issue.
One commuter, Abiola Akintola, expressed frustration, saying, “We can’t afford to pay more for petrol. It affects everything—transportation, food prices, and our daily lives.”
Public sentiment reflects a growing unease about how these price increases will impact everyday life and the economy at large.
Government’s Response and Future Outlook
The federal government has been working on plans to stabilize the downstream oil sector and alleviate the burden on consumers. However, the latest developments raise questions about the effectiveness of these efforts.
As the NNPC steps back, there is hope that a freer market will lead to competition and, ultimately, better pricing for consumers. However, concerns remain about the immediate impact of rising costs on families and businesses.
