The Nigerian National Petroleum Company Limited (NNPCL) is ending its exclusive purchase agreement with Dangote Refinery, a move that opens the market for other petroleum marketers to directly buy petrol from the refinery, Premium Times has reported, citing sources.
This is coming as the Nigerian government’s arrangement to sell crude oil to Dangote Refinery in naira, which is expected to reduce the cost of petroleum products, kicks off.
This significant shift signals a change from NNPC’s earlier role as the sole off-taker of Dangote Refinery’s products and aligns with current market practices for deregulated products, where refineries sell on a willing buyer, willing seller basis.
This development follows a statement by Devakumar Edwin, vice president at Dangote Industries Limited, who, in September, announced that Dangote Refinery had commenced processing petrol and that NNPC would buy its products exclusively. However, NNPC has since clarified that the refinery, like any other domestic refinery, could sell its products to any marketer under the deregulated system. Despite this, NNPC initially began loading petrol from the refinery exclusively in mid-September, leaving independent marketers out of the equation.
Tensions around this exclusive arrangement escalated, leading to a motion in the House of Representatives on September 26. The motion, introduced by Oboku Oforji (PDP, Bayelsa), called for the federal government to mandate NNPC and Dangote Refinery to allow independent marketers access to lift petrol directly from the refinery.
Oforji argued that excluding independent marketers threatened competition in the sector and warned that such practices could lead some marketers to resort to importing products to stay competitive, which could further complicate Nigeria’s fuel supply dynamics.
The House also urged Dangote Refinery to establish depots or partner with other entities to build tank farms across Nigeria’s geo-political zones to improve public access to petroleum products. Oforji’s motion sharply criticized NNPC’s monopoly, which he described as “tantamount to greed” and pointed to NNPC’s poor track record in managing Nigeria’s refineries and crude resources over the years.
Following pressure from lawmakers and stakeholders, sources close to the matter revealed to Premium Times that NNPC is now set to relinquish its role as the sole off-taker, allowing other marketers to purchase petrol from Dangote Refinery at market prices. This change is expected to promote competition, which could stabilize fuel supply chains and lead to more competitive pricing for consumers.
However, the decision by the NNPC to end its exclusive purchase arrangement with Dangote Refinery is believed to be not just a simple shift in market dynamics. It is also seen as a highlight of the unstable relationship between the two entities. Their relationship has been fraught with issues ranging from crude oil supply challenges, pricing disagreements for refined products, and even allegations of sabotage.
Crude Oil Supply Challenges
One of the primary points of tension between NNPCL and Dangote Refinery has been the supply of crude oil, which is the lifeblood of any refinery. The 650,000 barrels per day Dangote Refinery, which is expected to meet a significant portion of Nigeria’s fuel demand, requires a steady and adequate supply of crude oil from the NNPCL as part of the obligation of its 20% stake in the refinery.
However, in July, Dangote disclosed that due to NNPC’s failure to fulfill its financial obligations, its stake in the refinery has been reduced from the initially agreed 20% to a mere 7.2%.
The NNPCL’s inability to supply crude oil forced Dangote Refinery to source the product from outside Nigeria.
Another point of contention has been the pricing of refined petroleum products. Under the exclusive off-take arrangement, NNPCL had substantial control over how much it paid for the refined products from Dangote Refinery. With NNPCL as the sole buyer, there is little for a free market, creating a bottleneck for competitive pricing.
Beyond the issues of supply and pricing, there have also been allegations of attempts to sabotage the refinery by players within the industry. When Dangote Refinery initially began processing petrol, there were reports suggesting that certain actions by the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) and NNPCL were undermining the refinery’s operations. This led to public exchanges between representatives of the entities, and Aliko Dangote accusing the others of deliberately sabotaging the refinery to sustain the petroleum import market.
In light of these tensions, NNPCL’s decision to withdraw from its exclusive off-take agreement could be seen as an attempt to ease the strained relationship and promote a more competitive and transparent market structure. Opening the market for independent marketers to directly purchase from Dangote Refinery may reduce allegations of monopoly, which have been a recurring criticism against NNPCL.
For independent marketers, the ability to directly negotiate with Dangote Refinery presents an opportunity to break free from the stranglehold of NNPCL and major marketers, whose dominance has often been seen as anti-competitive. These marketers, many of whom had been excluded from earlier deals, are now in a better position to enter the market on more favorable terms.
It remains to be seen how quickly these changes will impact the market and whether independent marketers will be able to secure favorable terms to purchase from the Dangote Refinery. Nonetheless, the move marks a pivotal moment in Nigeria’s downstream sector as this new turn is expected to liberalize the market.
