Answering these very sensitive questions requires an
in-depth analysis of various factors at play here. Majorly, prices of premium
motor spirit (PMS) and other petroleum products are determined by the cost of
crude oil, the rate of dollar to naira and government interventions such as
subsidies, and reduction in taxes or levies.
Answering these very sensitive questions requires an
in-depth analysis of various factors at play here
Firstly, Nigeria will sell crude oil to the Dangote Refinery
at international prices through the Nigeria National Petroleum Corporation
(NNPC). Should it sell it for less, it would be a form of subsidy.
As of today, the crude oil price is about $73 per barrel
which translates to approximately N90,000 per barrel, using the official naira
to dollar rate. Reports show that a barrel of crude oil yields about 170 litres
of refined products.
Meanwhile, dividing N90,000 by 170 litres gives N530 per
litre, which means that the cost of the raw crude oil alone comes to about N530
per litre. That’s how much the Dangote Refinery would pay on average per litre
of products it produces.
What is more is that petrol production takes a chunk of the
cost, which will ultimately affect petrol prices. So adjusted for that, petrol
would cost more per litre, say N600 per litre.
Considering the actual cost of running the refinery, the
Dangote refinery margin, taxes and levies, transportation to various filling
stations across the country, and the retailers’ margins, the thoughts of having
the price crash may not be happening soon.
Bearing all these in mind, the actual cost (not talking of
any profit for anyone) with the current exchange rate and the price of crude
oil already makes the cost a number that is a lot more than N600 per litre.
By the way, the reason why PMS is now selling for about N620
to 670 per litre today is because the NNPC is subsidising it. As at December
2023, Hong Kong, Monaco and Iceland are the three countries with the most
expensive PMS prices in the world with N2,804, N2,129 and 2,071 per litre
respectively.
Should the pump price remain the same, what impact will the
refinery have on Nigeria and Nigerians?
Provision of job opportunities: The refinery is expected to
create thousands of direct and indirect job opportunities. According to the
latest report titled “Sailing through troubled waters”, by CardinalStone, a
research firm, the Dangote refinery currently employs about 33,000 individuals
and is projected to rise to 100,000 once the facility reaches full capacity.
Saving on foreign exchange: Nigeria will no longer need to
import refined petroleum products, saving billions of dollars annually. Nigeria
can now spend that money on other important things. “… the refinery has the
potential to result in FX inflows of about $15.0 billion for Nigeria,
equivalent to 45.8% of the current gross foreign exchange reserves. This
substantial foreign exchange gain is expected to have a positive ripple effect
on manufacturing companies by improving liquidity across various foreign exchange
channels,” the report said.
Stabilising the naira: Petroleum products are the biggest
drain on the nation’s forex. Eliminating this demand will create more supply of
dollars than demand, reducing and ultimately stabilising the value of the
naira.
Reduction in Inflation: Nigeria’s headline inflation rose to
28.2 percent in November 2023, according to the National Bureau of Statistics.
If the exchange rate comes down, inflation will naturally come down as well.
Meanwhile, inflation is projected to revert to its long-run average of 14
percent by 2025.
Boosting industries and productions: BusinessDay reports
that GSK, P&G and some other multinational companies made moves to exit
Nigeria due to an unfriendly business environment. The Dangote refinery has
come to save the day for allied industries. It is like a rising tide that lifts
all boats.
Long queues and fuel shortages will end: With the Dangote,
Port-Harcourt and Warri refineries, if they operate at full capacity, Nigerians
can finally say goodbye to lingering fuel scarcity and long queues at the
filling stations.
Transitioning to an era of self-sufficiency: The Dangote
refinery is set to transition Nigeria from a period of relying on other nations
for petroleum products to self-sufficiency in petroleum refining, which is a
huge step forward for the country. When the refinery reaches its full capacity,
Nigeria can export both crude oil and refined petrol to neighbouring countries.
On the whole, the Dangote Petroleum Refinery’s commencement sparks anticipation of positive changes, yet the immediate impact on petrol prices remains uncertain. Factors like crude oil costs, exchange rates, and government interventions are pivotal. Despite this, the refinery promises job creation, reduced import reliance, naira stabilisation, inflation reduction, industrial growth, and potentially ending fuel shortages. Nigeria edges closer to self-sufficiency, a vital step for economic and energy independence.