The commissioning of the Dangote Refinery was seen as a landmark achievement for Nigeria’s petroleum industry, promising to significantly boost the country’s fuel self-sufficiency by meeting a large portion of domestic demand. However, what could have been a smooth transition into the petroleum market has instead been marred by a public dispute between the Nigerian National Petroleum Corporation Limited (NNPC Ltd) and the Dangote Refinery over the ex-refinery price of petrol.
Both organisations issued counter-statements, and the NNPC Ltd, as the sole off-taker, went further by releasing a pricing template reflecting its retail prices across the country. The silence from the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), despite its regulatory mandate under the Petroleum Industry Act (PIA) 2021, has raised critical questions about the effectiveness of its oversight during this dispute.
Under the PIA, the NMDPRA is tasked with ensuring market transparency, fairness, and competition within the petroleum industry. However, its failure to act during this public dispute has drawn criticism, particularly because its chief executive, Engineer Farouk Ahmed, is a retired NNPC employee who still draws a pension from the corporation. This raises concerns about a potential conflict of interest and whether it has affected the regulator’s ability to impartially manage the situation.
- ‘Manufacturers express no confidence in Nigeria’s economy’
- Flood: Zulum constitutes panel to disburse fund, lists EFCC, DSS, others as members
Sections 32 and 33 of the PIA give the NMDPRA the authority to promote competition and ensure transparency in the pricing of petroleum products. NNPC Ltd’s role as the sole off-taker has created market imbalances, and the regulator’s silence only intensifies public concerns regarding impartiality.
Historically, Nigeria operated under a uniform pricing system regulated by the Petroleum Equalisation Fund (PEF), which ensured price consistency across the country, regardless of transportation costs. The PIA 2021, however, abrogated the PEF, leading to regionally varied fuel prices that now reflect transportation costs. This policy shift has resulted in price disparities across Nigeria, with regions farther from refineries facing higher prices.
NNPC Ltd’s pricing template reflects these variations, but the absence of an overarching pricing guide from NMDPRA has exacerbated the problem, leading to increased consumer frustration, particularly in regions with higher transportation costs.
The NMDPRA has argued that, in a fully deregulated market, it is no longer responsible for setting indicative benchmark prices and that market forces should determine prices. However, this position contrasts with best practices in other deregulated markets worldwide, where regulators still provide indicative benchmark prices to prevent profiteering and ensure that competition remains fair.
For example, Australia and South Africa both publish regular benchmark prices to protect consumers from excessive pricing and regional disparities. In Europe, many deregulated markets follow a similar model, issuing benchmark prices to prevent predatory pricing and ensure transparency.
Similarly, the UK energy regulator, Ofgem, does provide indicative benchmark prices for energy products through its Energy Price Cap. The price cap sets a maximum price per unit that energy suppliers can charge customers on standard variable tariffs, ensuring prices are fair and reflect actual costs, particularly in volatile market conditions.
This cap is reviewed and updated quarterly, providing guidance that helps prevent profiteering by suppliers in a deregulated market. Ofgem’s price cap serves a similar purpose to indicative benchmarks in other sectors, including petrol in deregulated fuel markets. It ensures that while suppliers can set their prices based on market dynamics, they do so within a framework that protects consumers from excessive charge.
In the Nigerian context, a similar approach could help mitigate price disparities and prevent predatory pricing practices, especially after the abolition of the Petroleum Equalisation Fund under the PIA. Sections 32 and 33 of the PIA state that the NMDPRA should ensure fair market competition and regulate pricing mechanisms to promote transparency. By failing to issue benchmark prices, the regulator risks enabling price exploitation, particularly in regions where competition is limited.
NNPC Ltd’s position as the sole off-taker from the Dangote Refinery gives it considerable influence over pricing and market dynamics. While the company asserts that its pricing template applies only to its retail outlets, its dominant role in the supply chain means that its pricing decisions influence the broader market. This raises concerns about monopolistic behaviour, which goes against the principles of free competition enshrined in the PIA.
Section 32 of the PIA specifically mandates the NMDPRA to foster a competitive market environment by ensuring that no single entity controls pricing to the detriment of other market participants. In this case, NMDPRA’s inaction has allowed NNPC Ltd’s market dominance to go unchecked, leading to monopolistic tendencies.
Addressing the conflict of interest: Given Farouk Ahmed’s prior ties to NNPC, NMDPRA should have taken clear steps to demonstrate its independence from the state-owned entity. A public explanation of how it manages potential conflicts of interest could have reassured the public and industry stakeholders about the regulator’s impartiality.
Issuing indicative benchmark prices: The NMDPRA should have provided indicative prices as a reference for marketers, particularly to protect consumers from regional price disparities. This is in line with Section 33 of the PIA, which empowers the regulator to ensure transparent pricing mechanisms in the petroleum sector.
Enhancing market competition: NMDPRA should have facilitated access to refined products from the Dangote Refinery for other marketers to ensure that competition is not stifled. By allowing NNPC Ltd to be the sole off-taker, NMDPRA has created a monopolistic environment, which is a direct violation of Section 32 of the PIA.
Explaining the pricing mechanism: NMDPRA should have provided a detailed explanation of the ex-refinery pricing framework between the Dangote Refinery and the NNPC Ltd, as mandated by Section 33. This would have promoted transparency and prevented the dispute from escalating.
Reassuring the public: In light of rising regional price disparities and public concerns, NMDPRA should have issued a public statement clarifying its regulatory role and the steps it was taking to prevent exploitation in the market. This would have fulfilled its obligation under Section 38 of the PIA, which calls for protecting the interests of consumers.
The NNPCL-Dangote Refinery price dispute highlights critical gaps in Nigeria’s deregulated petroleum sector. While deregulation is intended to encourage competition, the absence of key regulatory mechanisms – such as indicative benchmark prices – has allowed market disparities and potential monopolistic practices to flourish.
The PIA entrusts NMDPRA with the power to ensure fairness and transparency, but its inaction and the potential conflict of interest surrounding its leadership have eroded public trust.
To restore confidence, the NMDPRA must act decisively by issuing benchmark prices, promoting competition, and demonstrating its independence from key players like the NNPCL. By doing so, it can fulfil its mandate under the PIA, ensuring that Nigeria’s petroleum market operates in a fair, competitive, and transparent manner for the benefit of all stakeholders.
Yahaya resides and works in Abuja
Join Daily Trust WhatsApp Community For Quick Access To News and Happenings Around You.
