Dangote’s Petrol Price Hike and the Limits of Local Refining
By Obamodi Oluwadamilola Faith
The Dangote Petroleum Refinery’s latest adjustment of its gantry price for Premium Motor Spirit (PMS) from N1,185 to N1,200 per litre has reopened a difficult question at the heart of Nigeria’s energy debate: Does domestic refining necessarily translate into cheaper petrol for consumers?
For years, the arrival of a massive private refinery was presented as a potential turning point for Nigeria’s troubled downstream petroleum sector. The expectation was understandable. If Nigeria could refine its own crude, the country would reduce dependence on imported petrol, save foreign exchange, eliminate international freight and some import-related costs, and eventually make fuel more affordable.
But the movement to N1,200 per litre exposes the gap between energy independence and cheap energy. They are related, but they are not the same thing.
A refinery can transform Nigeria’s supply security without automatically insulating motorists and businesses from inflation, crude oil prices, foreign exchange pressures and other market costs.
That distinction is important. A private refinery is, fundamentally, a commercial enterprise. Its scale may be unprecedented, but its economics are not fundamentally different from those of other businesses. It must acquire crude, maintain sophisticated equipment, finance operations, pay workers, transport products and recover its enormous capital investment. If its crude is priced according to international market benchmarks, domestic refining does not magically disconnect petrol prices from global oil economics.
In other words, local refining changes where the fuel is processed; it does not abolish the economics of…
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Read Full Article by Hafsat Ibrahim at economicconfidential.com
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