“Oracle Intelligence reports that the Nigerian specification for the premium motor spirit (pms) locally called petrol or gasoline is benchmarked on Afri-V, the equivalent of Euro-IV specification. But the Dangote Refinery pumps out Euro-V or the equivalent of Afri-VI which is costlier to produce and also sells higher in the market; leading to wide price gaps that permit commercially viable importation of Euro-IV or Afri-V products from foreign refineries.”

Sopuruchi Onwuka

Indigenous private refiner, Dangote Refineries, declares that it has attained full capacity optimization, breaching its 650,000 barrels per stream day (bpd) nameplate for the first time since it was commissioned two years ago.

The company narrated in an unsigned statement from its verified email channels that its plant’s crude distillation unit and motor spirit (MS) block reached 650,000 bpd capacity to become the first single train refinery to attain the feat.

But despite the claimed scale and efficiency, Nigerian fuel consumers are yet to enjoy the highly anticipated and palpable cost relief Dangote Refinery projected during project stages when it was vigorously touted by both government’s regulators and industry groups that locally produced fuel would logically sell cheaper than imported volumes.

The announcement on its capacity optimization comes after Dangote Refinery had vehemently denied that it was suffering sub-optimization and cost overruns as the mega refinery contended with strident competition from a section of market suppliers who still rely on large scale imports to deliver fuel to local customers.

Reason for continued importation and market factions remain manifold. Whereas some marketing groups complained about being schemed out from offtake deals from Dangote Refinery, others complained that they were yet to find commercial reason to switch from cheaper foreign fuels to costlier local options. There are also other marketing groups managing a blend of products from eclectic sources to locally churn out acceptable fuel grades that compete in the domestic market.

To maintain a grip on its domestic market share, Dangote has since carved out its own retail affiliates and devised a pricing regime that drills down from the refinery to the retail pumps; and the Dangote price templates have reflexively formed the benchmark direction for local competition.

It would be recalled that Dangote Refinery also cut retail price of petrol by N25 per litre without linking the price reduction to commercial calculations associated with increased operating efficiency and rising economies of scale.

The company reduced its gantry price of petrol by N25 per litre from N799 to N774 per litre, instructing marketers that the price changes took immediate effect nationwide.

“This is to notify you of a change in our PMS gantry price from N799 per litre to N774 per litre,” the refinery declared in a directive to its affiliates in the retail market.

Dangote Refinery noted that the adjustment further strengthens the competitiveness of locally refined products, “as the current landing price of imported PMS from Lome stands at about N793 per litre, compared to Dangote Refinery’s ex depot price of N774 per litre.”

The statement which points at only N19 per liter differential at ex-depot rate is not difficult to be interpreted as weak incentive for any meaningful changes in local pump prices when juxtaposed with the recent price jack-up by the company.

Before now, Dangote had surprisingly increased petrol price recently, attributing the action to changing market patterns and mismanagement of its earlier price reduction during the yuletide season. The company added N100 to the existing price of N739 per liter to ignite market-wide price adjustments that shot up petrol rates above N800 per liter.

Surprisingly, some independent marketing companies have continued to beat Dangote to its cost and price competition, introducing new price floors that put Dangote’s recommended retail prices in the middle price range.

However, like its earlier price reductions, implementation and enforcement remain key to impact as many of its affiliated filling stations in the market are yet to change. Rather, they await the wider market environment to adjust pump prices.

While many industry analysts see the price swings as a major feature of liberalization, others interpret it as monopolistic and opportunistic, arguing that the local refiner lacks convincing justification to lead price hikes in a market that also hosts retailers of imported products.

An industry player who spoke to our correspondent argued that Dangote’s petrol might be the costliest in Africa when local policy incentives that guarantee crude oil purchase in Naira are factored in. He also pointed out that the local refiner does not incur costs associated with importation, including freight, insurance, port charges and ship lightering costs.

In contrast, importers who parade a long list of cost templates try to prove to local market players that reasonable margins still drive the business. The commercial viability of fuel import in a country that hosts world’s largest refinery brings government policy incentives for local refineries to a disappointing paradox.

Upon commercial deregulation and liberalization of the domestic fuel market, government had enunciated the domestic crude supply obligation on upstream producers to guarantee adequate feedstock for local refineries.  The federal administration further de-dollarized crude oil purchase transactions to ensure that foreign exchange value differentials do not spur cost escalation for domestic refiners.

All the measures were to enable domestic refiners to assist in arresting galloping inflation in the internal fuel subsidy was dismantled to enable refining ventures remain profitable. Wider economic aspirations linked to local refining incentives include displacement costly fuel imports and associated forex pressure on the country’s external reserves, ease ground and air transportation cost, spur industrialization by unlocking fuel petroleum sector value loop.

With deregulation which began with the arrival of President Tinubu in office running deep into the third year, the nation’s domestic refining sector dominated by the world’s largest single train refinery is yet to deliver positive performance impact on the local fuel market.

The situation graphically indicates that the key aspirations of supporting local refineries with feedstock guarantee and foreign exchange relief are now in the channel of missed targets.

Dangote Refinery, which rules the local refining business, stated that its CDU and MS Block section, comprising the naphtha hydrotreater, isomerization unit, and reformer units, underwent maintenance and were now under performance test runs. It added that the units are now operating steadily at the full nameplate capacity of 650,000 barrels per day.

The company also stated that all remaining processing units would begin their respective performance test runs in Phase 2, scheduled to commence next week.

With the maintenance of the plants, Dangote said, the refinery’s output has reached 75 million liters of petrol, an increase of about 30 million liters per day during the recent festive period.

Chief Executive Officer, David Bird, noted that the seamless integration and strong performance of the units demonstrate the refinery’s advanced engineering and robust operational capabilities.

“Our teams have demonstrated exceptional precision and expertise in stabilizing both the CDU and MS Block, and we are pleased to see them functioning at optimal efficiency. This performance testing phase enables us to validate the entire plant under real operating conditions. We are confident that the refinery remains firmly on track to deliver consistent, world-class output.

“This milestone underscores the strength, reliability, and engineering quality that define our operations. We remain committed to producing high quality refined products that will transform Nigeria’s energy landscape, eliminate import dependence, and position the nation as a net exporter of petroleum products,” he was quoted as saying.

The refrain of eliminating import dependence and exporting fuel products have been in the air for over three years, but official import data and related import bills put petrol at the top range of the list.

Experts blame the missed economic benefits of local refining and sustained high cost of fuel products on misalignment between private commercial targets and highly gullible expectations by the government and the public.

An executive of an international market advisory firm told Oracle Intelligence that the dislocation is hosted in the quality of petrol produced by the Dangote Refinery, noting that the configuration of the refinery deemphasized domestic market for dollar denominated international market.

The problem he pointed out is that whereas Dangote Refinery chases international markets with high-end quality specifications suitable for brand new vehicles, the local market is dominated by old second grade vehicles that do not need high octane petrol.

Oracle Intelligence reports that the Nigerian specification for the premium motor spirit (pms) locally called petrol or gasoline is benchmarked on Afri-V, the equivalent of Euro-IV specification. But the Dangote Refinery pumps out Euro-V or the equivalent of Afri-VI which is costlier to produce and also sells higher in the market; leading to wide price gaps that permit commercially viable importation of Euro-IV or Afri-V products from foreign refineries.

Unfortunately too, the smooth fast-burning petrol costs more to produce and evaporates faster in storage, partly spurring Dangote’s fast-to-market distribution approach that cuts off use of depots.

The premium grade, experts say, is very unnecessary in the domestic market where most petrol burning cars, buses, tricycles and motorcycles do not need Euro-V to function optimally. Local regulations approve Euro-IV of Afri-V for local consumption.

High cost of the premium fuel grade, source close to the refinery hinted, is exacerbated by the low refinery run to cut economies of scale and escalate costs which now translates to retail prices that are high enough to allow competition from imported fuels.

There were rumors that the refinery resorted to blending its Euro-V petrol with locally procured naphtha to churn out middle grade petrol for the domestic market as competition from importers got intense.

Dangote Refinery continues to deny that it joined blending of products to improve volumes at lower rate. It also denied that its plants were operating sub-optimally.

But what remains obvious is that Dangote has been struggling to close the price gaps to no avail, prompting market wars that nearly introduced fuel import tax which was schemed to remove commercial incentives for importation. A spate of massive public outcry had to force back the fiscal hands of government.

With Dangote Refinery declaring in the week that it achieved full restoration and optimization of its CDU and MS production block to achieve economies of scale, curiosity is high on how the enhanced efficiencies would impact direct and indirect consumers of the company’s transportation fuels.

The impacts the public still expect from local refineries could manifest in the forms of lower prices and associated lower cost of road and air transportation in the country. Until transportation cost joins in the concerted pull on inflation, the gross national aspiration for domestic refining might be concluded as a missed target.