The Federal Government has commenced discussions to establish the pricing structure for Premium Motor Spirit (PMS) to be produced by the Dangote Petroleum Refinery, with production expected to commence in September 2024.
This follows the government’s recent decision to begin selling crude oil to local refineries in naira starting from October 1, 2024.
According to sources within the oil marketing sector and the Implementation Committee on crude oil sales, chaired by the Minister of Finance, Wale Edun, several meetings will take place in the coming weeks to solidify the pricing framework for PMS from the Dangote Refinery.
One of the central issues under consideration is whether the government will offer subsidies on the Dangote Refinery’s petrol or allow the product to be sold at market rates. Oil marketers have cautioned that without government intervention, the cost of petrol from the refinery may surpass current pump prices, which currently range between ₦600 and ₦700 per litre across Nigeria, while the landing cost stands at approximately ₦1,117 per litre.
Currently, the Nigerian National Petroleum Company Limited (NNPCL), the sole importer of petrol in the country, sells the product at roughly half its landing cost under a subsidy arrangement with the government. The company’s Chief Financial Officer, Umar Ajiya, recently disclosed that NNPCL had absorbed a ₦7.8 trillion shortfall in the first seven months of 2024 due to the subsidy.
In a recent development, the Federal Government’s committee overseeing crude oil sales to local refineries has reached an agreement with the Dangote Refinery, with plans to commence petrol sales from the $20 billion facility in September 2024. Further discussions involving the government, the refinery’s management, and key stakeholders in the oil industry will determine the final pricing strategy, as Nigeria seeks to balance market realities with consumer affordability.
An official from the Federal Ministry of Petroleum Resources, who spoke anonymously, emphasized the challenges the NNPCL faces in continuing to shoulder the subsidy burden. The official suggested that without government subsidies, Nigerians would need to pay the true cost of petrol, highlighting the potential impact on the already struggling economy.
“The government can only intervene through subsidies. There’s nothing else NNPC can do,” the official noted.
“It’s unsustainable for NNPC to continue carrying the subsidy burden, especially given the company’s financial situation.”
Regarding the sale of crude oil to the Dangote Refinery, the source confirmed that payments would be made in naira, but a comprehensive framework is still being finalized. The source also pointed out the challenges posed by the shortage of U.S. dollars and indicated that the exchange rate for crude sales to Dangote would be benchmarked.
A senior official from the Major Oil Marketers Association of Nigeria (MOMAN) commented on the situation, explaining that while members are ready to source PMS from the Dangote Refinery, pricing remains a significant concern. The official highlighted the logistical processes for acquiring fuel from Dangote, noting that while these are well-established, the primary issue is the price and the currency in which payments will be made.
The official also expressed skepticism about the government’s ability to maintain subsidies, stating that the ongoing subsidy policy is unsustainable in the long run. The official further stressed the need for alternatives, such as the government’s Compressed Natural Gas (CNG) initiative, to alleviate the financial burden of PMS subsidies.
Mustapha Zarma, National Operations Controller of the Independent Petroleum Marketers Association of Nigeria (IPMAN), echoed these concerns, emphasizing that without a change in the current pricing cap on petrol, it would be challenging for marketers to purchase Dangote’s PMS.
Zarma pointed out that Dangote, as a business, is unlikely to sell PMS below the cost of production, and that a new agreement on pricing with the government is necessary. He added that the government’s policy of selling crude oil in naira to the refinery will play a crucial role in the ongoing discussions.
A recent post from the official X (formerly Twitter) account of the Ministry of Finance indicated that the Implementation Committee, led by Minister Wale Edun, has been actively reviewing progress on key initiatives, including the upcoming naira-based crude oil sales to the Dangote Refinery.
The first delivery of PMS from the Dangote Refinery is expected in September under the existing agreements, according to Dr. Zacch Adedeji, Executive Chairman of the Federal Inland Revenue Service, who is also the Chairman of the Technical Sub-Committee on this matter. Further details on the pricing framework are anticipated in the coming weeks as discussions continue.
