Oil and Gas Expert, Nick Agule has urged the Federal Government to sell Nigeria’s state-owned refineries to competent private operators, arguing that doing so would introduce competition into the downstream petroleum sector and ultimately bring petrol prices below N800 per litre.
Speaking in an interview with ARISE NEWS on Wednesday, Agule said the removal of fuel subsidy addressed only one aspect of Nigeria’s fuel pricing crisis, insisting that the government had failed to tackle the root cause by leaving the country’s refineries under the management of the Nigerian National Petroleum Company (NNPC) arguing that current international crude oil prices justified significantly lower petrol prices than Nigerians currently pay.
“I think they should just sell the refineries so that we can have effectiveness, At $72 per barrel of Brent, the realistic price of crude oil should be below 800 naira.”
While acknowledging Dangote Refinery’s strategic importance, Agule argued that the refinery now occupies a dominant position in the market. “Dangote is a dominant player. If you say he’s a monopoly, you will be right. And what happens is that regardless of the fact that Dangote is a Nigerian company and has come to save us, the government needs to regulate a monopoly more stringently. That is what happens anywhere in the world.”
“making stronger regulatory oversight necessary to protect consumers from excessive pricing in the absence of effective competition.”
He maintained that price deregulation can only benefit consumers where there is genuine market competition. “If you have price deregulation, meaning producers can charge whatever price they want, without competition, then you expose the consumers to racketeering in prices. And that is where government then comes in to ensure that the producer, in this case Dangote Refinery, is not making super profits off Nigerians, but is just making the normal refinery margins that you can find in any refinery anywhere in the world.”
Agule accused government regulators of failing to properly scrutinise refinery pricing despite having agencies responsible for monitoring competition. “It would appear to me that the government is failing in its duty, even though, of course, the minister of state for petroleum, that is not using the powers at the disposal of government. We have three regulators, at least, around Dangote Refinery. We have the Nigerian Midstream and Downstream Petroleum Regulatory Authority. We have the Federal Competition and Consumer Protection Council. We have the Standard Organisation of Nigeria. These regulators would appear to me as not doing their work.”
Using prevailing international crude oil prices, Agule argued that. “At $72 per barrel of Brent, the realistic price of crude oil should be below 800 naira. Let me use data to support that, empirical data. Dangote’s highest gantry price was 1,350 naira. So if you look at a collapse in crude oil prices from $151 to $95, which Dangote is talking about now, that’s a 40% crash. But a crash in the gantry price of 1,350 to 1,075 is a 20% crash. So why is Dangote not crashing price in line with the crude oil prices?”
“The regulator must open the books of Dangote refinery, crude oil has been selling in the 70s region now for about two months, but the fall in the gantry price is not reflecting the quickness with which the prices were increased.”
He questioned Dangote Refinery’s pricing model, saying. “Dangote himself has come to his own defence. What does he say? He says that he buys crude at a premium. And I think in their last statement, they said, look, we buy at a premium of as high as $25 now let’s not use his record. Let us admit without conceding that he spent $25 premium, so why is Dangote not crashing price in line with the crude oil prices?”
Agule called on regulators to thoroughly examine the refinery’s cost structure. “The regulator must open the books of Dangote refinery. Dangote refinery is claiming that I’m buying crude at 95. Let the regulator see it. All right.”
Responding to questions on replacement costs, Agule acknowledged that refineries hold inventory. “Dangote normally will keep stock. And he will keep stock of not less than 30 days, because, you know, anything can happen, and he wants the refinery to continue. Crude oil has been selling in the 70s region now for about two months but the fall in the gantry price is not reflecting the quickness with which the prices were increased.”
Turning to the state-owned refineries, Agule said President Bola Tinubu should have moved immediately after announcing the removal of fuel subsidy. “The day that President Tinubu made the famous announcement, fuel subsidy is gone. That is the day that the president needed to have also said, the days of NNPC mismanaging our refineries is gone.”
“If the president on day one had said, go and find me that template that President Obasanjo sold the refineries in 2007. Update it to current realities. Let me put these refineries to the market so that competent operators will take them.”
According to him, the fuel subsidy itself was merely a consequence of Nigeria’s failure to maintain functioning refineries. “The fuel subsidy which the president solved was a baby of a symptom of the collapse in the refineries.”
Agule criticised the NNPCL’s current strategy of signing memoranda of understanding to rehabilitate government-owned refineries. “Bio Jewellery, my former colleague in Shell, he is in the NNPC now. He is a competent man. I know him personally. But he has been in office for a year. And all that he has delivered for refineries is an MOU with some Chinese people. I can assure you that that is not going to work until another one year.”
He proposed outright privatisation or joint venture arrangements with experienced refinery operators. “If the president doesn’t want to sell the refineries outright, he can go into an IJV arrangement with competent operators, with a refinery just like we have in the NLNG, and these refineries will be back in the market. Of course, another way to regulate a competitor is to soften the requirements for setting up new plants in that sector. So the Nigerian government needs to make it easier for people to build refineries so that they can compete with this dominant private refinery.”
Agule also defended his assessment that Nigerians pay disproportionately high fuel prices relative to incomes. “Nigerians are buying petrol at the pump at about $8 per litre. That is the price at which the Americans are buying. The minimum wage in America is about $2,000 per month. One minimum wage in Nigeria is a mere $55. So that means a Nigerian worker can only command 55 litres of petrol, whereas his American counterpart can command 2,000 litres. You see, the Nigerian worker is hard to buy. He needs help.”
Erizia Rubyjeana
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