Etim EtimThe two major trade groups in the petroleum downstream market are up in arms with Dangote Refinery, accusing it of monopolistic tendencies to dominate the sector and dictate prices.
Independent Petroleum Marketers Association of Nigeria (IPMAN) and Petroleum Products Retail Outlets Association of Nigeria (PETROAN) are insisting that petrol from Dangote Refinery is costlier than imported substitutes and so, they should be allowed to import the product for the benefit of Nigerians. But in a counter argument, Dangote Refinery says its pricing is benchmarked against international prices “and we believe our prices are competitive relative to the price of imports; that any product brought into the country at a lower price must be of inferior quality, and could pose health risks to Nigerians and damage their vehicles.
Join our WhatsApp Channel“If anyone claims they can land PMS at a price cheaper than what we are selling, then they are importing substandard products and conniving with international traders to dump low quality products into the country without concern for the health of Nigerians and the longevity of their vehicles. Unfortunately, the regulator (NMDPRA) does not even have a laboratory facilities which can be used to detect substandard products imported into the country’’, the refiner stated in a press statement last Sunday.
This controversy throws up two options with far-reaching consequences for the Nigerian economy: should we return to the era of fuel importation and bring in cheaper products, even if they are of poor quality, or do we resist importation and stick with what Dangote and other local refiners produce? We should consider these options dispassionately before we make a choice. First, what are the implications of continued fuel importation?
Importation will further depreciate the value of the Naira, drain our scarce foreign reserves and exacerbate inflation and cost-of-living crisis. Recall that at the peak of our fuel importation, the CBN had told us that 40% of foreign exchange is used for fuel imports. If the imported substitutes are cheaper as IPMAN stated, the savings motorists make in fuel price may just be offset by a concomitant spike in inflation and the cost of car repairs.
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But what do we gain as a country and a developing economy if we do away with importation and buy only from Dangote, even if its price is higher than the price of cheaper imported products? We shall be supporting and protecting domestic industrialisation; creating jobs for our young people; enhancing tax income for the government and establishing incentives for other foreign and domestic investors. A potential investor is always eager to understand the attitudes of the government towards new investments – is the government pro business or not? Are there enough incentives and protection for domestic production? The manner we treat Dangote today is sending some signals to other would-be investors.
It is natural for a new producer to launch its products or services with relatively initial high prices; but in the long-run, charges begin to fall as output increases and economies of scale sets in. Even before its prices begin to dip, the manufacturer surely offers other benefits to the economy which importers don’t. This is why nations, including developed ones, go the extra mile to protect domestic investments. It is the reason US government imposes high tariffs on goods imported from China and the Biden administration does not approve the purchase of American steel giant, United States Steel Corporation, by Japanese investors. Similarly, Nigeria must take steps to protect and encourage Nigerian investors who borrow money from banks and invest in this economy to create products and generate employment for our teeming young talents. A domestic producer pays taxes to the government and provides many philanthropic assistance to the community in which it operates.
We cannot afford to go back to fuel importation. The Petroleum Industry Act clearly stands against fuel importation whenever local production is available, and, as economists are wont to explain, importation exports jobs and brings in inflation. Those who are touting importation of petrol as an alternative to domestic refining are buccaneers and profiteers who are not interested in the growth and development of this country. This is the time for the Tinubu administration to be very categorical and firm on this matter by insisting that Nigeria will not go back to the era of fuel importation, and that we must be intentional about developing our country and encouraging production.
Our domestic investors, big or small – whether it is Innoson Motors; Ibom Airlines; Dangote Refinery or that small bakery in your neighbourhood – deserves our encouragement and incentives. They create jobs; pay taxes; generate own electricity; add value and are the reason the government is hoping for a $1 trillion dollar economy.
I acknowledge that Nigerians are facing severe challenges due to high fuel prices. I am also aware that Dangote Refinery was built at a humongous cost (close to $15 billion) borrowed from both international and domestic sources. Bank charges are high and breakeven point is still far; and to that extent, it must charge commensurate prices for its products. The refinery should therefore strike a balance between the need to cover costs, especially its variable costs, in the immediate term, and the imperatives to consider the diminished purchasing power of the consumers.
Clearly, petrol enjoys inelastic demand, but there’s a limit to what consumers can take in terms of price increase. The refinery’s tax-free status and guarantees supply of Naira-denominated crude oil should help it to absorb some costs and keep product prices competitive. Similarly, NNPC should tell Nigerians the status of the turnaround maintenance of the Port Harcourt refinery. Will the four refineries ever come back to life?
Etim is a journalist and author
Etim Etim
ETIM ETIM is a journalist, banker and author. He has been a member of the Editorial Board of The Guardian, a Regional Manager in Access Bank and is currently a Columnist in Prime Business Africa, The Cable and Businessday newspapers.
He is also the Chief Executive of Stein Meyer Communications, a major media consultancy and the author of the best-selling book, "Akwa Ibom Heroes: Inside Story of the Fight for Abrogation of Onshore-Offshore Oil Dichotomy" and co-author of another book, "Osinbajo Strides: Defining Moments of an Innovative Leader".
