Premium Motor Spirit (PMS) importers are bracing for significant losses, estimated at N2.5bn daily and N75bn monthly, following the latest price slash announced by Dangote Petroleum Refinery.
Investigations by The Punch indicate that the landing cost of petrol, as reported by industry stakeholders, surpasses the new ex-depot price set by the refinery by over N100 per litre.
Dangote Refinery announced a reduction in its ex-depot price, lowering it by N65 from N890 to N825 per litre, effective Wednesday, February 27. This marks the second reduction since the start of the year and the third within two months.
The refinery also stated that Nigerians could now access the newly priced fuel through its distribution partners, including MRS, Heyden, and Ardova.
> “Nigerians will be able to purchase the high-quality Dangote petrol at the following prices in all our partners’ retail outlets. For MRS Holdings stations, it will sell for N860 per litre in Lagos, N870 per litre in the South-West, N880 per litre in the North, and N890 per litre in the South-South and South-East, respectively.
> “The same product will also be available at the following prices in Ardova Petroleum and Heyden stations: N865 per litre in Lagos, N875 per litre in the South-West, N885 per litre in the North, and N895 per litre in the South-South and South-East,” the company stated.
This price adjustment presents a major challenge for fuel importers, who now face the possibility of selling petrol below their cost price.
According to the Major Energies Marketers Association of Nigeria, the current landing cost of petrol stands at N927 per litre, which is N102 above Dangote’s new ex-depot price.
With Nigeria’s daily PMS consumption hovering around 50 million litres, as per the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), local refineries still struggle to meet demand.
> “Following Mr President’s withdrawal of subsidy, the announcement of May 29, 2023, we immediately saw a steep decline in consumption. And between then and as we speak, we have continued to do plus or minus 50 million litres a day. Of these 50 million litres averaging for each day, less than 50 per cent of that is contributed by domestic refineries. And so the shortfall by the PIA is sourced by way of imports.
> “For clarity, what I am saying is that the contribution of local refineries towards sufficiency is less than 50 per cent,” stated NMDPRA Chief Executive, Farouq Ahmed.
Based on this estimate, importers are responsible for sourcing approximately 25 million litres of PMS daily. If the landing cost remains at N927 per litre, importers will be spending around N23.18bn per day. However, with Dangote Refinery pricing the same volume at N20.63bn, the difference results in a loss of N2.5bn daily for importers.
Importers Express Concern
Following Dangote’s price adjustment, some fuel importers revealed they might be forced to sell at a loss, given that consumers would naturally gravitate towards cheaper options.
Some industry players have acknowledged that Dangote’s consistent price cuts for petrol and diesel are making importation less attractive.
> “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 price, it is taking a toll on our business. That’s the simple truth,” said a dealer, who requested anonymity.
Another retailer suggested that the refinery’s move is aimed at discouraging 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. At the end of the day, some of us will source our products locally. I will just advise Dangote to create a level playing field for all,” the retailer remarked.
If marketers are compelled to sell PMS at N825 per litre, they will incur daily losses of N2.5bn, translating to N76.5bn monthly and N918bn annually.
Industry Reaction
Chinedu Ukadike, National Publicity Secretary of the Independent Petroleum Marketers Association of Nigeria (IPMAN), affirmed that importers would bear significant losses due to the new price adjustment.
> “Dangote may ‘kill’ fuel importers by this continued lowering of prices. All those importers who have challenged Dangote that they want to import cheaper fuel, as they’re just nearing the seashore, Dangote will reduce the price, and they will run into trouble,” Ukadike noted.
Meanwhile, IPMAN’s National Vice President, Hammed Fashola, acknowledged the impact on business operations, though he maintained that the price cut benefits the general public.
> “As independent marketers, we are happy that the Dangote refinery has brought down the price again. It is good for us. It is good for the business. It reduces financial burden. At least we have enough room to play now. But it comes with a cost. The sudden price changes come with a cost.
> “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. It is going to be a big loss to everybody. It depends on your volume. If you are an importer, your loss will be bigger. If you are a marketer and you have more tension, your loss will be more.
> “It depends on the stocks you are having. Everybody is feeling the heat. But the beauty of it is that the masses are happy. Everybody is happy. We should not be greedy. We have to bear it. That is the beauty of deregulation, where you have more players like importers, local refiners, and others. Now we can see the difference,” he added.
Fashola also reflected on the pricing disparity between imported and locally refined products.
> “I think things are getting clearer now. Personally, I am happy with what is happening now. We will get it right as we move. I am sure it will get to a stage where the price will be stabilised, when we can run a certain template for two to three months. When we get to that level, business will be good for everybody.”
Economic Perspective
Professor Adeola Adenikinju, an economics expert at the University of Ibadan, argued that importers must bear their losses, considering the competitive nature of the market.
According to him, with Dangote and other refineries ramping up production, the need for importation could diminish.
> “The Dangote refinery announced recently that it’s able to meet domestic demand. That means, technically, we don’t really need to import because the domestic production is sufficient. Whatever it’s doing with what the other refineries are producing, it should be able to meet domestic demand. So imports may not be necessary,” he stated.
He further explained that businesses dealing in volatile products like PMS must account for market fluctuations.
> “Every business has its own risk. For those who have gone to imports, these are very volatile products. So, I’m sure that’s the reason they have to internalise. I don’t think there’s anything that can be done to address their case.”
However, Adenikinju cautioned against potential monopolistic behaviour.
> “The only thing we have to ensure is that Dangote is not trying to create a monopoly, using its pricing policy to actually undercut its competitors. So, at the end of the day, the competitors are out of business.
> “The government has to be sure that there’s no attempt whatsoever to take out any other competitors. So, there are no surreptitious plans. Once this is about the forces of demand and Dangote refinery can produce more effectively and efficiently, there’s literally nothing we can do; the importers will have to bear their losses.”
He also called on the Nigerian National Petroleum Company Limited (NNPC) to step up as a viable competitor.
> “NNPC should come out and let Nigerians know what is going on with Port Harcourt and other refineries so that there will not be hearsay. I think it’s very important that the NNPC builds confidence among Nigerians and positions itself as a key competitor to Dangote refinery,” he advised.
