Dangote Refinery Criticizes Weak Oversight and Price Issues in Nigerian Fuel Market

[keypoints]

• Dangote refinery is facing challenges due to weak regulatory enforcement of Nigeria’s updated fuel standards, leading to undercutting by imported fuels that may not meet the new sulfur limits. As a result, the refinery has had to hold 500 million litres of gasoline in storage since its September production started.
• Despite the new 50 ppm sulfur cap introduced by Nigeria’s fuel regulator, NMDPRA, a lack of testing facilities has hampered enforcement, allowing traders to continue importing potentially substandard fuel. Dangote has urged for protectionist policies to support local refining and reduce reliance on imported fuels.
• Additionally, Dangote’s pricing operations are strained due to an unresolved price framework with NNPC, which has committed to providing crude in Naira. However, disagreements over exchange rates and pricing formulas have delayed invoicing, complicating the refinery’s ability to set competitive fuel prices.

[/keypoints]

Dangote Refinery Criticises Weak Oversight and Price Issues in Nigerian Fuel Market

Nigeria’s Dangote refinery has raised concerns about the impact of weak regulatory enforcement on its fuel supply chain, attributing a significant portion of its recent distribution challenges to unchecked imports of lower-quality fuel.

Aliko Dangote, CEO of the 650,000 barrels per day (b/d) refinery, emphasised that poor enforcement of the country’s new fuel quality standards has led to a surge in substandard fuel entering the Nigerian market, undercutting local prices.

Since beginning gasoline production in September, Dangote has had to store around 500 million litres due to dwindling demand amid intense price competition from imports.

The Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) recently reduced the permissible sulphur content in gasoline to 50 parts per million (ppm) to improve public health, in line with ECOWAS standards.

However, Dangote argues that the regulator’s limited testing facilities and auditing capacity have hindered enforcement, allowing cheaper, lower-quality fuel to dominate the market.

Dangote refuted claims that legal imports are less expensive than its production, insisting that only substandard fuel could undercut its prices.

European suppliers are increasingly enforcing the 50 ppm sulphur cap, but new blending hubs in Malta and offshore Lomé facilitate the introduction of discounted, lower-quality fuels.

Dangote executives claim one international trader recently rented a depot near the refinery to blend high-sulphur fuels, undermining the local market.

The refinery has also encountered issues with its crude supply arrangement with the Nigerian National Petroleum Corporation (NNPC), which holds a 7.2% stake in the project.

An agreement was made to use Naira for crude transactions to mitigate foreign exchange risks, but challenges persist as both parties have yet to agree on a consistent exchange rate and pricing model.

Setting competitive selling prices is difficult in the absence of a set purchase price, according to Dangote. Currently, Dangote sells its gasoline at N990 per litre, a price it says aligns with NNPC’s domestic benchmark.

These challenges have led Dangote to suggest a more protectionist trade approach to support Nigeria’s burgeoning refining industry, citing international examples where tariffs have been implemented to support domestic industries and job growth.