Success Nwogu 
It is imperative to avoid conflict in Nigeria’s downstream sector so as to ensure seamless distribution of petroleum products, avoid scarcity as well as ensure protection of stakeholders, SUCCESS NWOGU writes
Dangote
The recent statement by the President of Dangote Group, Alhaji Aliko Dangote, that he is still fighting for the survival of his 650,000 barrel per day capacity refinery built at a cost of $20 billion at Free Zone, Lekki, Lagos has attracted divergent responses.
Dangote, who spoke at a recent investor forum in Lagos, said he was determined to fight on and that he was hopeful he would win the fight for the refinery.
The richest man in Africa had said that some individuals, who “for a very, very long time” have “made a lot of money from” governmentsubsidised oil imports into Nigeria, were the ones trying to sabotage the 650,000 barrels per day refinery.
He said: “Those groups have funded resistance to the Bola Tinubu government’s removal of petrol subsidies and are opposed to the refinery operating easily in the country. “We’re fighting, and the fight is not yet finished.
But I have been fighting all my life, and I am ready and 100 per cent sure I will win at the end of the day.” Following reactions to his statement, Dangote clarified his claim that some influential Nigerians, whom he called “cabals”, were against the smooth operations of his refinery.
He identified the ‘cabal’ as major marketers and traders, and not the new leadership of the Nigerian National Petroleum Company Limited, which some people though he was referring to.
He said the cabals “are some major oil marketers and traders who were bent on frustrating the efforts of President Bola Tinubu in revamping the nation’s economy.”
Analyst
But an energy analyst, Mfei AlolNugo, in a statement titled: “The illusions of a cabal in the mindset of an entrepreneur,” said Dangote’s statement that he will defeat the cabal in Nigeria’s oil sector was not only misleading, but also a strategic diversion from the pressing issues facing the nation’s energy landscape.
He added that it was a diversionary move from the alleged Dangote’s monopolistic embrace, which other stakeholders in the downstream petroleum sector will find difficult to accept considering its impact on their businesses and Dangote’s antecedents in the cement and food sectors.
He said: “In a country long plagued by fuel scarcity, mismanagement, and state-sanctioned inefficiency, Aliko Dangote has rebranded himself as a ‘saviour’.
“Draped in the robes of patriotism and progress, he now accuses other sectorial operators: marketers, depot operators, logistics providers, and fuel station owners, of forming a “cabal.”
“With one sweeping accusation, he seeks to erase decades of sacrifice, resilience, and investment made by thousands who kept Nigeria running when government refineries collapsed and NNPC vessels sat idle at sea.
“It is, therefore, necessary to shed light on the realities that contradict the assertions of the existence of a cabal in that narrative.
Monopoly
“Aliko Dangote’s $20 billion, 650,000 barrels per day capacity refinery, positions itself as a solution to Nigeria’s refining challenges. However, this behemoth of a refining capacity raises significant concerns about monopolistic and domineering control of the market space.
“The dangers of such centralization include stifling competition and leaving the nation vulnerable to supply disruptions. Let us not confuse scale with benevolence.
The Dangote Refinery, boasting a 650,000 barrel-per-day capacity, may be the largest in Africa, but its emergence has ushered in something far more dangerous than inefficiency and it is called monopoly under the guise of national interest.
“Dangote Refinery’s preference restricting off takers to ex-gantry loading operations in contrast to marine coastal vessel loadings for private depots is a move towards monopolistic dominance of the market.
The refinery had consistently released prices which put landing cost of its products, ‘into-tank’ for private depots, at a disadvantage in contrast to ‘ex-gantry loading’ price.”
He added: “This disadvantage is the main reason adduced by marketers who opted for petrol (Premium Motor Spirit) imports as the cost ‘into-tank’, shipping expenses inclusive, were lower and more beneficial to the buying publics than Dangote Refinery’s coastal cargo (shipping expenses included) prices.
“Several marketers experienced a situation of paying for product today at a higher price and Dangote Refinery slashes the price of the same product the following day while the initial buyer, a marketer, a private depot or even a retailer, is now stuck with expensive stock that will be hard to sell without making a loss. This impacts
Labeling other sectorial participants or operators as a cabal to be ‘defeated’ overlooks the critical role they play in sustaining Nigeria’s energy needs
negatively on the marketer and discourages stocking of large quantities fearing sudden price drops.
But for the import option as enshrined in PIA 2021; this could have created supply disruptions at retail outlets which could result in fuel scarcity, return of fuel queues and ‘black-market’ fuel racketeering to the detriment of the populace.
“The refinery is projected to handle over 2,000 trucks per day (inbound and outbound), transporting crude oil, refined products, chemicals, and other materials.
This will place intense pressure on local roads, many of which are already poorly maintained or inadequately sized resulting in accelerated road deterioration.
Such concentration of heavy-duty trucks and tankers increase the wear and tear, and without timely maintenance, roads could develop potholes, cracks, and structural failures more rapidly.
“With concentrated usage of heavy-duty vehicles on the roads, major roads in the vicinity of the refinery may experience additional strain due to increased freight handling while last mile, smaller local roads may be damaged as they are used more frequently by support vehicles and logistics operators with the probability of accident rates, particularly involving tankers, rising.
All these are avoidable if marine distribution option, to the various depots spread nationwide, is embraced by the refinery.”
An energy commentator, Barry Ikhazobo, warned that a dominant Dangote Refinery would give marketers very little bargaining power reducing the opportunity to compete for patronage at the retail end and thus restricting the buying publics to its dictated price which is an offshoot of the margin given to the retailer who lifted directly from the refinery’s gantry.
He added that off takers from Dangote Refinery would become price-takers, fully at the mercy of the refinery’s pricing and sales strategy which, in the long term, with regular price cuts, will erode the working capital of many smaller players who can’t absorb price shocks.
He argued that this reduces competition and ironically makes the market less healthy despite all these, it is the ‘cabal’ that he focuses on!
Crude supply agreements
He opined that the refinery’s operations had been bolstered by substantial crude oil allocations from the Nigerian National Petroleum Company Limited (NNPC), totalling over 84 million barrels since its inception.
He said: “While supporting local refining is commendable, the preferential treatment and exclusive agreements raise questions about fairness and transparency in the allocation process.
Dangote’s receipt of first choice or priority volumes of Nigeria’s Bonny Light and other high-grade crude at stable naira prices, regardless of fluctuations in the international market grants the refinery a vast advantage, a pricing edge, over smaller local refiners or modular plants even if these also qualify for the same naira for crude oil policy.
“Dangote may price refined products based on international benchmarks (e.g. Platts prices) rather than cost-reflective naira inputs, despite paying for crude oil in naira.
This allows the refinery supernormal profit margins, as crude oil is cheaper in naira, but fuel is sold at prices benchmarked to USD. Consumers pay international prices while Dangote enjoys local cost structures but nay it is the ‘cabal’ that he focuses on! Impact on other sector operators/marketers.
“The dominance of a single refinery has significant implications for private depot operators whose business model is to lift their fuel cargoes via vessels for delivery into their various depot storage facilities and retail same through their company owned / branded retail outlets’ network or via the vast network of independent petroleum station outlets.
Private depot operators had viewed Dangote Refinery’s tanker trucks loading gantry set-up, the largest, not only in the country but also in West Africa, with trepidation as it connotes the intentions of large-scale tanker trucks loading and distribution operations, which had hitherto been the area of influence and dominance of private depots, and while the competition is welcome, he focuses on the ‘cabal” He added:
“Many marketers, however, did not have direct sales contracts or easy access to lift products due to the refinery’s sales policy and some marketers’ inadequate financial muzzle.
Only bigger, betterfinanced firms were able to negotiate good supply deals and offtakes were restricted to gantry tankertrucks loading operations.
“When eventually its marine sales loading operations began, the refinery’s pricing policy also put such option at a disadvantage as the landing cost, ‘into-tank’ for any off-taker, was consistently higher than the ex-gantry loading price.
This disadvantage and the opportunity, as enshrined in the Petroleum Industry Act (PIA) 2021, that allows marketers to import local supply shortfall, encouraged private depot operators to opt for PMS imports, with competitive lower landing cost and by extension, retail price.
“This was however viewed as ‘unfair advantage’ by the refinery’s management with the resultant series of price slashes, ostensibly to undercut import competition.
The Nigerian buying public is however better off as the price war simply made the prices of diesel and petrol cheaper than it ordinarily would have been.
“The shift in pricing dynamics, with Dangote’s refinery influencing petrol prices, has led to a price war that challenges the sustainability of smaller operators. Such market conditions threaten the diversity and resilience of Nigeria’s fuel distribution network.
“With massive daily output and cost advantages, Dangote could undercut local competitors, offering fuel at thin margins just long enough to force them out and the implication is ‘classic predatory pricing’.
The idea that one man should singularly dictate refinery outputs, pricing, and distribution channels in a country of over 200 million people isn’t visionary, it’s predatory and once competition is wiped out, prices could be increased with impunity, locking in a monopoly, yet he focuses on the ‘cabal.’
“Labeling other sectorial participants or operators as a cabal to be ‘defeated’ overlooks the critical role they play in sustaining Nigeria’s energy needs while competing amongst themselves, giving the buying populace more options in retail service delivery from which they can choose.
While the Dangote Refinery represents a significant investment in the sector, a pride and proud achievement to all Nigerians, it is essential to foster a competitive and inclusive market that benefits all stakeholders.
Monopolistic tendencies must be checked to preserve the integrity and resilience of Nigeria’s downstream petroleum industry and not waste precious energy on fighting a nonexistent cabal.”
PETROAN
The National President of the Petroleum Products Retail Outlet Owners Association of Nigeria, Billy Gillis-Harry, who cautioned against rumpus in nation’s downstream, added that there was no need to fight.
He advised that Dangote should be allowed to refine its products with the naira-forcrude deal while importers and other traders should be given a level playing field to operate.
He appealed to the Federal Government to supply enough crude to Dangote and other refineries. Gillis-Harry, who opined that there will be competition in any business, advised that the competition should be healthy.
IPMAN
The Public Secretary of the Independent Petroleum Marketers Association of Nigeria (IPMAN), Chinedu Udadike, called for reconciliation between Dangote and the marketers.
He said there should be mutually beneficial interaction and transactions among Dangote and the marketers. He said: “Marketers are of everybody, DAPPMAN members, IPMAN members, MEMAN members, NNPC Retails are all of them are marketers.
“Marketers have to two places: those that are in the downstream distribution chain and those who are importing and distributing, like the DAPPMAN members, they are all marketers. I think there is a missing line between Dangote and some of these people.
It is for them to sit down together and see how they resolve their differences. If Dangote is producing and maybe more MEMAN members and DAPPMAN members are busy going outside their country to import petroleum products, that means there is an issue.
And that issue needs to be reconciled with Dangote. It is either Dangote is not giving them a profitable margin for them to be able to patronise him. “Rather, they insist on going outside to import petroleum products to see where they can get meaningful margin.
There is no way somebody would want to do business without having an interest or profit in that business. So that is why there is a missing link. And I also believe that what will resolve this is dialogue. “
Last Line
“Dangote should provide marketers with reconciliation and understanding as well as with better pricing to enable them to take care of their wears and ties and logistics in promoting their business.
They cannot just invest millions of naira in tank farms and at the end of the day, Dangote is selling through the gantry and also through the vessel and they are not being patronized. There will be no return on investment.
“Dangote has also built a refinery here in Nigeria, who is also trying to ensure that he is producing to be able to meet the domestic demand and export demand.
He will also not like people to leave his refinery to go outside and import petroleum products. So this little gap, I feel that by the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) should be able to come in and resolve this line so that business will be as good as usual and there will be no witch-hunting from either side. “
