THE INSIDER: Why NNPC hiked petrol price and quit as middleman to Dangote

Although the latest petrol pump price hike by the Nigerian National Petroleum Company (NNPC) Limited is seen as a step towards the full deregulation of the downstream sector, the huge subsidy payments and its sole-distributor role have become a significant burden on the national oil firm, insiders have told TheCable.

The Dangote refinery officially began petrol production on September 3 with plans to sell only to the NNPC.

After more than a week, petrol lifting from the refinery began on September 15, arriving at the pump stands to the delight of Nigerians who desire an end to Nigeria’s chronic petrol importation — with eyes on cheaper pump prices.

An insider said the delay in lifting petrol — also called premium motor spirit (PMS) — owed to logistics challenges, noting that the supply from the refinery also fell below expectations.

“While the PMS discharge from the station may have sliced off a portion of the country’s fuel import requirements, it was still a far cry from expectation as the refinery only delivered 102,973,025 litres, out of the 400 million it pledged to supply within the period,” the insider told TheCable.

It is understood that the volume provided by the Dangote refinery within 15 days “was barely enough for the amount required for only two days”.

“The Nigeria National Petroleum Company (NNPC) had to cough out nearly N13 billion for Nigerians to buy the commodity at the price they did in the second half of September,” the source said. 

Evacuation analysis seen by TheCable shows that about 2,207 trucks were used by the national oil firm and other marketers to lift PMS from the facility between September 15 and September 30.

OIL PRICE, FX VOLATILITY

The unit price per litre tumbled with the prevailing foreign exchange (FX) rate, resulting in a change in the price of the commodity about six times within the 15 days under scrutiny.

“The NNPC, as the sole off-taker of the product, paid between $746 per metric tonne when the lifting started picking up to $759.40 and sliding down to $714.15 per metric tonne by the end of September,” the insider explained.

He said the naira price oscillated between N882.18 and N960.85 per litre — depending on the purchase and FX rates on the days of each transaction.

The insider said a day before the announcement of truck mobilisation, the NNPC’s first consignment signed off on September 14 was received at N882.18 per litre using the FX of N1,546.41 per dollar.

By September 18, according to the source, the product price and FX rate increased to $759.1 and N1,656.49/$, respectively.

“This sharply affected the product price in naira to N960.85,” he said.

“However, by September 20, the product price slimmed along with the FX rate which dropped to N1,544.02, bringing the PMS price to N893.35. Though the product price from the refinery had come down to $714.15 by the end of the month, the worsening of the FX rate to N1,657.42 made the PMS price close at N937.30.

“To maintain stability at the pump price, the NNPC Trading sold the product to its retail company and other marketers at a fixed price of N749.99 throughout the period.

“With this, the company topped up an average of N133 per litre for every litre bought from the refinery. This came to over N12.5 billion for what a senior official called a ‘paltry 103 million litres’.”

‘UNBEARABLE BURDEN’

On October 7, reports of NNPC’s decision to quit its sole off-taker role with the Dangote refinery circulated.

Insiders told TheCable that the middleman role played by the national oil firm in distributing the PMS has caused it an “unbearable burden”.

This comes as NNPC struggles to clear a $6 billion debt owed to international fuel suppliers. The company has been dealing with serious financial strains, a situation that continues to threaten petrol supply.

In a recent interview with Bloomberg, Aliko Dangote, chairman of Dangote Industries Limited (DIL), had asked the federal government to stop subsidy payments, which he described as unsustainable.

Sources said due to this, the NNPC will be forced to relinquish its role as the sole supplier and allow other marketers to access the product directly from the Dangote refinery at the prevailing market price — an outcome the federal government had tried to prevent.

On September 14, the federal government had said the refinery would sell petrol only to the NNPC, adding that interested marketers would have to buy the product from the national oil firm.

The house of representatives had frowned on this arrangement, asking the federal government, on September 26, to allow independent marketers to buy petrol directly from the plant.

The insiders believe that with NNPC quitting as the sole distributor, fuel prices will likely jump at the pumps nationwide, as an augmented amount will now be passed to the consumers.

“The prices are however expected to stabilise in coming days as freeing up of the market would induce competition and potentially stabilising supply chains,” another source said.