How oil cartels’ grip on Dangote refinery fuels price hikes

After a few months of solace, Nigerians could be facing another hardship as fuel prices surged due to the Federal Government’s reluctance to sell crude oil to the Dangote refinery in naira, largely influenced by the brazen activities of oil mafias, writes DARE OLAWIN

It appears the fear of the President of the Dangote Group, Alhaji Aliko Dangote, that the mafias in the oil sector would frustrate his $20bn oil refinery is gradually manifesting with current events unfolding in the petroleum sector. Since the refinery commenced operations last year, it has been having challenges with crude supply, prompting the founder to raise the alarm that international oil companies were sabotaging his investment.

President Bola Tinubu’s intervention brought about the sale of feedstock to the Dangote refinery in naira, giving it ample opportunity to supply enough fuel to the local market. This ended months of fuel queues in filling stations and made fuel a bit affordable to the masses.

With the supply of crude in naira, the Dangote refinery continued to crash petrol prices across the country. From about N1,100 per litre, the company slashed the price of premium motor spirit to N860.

But importers of petroleum products lamented the repeated reduction of petrol prices by the refinery. Some of the importers who spoke with our correspondent anonymously lamented that they were compelled to sell below their costs, as consumers only buy from where the product is cheaper.

While Nigerians were rejoicing over the price slashes, fuel importers and retailers said they were counting losses. According to some of them, Dangote was planning a monopoly by making importation less attractive with how it was dropping the prices of petrol and diesel.

The importers said they managed to sell their imported products with little or no margin due to the need to compete well in the market.

“Some of us who have imported PMS felt the heat of Dangote’s decision to slash prices. Though it was a good thing to reduce petrol prices, it is taking a toll on our business. That’s the simple truth,” a stakeholder said.

Another retailer noted that the Dangote refinery is reducing prices to discourage fuel importation, saying many will have to stop bringing in petroleum products from other countries.

The PUNCH reports that importers lost an average of N2.5bn per day and N76.5bn in a month due to Dangote’s sudden price change.

When the Dangote refinery lowered the price in March, the Nigerian National Petroleum Company Limited had to reduce its pump prices to N860 per litre, though at a huge loss to the state-owned oil company.

Since December 2024, the Dangote refinery has been ahead of other key players in the downstream sector, changing prices whenever it felt there was a need for that. It was observed that the NNPC reacted to market pressure by lowering its price anytime Dangote called the shots, a total departure from tradition.

Lately, it was observed that the queues usually seen at NNPC stations have vanished to other private filling stations like MRS. This was due to the price differential and the claim that the Dangote petrol lasts longer in fuel tanks than others.

Before the Dangote refinery came on stream, the NNPC used to dictate the prices of PMS under a regulated petroleum sector. However, a report by Energy Intelligence said the 650,000-barrel-per-day Dangote refinery has been transformational both for Nigeria’s downstream sector and for the Atlantic Basin oil products market.

It was said that the refinery “has broken state-owned NNPC’s tight monopoly on refining and products marketing in Nigeria and has structurally shifted Atlantic Basin gasoline balances, pressuring European margins.”

As the refinery continued to enjoy public acceptance and momentum, it was observed that some cartels in the industry were offended as their businesses suffered low patronage. Aside from the price differentials, there is also the claim of fuel quality. Many motorists abandoned their regular filling stations in search of MRS, Heyden, and Ardova—the Dangote partners.

With the price cuts led by the Dangote refinery spreading across the country, Nigerians heaved sighs of relief, thinking the hardships were subsiding. In fact, President Bola Tinubu himself expressed pleasure that fuel prices were going down.

In his Ramadan message on February 28, Tinubu was quoted as saying, “The exchange rate is stabilising, and fuel prices are declining, signalling a brighter future.”

However, news started trickling in mid-March that the NNPC and the Federal Government were not ready to continue the naira-for-crude deal, and this marked the beginning of another price hike.

To importers and other competitors, the naira-for-crude deal emboldened the Dangote refinery to lower the prices of PMS repeatedly, forcing them and the NNPC to do so even when it was affecting their margins. They believe that selling crude oil to the refinery in the local currency gave it undue advantages over its competitors. So, they urged the government not to renew the deal after the first phase ended in March.

Recall that when the Federal Government initiated the deal in mid-2024, the idea was to strengthen the naira by reducing spending on foreign exchange earnings on the importation of fuel into Nigeria.

The President’s Special Adviser on Revenue, Mr Zacch Adedeji, who also serves as Chairman of the Federal Inland Revenue Service, said the move would mitigate Nigeria’s heavy reliance on foreign exchange for crude oil imports, accounting for roughly 30 to 40 per cent of its forex expenditure.

The revenue chief said by denominating crude oil transactions in naira, the government expects to significantly lighten its forex burden, with estimated annual savings of $7.3bn. It is also expected to reduce monthly forex expenditure on petroleum products to $50m from approximately $660m.

“Monthly, we spend roughly $660m on these exercises, and if you analyse that, that will give us $7.92bn in savings annually,” he stated.

The presidential aide further explained, “With this approval, this has reduced by a minimum of 90 per cent because what we have today will mean the transaction is now done in our local currency, not only with Dangote refinery but with all local refineries for all our local consumption, and this will stabilise the pump price.”

However, the initiative might be going into extinction as experts worry that the naira-for-crude deal might turn into another policy somersault, a bane affecting the nation’s economy.

On March 19, the Dangote Group announced the suspension of petrol sales in naira because the Federal Government had stopped supplying crude in naira.

“Dear valued customers, we wish to inform you that the Dangote Petroleum Refinery has temporarily halted the sale of petroleum products in naira. This decision is necessary to avoid a mismatch between our sales proceeds and our crude oil purchase obligations, which are currently denominated in US dollars.

“To date, our sales of petroleum products in naira have exceeded the value of naira-denominated crude we have received. As a result, we must temporarily adjust our sales currency to align with our crude procurement currency,” the refinery stated.

Immediately after the announcement was made, depot owners jerked up their prices from around N825 to about N900 per litre.

Experts and players in the downstream warned that the Federal Government should not stop the naira for crude transactions, but the Federal Government remained silent until the pump prices jumped up.

Over the weekend, the Dangote Group, which has been a champion in price cutting, also bowed to pressure. From N860, the pump price of its petrol jumped to N930, as displayed by its partners in Lagos—MRS, Heyden, and Ardova. This was more or less a sign of victory for other players as they adjusted their pumps. Some now sell PMS at N970/litre.

A source told our correspondent that some forces were mounting pressure on the Federal Government not to renew the naira-for-crude deal so that Dangote wouldn’t be able to drop prices anymore.

The Depot and Petroleum Products Marketers Association of Nigeria did not mince words when it asked the Federal Government to cancel the deal, arguing it was inimical to the country’s economy.

Even when the Federal Government said the deal could save the country $7.3bn annually, the executive secretary of the Depot and Petroleum Products Marketers Association of Nigeria, Olufemi Adewole, disagreed, saying, “The naira-for-crude-oil transaction framework presents significant risks that could affect Nigeria’s foreign exchange stability and deter foreign direct investment.”

Amid calls on the government to reconsider the transaction to give the masses affordable petroleum products, Adewole emphasised that crude oil transactions are traditionally carried out in US dollars due to its stability and global acceptability. He stressed that failure to align with this international standard could isolate Nigeria from global markets, diminishing trade opportunities and discouraging investment inflows.

“The global oil market operates in US dollars due to its stability. Continuing the policy could alienate trade partners and investors who rely on the predictability of the dollar,” he stated.

He further noted that “reactionary policies often create skewed economic benefits that primarily favour select industry players rather than the broader economy.”

Adewole asserted that tying crude oil transactions to the naira could exacerbate these challenges.

“The naira has experienced significant fluctuations over the years, driven by inflation and exchange rate instability. If crude oil transactions are linked to the naira, these issues will only worsen, potentially triggering capital flight and causing foreign investors to seek alternative markets. This would negatively impact Nigeria’s economic growth, the sustainability of the sector, and the efficiency of the oil and gas value chain,” the DAPPMAN boss argued.

Reacting, the Vice President of the Independent Petroleum Marketers Association of Nigeria, Hammed Fashola, urged the Federal Government not to stop the naira-for-crude deal, describing it as a game changer to cushion the effects of the fuel subsidy removal. He urged DAPPMAN to pity the poor masses who cannot afford a litre of petrol.

“The citizens need to be considered in anything we do. If we said that there is no more subsidy, fine; but that kind of naira-for-crude arrangement would help us to bring down the prices of petroleum products and make them affordable for citizens. I don’t think we should go against that,” he stated.

Fashola said the depot owners started the price war by saying they had imported PMS cheaper than that of Dangote refinery, and the facility reacted by crashing the price.

“When the price war started, it was DAPPMAN that was even driving Dangote to drop prices. They were the ones who announced that they purchased a product cheaper than Dangote’s, and Dangote reacted. You can see the way everything was playing out before, which is good. That is a check and balance. So, there is nobody who is playing a monopoly on anything. I think DAPPMAN is trying to defend its territory. At least, so that they can compete fairly well.

“So, maybe they see that it is the naira-for-crude arrangement that is giving Dangote refinery priority or more advantage. But I don’t think they should look at it that way because it is helping local consumers. They talked about the economy; they should leave that to the government. Let the government see how it’s affecting them.

“Ordinarily, there’s crude allocated for local refineries. If you look at it that way, the only thing the government can do is to increase the production of crude. If they can do that, nobody will be complaining again. And the government too will not be losing revenue. We all know that crude is a major source of government revenue. But, at the same time, we should not kill Nigerians because we want to make money in dollars,” he submitted.

With the price of petrol inching closer to N1,000 in some parts of the country, certainly, the president can no longer boast of declining fuel prices.

Today, the surge in fuel prices is having ripple effects on the masses, causing transport fares to skyrocket and leaving Nigerians dismayed. The sudden shift in government policy has eroded the relief they had been hoping for, replacing it with growing concern and uncertainty.

The president should rise and tame the oil mafias, whom Dangote said he never knew were stronger than their counterparts in drug trafficking.

It is expected that the NNPC under the new leadership will do better.