NNPC, Dangote, entrepreneurs and the value of petrol, By Simbo Olorunfemi

I’m not certain what to make of the information that there’s lastly an settlement in place which is able to see NNPCL beginning to load petrol from the Dangote Refinery from fifteenth September, which it’s going to then push on to entrepreneurs for onward distribution to service factors across the nation. There isn’t a doubt that it’s excellent news, as a difficult knot has been untied, with availability, one of many important 3As is ticked off and we are able to lastly witness the distribution of regionally refined petrol, which Nigerians have eagerly appeared ahead to seeing for a few years. However then, this can be a case of finding out what one would have thought would have been resolved between the 2 organisations proper from the start, utilizing inside channels. Had that been executed, we might have been saved from the pointless kerfuffle that has been witnessed in current weeks.

The settlement, based on stories, gives that entrepreneurs will purchase from NNPC Buying and selling Restricted and promote on the present pump worth. This isn’t stunning, as I had argued that such an association is the one option to preserve the present worth regime and stop an additional hike within the worth, given the projections that the value from Dangote Refinery could be greater than the present retail worth. With this association, NNPCL will proceed to function a buffer, for now, between a Dangote-reflective worth of petrol and what Nigerians pay on the pump, as yet one more hike within the worth of the product wouldn’t augur nicely for the folks, the economic system, and even the federal government.

Pending the time when the naira attains what can go as a good worth, lodging should proceed to be discovered for a moderation of the retail worth of petrol, in order that it doesn’t proceed to rise because the naira depreciates, resulting in additional erosion of the folks’s buying energy, and exacerbating the cost-of-living disaster we’re confronted with.

As I had urged in an earlier article, solely a political resolution might have probably resolved the deadlock between NNPCL and Dangote Refinery. It must be a case of the crude provided to Dangote by NNPC being priced at an inexpensive low cost to make up for the differential, or for the ‘swap’ between the 2 entities to be priced at a particular FX fee. In any other case, NNPCL must proceed to hold the burden of under-recovery on behalf of the federal government, as jacking up the pump worth is out of the query.

Not desirous to be the goal of the blowback that may include a rise within the retail worth of petrol from his refinery, Dangote Refinery pulled again from going public with its worth, electing to push the ball to the courtroom of NNPCL. However NNPCL knew the sport, returning with a groundstroke, resulting in a stalemate that left the Umpire with no alternative however to weigh in with a political resolution.

Certainly, it was inside the context of the expectation of a political resolution that Devakumar Edwin, Dangote’s vp of Oil and Fuel had stated, “We’re nonetheless in talks with the federal government about receiving crude in naira. The discussions are ongoing, and nothing has been finalised but. Some unresolved points embrace the pricing of crude, the pricing mechanism, and figuring out the suitable change fee for the naira.”

It was in that very same context that the President of the agency, Aliko Dangote, had stated that it was as much as the Federal Government Council and the NNPCL to find out the value of the product. Whereas some misinterpret Dangote’s assertion to imply that FEC/NNPCL goes to find out the value at which he’s going to promote the product, I learn that otherwise to imply that the retail worth at which the product could be offered on the pump, not the value the Refinery would promote. Certainly, he couldn’t have meant that the federal government would repair the value at which the Refinery would promote its product. However that was what some thought he meant, thus triggering heightened suspicion and additional confusion.

I’d suppose that what Aliko Dangote meant could be clearer now that the ‘implementation committee’ arrange by the federal government “to trend out the main points of the modalities for the implementation of the FEC approval” has introduced that “all agreements have been accomplished and loading of the primary batch of PMS from the Dangote Refinery will start on Sunday fifteenth September.” The assertion from the Committee says, “From 1st October, NNPC will start the availability of about 385kbpd of crude oil to the Dangote Refinery to be paid for in naira. In return, the Dangote Refinery will provide PMS and diesel of equal worth to the home market to be paid for in naira. Diesel will likely be offered in naira by the Dangote Refinery to any off-taker. PMS will solely be offered to NNPC, NNPC will then promote to varied entrepreneurs for now.”

The expectation, we’re instructed, is that there will likely be an preliminary day by day allocation of 25 million litres of petrol from Dangote Refinery to NNPC Buying and selling Restricted, which is able to then be distributed to entrepreneurs. Some stories, nonetheless, recommend that NNPCL will proceed to import “a shortfall of 15 million litres to fulfill Nigeria’s day by day demand for petrol estimated at 40-50 million litres a day.” Whereas some question the veracity of the declare that Nigeria’s day by day demand for petrol is that prime, permitting for imports ought to allow NNPCL to fulfil no matter pending obligations it may need with merchants underneath the DSDP association and different home windows by which it has been servicing the market. That will even present another supply of provide, which is taken into account vital in guaranteeing power safety. If certainly that is the case, it does appear to be a win-win, with merchants, importers and entrepreneurs attending to have a chunk of the cherry.

On the again of this settlement, I’d recommend that Dangote Refinery must discover a option to additional accommodate legit pursuits from different gamers out there and construction a compelling win-win association that may make others extra snug to be companions slightly than adversaries. It’s disturbing that months after it began producing diesel, the Refinery and entrepreneurs, are but to return to an settlement that may have them singing from the identical web page.

Devakumar Edwin claims that entrepreneurs aren’t pleased with Dangote Refinery for bringing down the value of Diesel out there, which led them to jot down a letter to the President in protest. He claimed that home patronage is at the moment at solely about 3 per cent, with the majority of the merchandise exported. Whereas the day by day loading capability is 2,900 tankers, the refinery is at the moment loading lower than 29 tankers per day, he stated. “So, it is vitally unusual that after placing the refinery to provide the merchandise regionally, each diesel I’m producing, I’ve to export. Each jet gas I’m producing, I’ve to export as a result of they don’t wish to purchase from us. So, we’re in a really unusual scenario.”

That’s unusual as it’s obscure how entrepreneurs will choose to go offshore to purchase a product whether it is certainly accessible regionally, and it’s offered at a very good worth. However the entrepreneurs have a distinct story. They declare that they’re prepared to purchase, and have been shopping for, even when not as a lot as they might, citing impediments which have stood of their method, in searching for to patronise the Refinery.

They declare that the coverage by Dangote Refinery limiting loading to a minimal of 20,000 metric tonnes is a disincentive to many entrepreneurs, as their requirement for decrease volumes, some as excessive as 15,000 metric tonnes, was denied by Dangote Refinery. “We’re deprived by the Dangote Refinery coverage of promoting large parcels of merchandise to worldwide merchants who then take such merchandise offshore Lome and resell to Nigerian oil merchants in small parcels and in market phrases that they’re used to, akin to credit score phrases, in Naira (eliminating change dangers) and in portions wanted, and naturally greater than what they paid Dangote Refinery,” they stated.

The Entrepreneurs additionally make the purpose that ought to be given the choice of paying for merchandise in Naira, which they are saying “…will scale back the attraction of buying and selling with worldwide suppliers and can scale back the strain on the Naira. However as of now, this isn’t the scenario…It is just the Refinery’s administration that may widen the scope of the patronage by stress-free all of the insurance policies that aren’t within the curiosity of the native merchants,” the entrepreneurs say.

This once more seems to be one other pointless back-and-forth between Dangote Refinery and different stakeholders within the business.  There isn’t a doubt that the approaching into the market by Dangote Refinery will upend guidelines, traditions and conventions because the business has recognized it, as what Dangote has executed in establishing such an enormous refinery is to disrupt the business inside and with out, house and overseas. It could thus be naive on the a part of the promoters of the Refinery to anticipate that different gamers whose livelihood and existence are actually underneath menace will obtain them with a bear hug. It’s also comprehensible that Aliko Dangote, having staked $23 billion within the refinery and fertiliser venture will stand idly by whereas the muse of his funding is being rocked. He has not turn into an activist out of alternative however compulsion. He has discovered that there’s a have to combat again, seeing threats to the realisation of his dream and the survival of his huge funding.

However then, he should additionally apply a little bit of higher warning and play smarter. He should discover a option to higher handle all of the stakeholders, particularly NNPCL, which holds a 7.2 per cent stake within the enterprise, in addition to the regulators and different gamers within the business. It should have been realised now that stronger footprints within the upstream and downstream sectors will assist the fortunes of the venture. That ought to make it apply itself extra to alternatives for funding or partnerships within the close to future. Certainly, the way forward for such a huge venture lies in strengthened collaboration throughout the sectors. That, correctly managed ought to see to Nigeria finally placing behind her decades-long regime of exporting crude and importing refined petroleum merchandise, which, on the peak of it, constituted over 30 per cent of whole imports for the nation.

With refined petroleum merchandise off the procuring record, and a few earnings coming from the export of merchandise by the Dangote Refinery and different initiatives, that ought to have a constructive impression on Nigeria’s FX liquidity place, easing the strain on the naira, resulting in its appreciation, and a few respite will come to roll again the excruciating results of the unprecedented enhance within the worth of petrol and the cost-of-living disaster triggered by the floatation coverage that has defied prescriptions and projections hit-and-miss free market consultants. All issues being equal, that’s.

Simbo Olorunfemi works for Hoofbeatdotcom, a Nigerian communications consultancy and writer of Africa Enterprise. Electronic mail: Editor@enterpriseafrica.ng