Dangote Refinery’s High Petrol Price: A Blow to Nigerians’ Hopes and the Complexities of Nigeria’s Energy Crisis

By Aminu Adamu

The recent announcement that petrol from the newly inaugurated Dangote Refinery will sell at N990 per liter has sparked widespread frustration and disappointment among Nigerians. Hailed as Africa’s largest refinery and one of Nigeria’s greatest industrial investments, the Dangote Refinery was anticipated to reduce the country’s dependency on imported fuel, alleviate perennial fuel scarcity, and lower petrol prices. For a nation that boasts vast oil reserves yet consistently grapples with high energy costs, the refinery initially symbolized hope, promising Nigerians affordable, locally-produced fuel.

Yet, this optimism has quickly shifted to skepticism and frustration. Instead of a significant price relief, Nigerians face a retail price that remains prohibitively high, deepening inflation and squeezing households already struggling with rising living costs. This development highlights the broader, complex issues that have long plagued Nigeria’s oil sector—from inefficient refineries and market control by petroleum marketers to the influence of powerful cabals and regulatory challenges.

The Moribund State of Nigerian Refineries

Nigeria’s four state-owned refineries, located in Port Harcourt, Warri, and Kaduna, were built to transform Nigeria’s abundant oil reserves into refined petroleum products for domestic consumption. Ideally, these refineries could meet the nation’s fuel demands and protect it from the fluctuating costs of the global oil market. Yet, for years, they have operated far below their installed capacities or remained entirely inactive. This underperformance is not merely a matter of outdated infrastructure but also results from years of mismanagement, underinvestment, and lack of political will for reform.

Over the years, attempts to revamp these refineries have been marred by corruption and policy inconsistencies. Billions of naira have been spent on “turnaround maintenance” contracts with little visible outcome. While some administrations have attempted to privatize the refineries, these efforts have either been stalled or reversed due to political and public opposition, leaving Nigeria heavily dependent on fuel imports.

This inability to process crude oil locally has led to Nigeria’s paradoxical situation as Africa’s top oil producer that is yet a net importer of refined petroleum products. This dependency has had far-reaching implications on petrol prices, leaving the market vulnerable to international oil price fluctuations and the high costs of importation

Impact of Petrol Price Hike on Inflation

Fuel prices in Nigeria are not just a transportation expense; they are a backbone of the country’s economy, influencing the prices of almost every other good and service. The recent hike to N990 per liter has exacerbated inflation, driving up costs of goods, transportation, and services, and worsening the burden on Nigerian households. According to data from Nigeria’s National Bureau of Statistics (NBS), the inflation rate has been hovering at multi-decade highs, primarily driven by increases in food prices and transport costs.

The consequences of this inflation are far-reaching. Small businesses that rely on fuel to power generators amid unreliable electricity supplies face significant cost pressures. For a small enterprise, each price increase in fuel means tighter margins, lower profit, or even the need to pass costs onto customers. Public transport costs, a major expense for many Nigerians, have risen as well, further straining households. As a result, consumer spending has decreased, weakening economic growth and reducing Nigerians’ purchasing power.

Nigeria’s fuel-driven inflation also affects other critical sectors like agriculture and manufacturing, where transportation and energy are essential inputs. Thus, a rise in fuel costs leads to a rise in production costs, leading to a cascading effect of increased prices across various sectors, contributing to a cycle of inflation that is difficult to break.

Petroleum Marketers’ Role in the Price Hike

Petroleum marketers, who operate as intermediaries between refineries and consumers, play a significant role in the pricing structure of fuel. They purchase refined petroleum products and distribute them to filling stations across Nigeria, setting retail prices based on various cost factors. Their profit margins, transportation costs, and operational expenses all contribute to the final price of petrol, and in some cases, marketers adjust prices based on speculative or anticipated costs.

In a deregulated market, marketers may hoard products to create artificial scarcity, causing price spikes. Some marketers engage in “product diversion,” selling fuel meant for the domestic market in neighboring countries where it can fetch higher prices, thereby exacerbating scarcity at home. Without stringent regulations and effective monitoring, marketers exercise a considerable influence on petrol prices, often driving prices up with little oversight.
The Nigerian government’s role in overseeing marketers’ activities has been relatively weak, largely due to limited regulatory capacity. This lack of enforcement allows unethical practices to persist, contributing to higher prices and an unstable fuel supply for Nigerian consumers.

The Role of Cabals in the Petroleum Industry

One of the most complex and pervasive issues within Nigeria’s oil sector is the influence of cabals—powerful groups or individuals with significant control over the production, distribution, and pricing of petroleum products. These cabals include well-connected elites who use their influence to secure favorable contracts, monopolize supply chains, and influence government policies to maintain control over the industry.

Historically, these groups have been involved in manipulating fuel prices through hoarding, lobbying for specific pricing policies, and even influencing government subsidies. For instance, when the government introduced fuel subsidies to reduce prices for the public, these cabals often exploited loopholes in subsidy payments, profiting massively while passing little benefit to the end consumer.

The influence of cabals in Nigeria’s petroleum sector makes the industry challenging to reform. Their extensive control and vested interests mean that they often resist efforts to restructure the industry, creating an additional barrier to ensuring that prices reflect market conditions fairly and benefit the public.
Nigerian National Petroleum Corporation (NNPC) and Its Role in Price Determination

As Nigeria’s state oil corporation, the NNPC has a central role in managing the nation’s petroleum resources and determining petrol prices. The NNPC’s pricing structure is influenced by various factors, including crude oil prices, exchange rates, refining costs, and domestic demand. Despite its mandate to stabilize prices, the NNPC has struggled to maintain affordable petrol prices, largely due to operational inefficiencies and external pressures.

The NNPC’s reliance on imports also means that the corporation’s pricing decisions are heavily influenced by global oil market volatility. When international oil prices rise, the cost of imports increases, leading to higher pump prices in Nigeria. Additionally, Nigeria’s currency devaluation in recent years has raised import costs, further impacting prices. Although the NNPC has at times tried to absorb these costs to reduce the impact on consumers, such measures are unsustainable, especially with Nigeria’s limited foreign reserves.

Calls for greater transparency within the NNPC have grown in recent years, with Nigerians demanding an open pricing system that provides clear insights into how prices are set. However, significant policy changes, such as the deregulation of the downstream sector, have only been partially implemented, leaving the NNPC in a challenging position where it must balance political, economic, and social interests.

Dangote Refinery: Expectations vs. Reality

When Aliko Dangote, Africa’s richest man, announced the construction of the Dangote Refinery, Nigerians had high expectations. Promoted as a game-changer, the refinery was projected to refine enough petrol to meet domestic demand, with surplus to export. This would reduce Nigeria’s dependency on imports and, theoretically, bring down petrol prices.

However, the announcement of N990 per liter has cast doubts over these hopes. While the refinery’s high production costs, currency devaluation, and global oil price fluctuations partly justify the price, Nigerians are questioning whether they will ever see the promised relief. It appears that while the refinery may benefit Nigeria in terms of self-sufficiency, the complex cost structure means that price reductions will not come as soon as expected.

In the short term, the Dangote Refinery may not be able to fulfill the aspirations of many Nigerians. Until broader structural issues are addressed, including regulatory reforms, infrastructure improvements, and policy stability, the refinery alone may not be enough to lower prices to affordable levels.

The disappointment surrounding Dangote Refinery’s petrol price points to the broader issues within Nigeria’s energy sector. From moribund state-owned refineries and profit-driven petroleum marketers to influential cabals and regulatory weaknesses, the complex interplay of these factors has long kept Nigerians paying high prices for a product their country should produce abundantly.

Achieving true price relief requires not just new refineries but comprehensive reform across the sector. Policies that encourage competition, curb the influence of monopolistic groups, enhance transparency within the NNPC, and revitalize existing refineries could bring tangible benefits. Additionally, a strengthened regulatory framework to monitor marketers and discourage exploitative practices is crucial.

Until these changes occur, Nigeria’s journey to affordable petrol remains uncertain. The Dangote Refinery was never intended to be a cure-all, and without systemic reforms, it risks becoming another symbol of unfulfilled potential.