Babajide Fadoju
The Dangote Petroleum Refinery has defended its latest fuel price increases, attributing the upward adjustments to the cost of crude oil purchased earlier and the lengthy process involved in securing, shipping and delivering crude to the refinery.
The explanation came as the price of Premium Motor Spirit (petrol) climbed further across the country, with the product now selling between N1,310 and N1,400 per litre, depending on location.
Petrol is currently selling for about N1,310 per litre in Lagos and Ogun states, while the price has risen to N1,350 or more in northern states and other locations farther from the refinery.
The latest increase followed the Dangote refinery’s decision to raise its PMS gantry price by N65 per litre, from N1,200 to N1,265, effective August 29. It was the third increase announced by the refinery in eight days.
It was observed that the price hikes occurred even as global crude prices were declining, despite the US-Iran tensions.
However, a senior executive of the Dangote refinery, who spoke with The PUNCH on condition of anonymity because he was not authorised to speak publicly on the matter, said the prevailing international crude price could not be used as the sole basis for determining the cost of petrol being produced from crude already purchased by the refinery.
The executive explained that there was a significant time lag between when crude was purchased and when it eventually arrived at the refinery for processing.
Raising a series of questions, he said, “If you want to buy crude at today’s price, when do you think you will complete the actual transaction to purchase the crude? When will you get a laycan? When can you get a ship chartered and a charter party agreement signed? When will the ship go to load the crude and secure the laycan for discharge? When is the sailing time before the crude eventually gets into your tank?”
He also questioned how the refinery would account for large volumes of crude purchased earlier when prices were higher. “And what will happen to the huge quantities of expensive crude that you bought long ago and stored in the tanks? These are the factors determining the change in prices, not an immediate crude price change,” the source stated.
The explanation provides Dangote’s defence against criticism that its repeated petrol price increases have come despite a decline in international crude benchmarks.
The refinery first increased its gantry price from N1,165 to N1,185 per litre on August 21. Five days later, it raised the price by another N15 to N1,200 per litre, effective August 26. On Saturday, August 29, it announced another N65 increase, taking the price to N1,265 per litre.
The three adjustments have therefore raised Dangote’s gantry price by N100 per litre in eight days, representing an increase of about 8.6 per cent. The latest increase also moved the refinery’s coastal PMS price from N1,582,380 to N1,669,545 per metric tonne.
In its price communication, the refinery directed customers to return their existing Authorisations to Collect for repricing, stating that a new volume contract would be issued for immediate loading resumption.
The PUNCH reports that the impact of the latest adjustment is already being felt in the retail market, with petrol now selling at about N1,310 per litre in Lagos and Ogun and N1,350 or more in parts of the North and other distant markets.
In some locations, the product is approaching N1,400 per litre, it was gathered. The difference in pump prices across locations is partly linked to the cost of moving petrol from the coastal refinery and depots to distant markets, with transportation and other distribution expenses adding to the cost of the product.
This is one of the reasons the Dangote refinery plans to extend its free distribution scheme across the country.
The latest increase has also raised questions over the relationship between international crude prices, the cost of refined products and the pricing decisions of domestic refiners.
Data contained in the Major Energies Marketers Association of Nigeria’s Energy Bulletin for August 27 showed Dangote Refinery’s PMS gantry price at N1,200 per litre on August 27.
More importantly, the estimated spot import-parity price of petrol into tanks stood at N1,222.32 per litre, while the NPSC-NOJ spot estimate was N1,221.32 per litre. This meant that, as of August 27, Dangote’s N1,200 gantry price was N22.32 below the spot import-parity estimate of N1,222.32 per litre.
However, two days later, the refinery raised its gantry price to N1,265 per litre, putting the new price N42.68 above the August 27 spot import-parity estimate. It is yet to be confirmed whether or not the import parity is still at the August 27 rate.
The crude market has remained volatile amid geopolitical tensions involving Iran and the United States and uncertainty over crude flows through the Strait of Hormuz.
According to Oilprice.com, Brent crude closed at $88 per barrel, while WTI closed at $83 on Friday, indicating a 5 per cent drop. But the Dangote executive argues that such daily movements do not necessarily correspond with the cost of crude already acquired by a refinery.
Crude procurement, according to him, involves negotiating and completing the transaction, securing a loading window, chartering a vessel, loading the cargo, sailing to Nigeria and securing a berth before the crude can be discharged into the refinery’s storage tanks.
Therefore, crude being processed at a particular time may have been purchased when the international price was substantially different from the prevailing benchmark.
The executive also pointed to the refinery’s existing inventory, arguing that large quantities of crude purchased at higher prices remain in storage. The refinery’s position is that reducing the price of petrol immediately whenever the international crude benchmark falls could mean selling products made from expensive inventory at a price based on cheaper replacement crude.
The issue is particularly significant for Dangote because the refinery does not rely entirely on Nigerian crude. Reuters reported on August 26 that between 30 and 40 per cent of the refinery’s crude feedstock was being imported.
The latest price hikes have, nevertheless, heightened concerns among petroleum marketers, who have warned that the volatility is making it difficult to plan their businesses.
The National Publicity Secretary of the Independent Petroleum Marketers Association of Nigeria, Chinedu Ukadike, said marketers were dealing with several factors that could push up the cost of petrol.
“We are facing the challenges of the volatility in the market. There are policies of the government, policies of the international market, and exchange rates. These are inherent dispositions to the increase in pump prices. We are not refiners to be able to determine the price of petroleum products.”
He, however, acknowledged that Dangote had previously reduced its petrol price in response to movements in the international market. “But, I also believe that Dangote has been consistent in terms of reducing its price in line with the international market rate. With this situation now, we cannot, at this particular point in time, structure our business. It’s going to be too difficult for us to structure our business,” he stated.
Ukadike also warned that continued tensions between Iran and the United States could worsen price irregularities. “The more the Iran and United States crisis continues to persist, the more we’ll be having these irregularities in price,” he added.
The IPMAN official said the price fluctuations were already being reflected in the cost of petrol across the country. “Also, bear in mind that the price of crude oil is determined by the international market. So, for all the independent marketers, we will continue to strive. Prices have been fluctuating, and we are still loading. The price of petrol will continue to be volatile as long as the price of crude is not stable and other factors relating to the financial situation,” Ukadike noted.
Ukadike said marketers and consumers were ultimately bearing the consequences of the price movements. This is coming at a time when the presidential candidate of the African Democratic Congress, former Vice President Atiku Abubakar, said he would reintroduce fuel subsidies to reduce hardship and the cost of living.