Why NNPC must not be the sole buyer of Dangote petrol

The Nigerian oil industry is at a critical juncture, and the recent development involving the Nigerian National Petroleum Corporation (NNPC) and the Dangote Refinery has sparked significant debate. As Dangote’s $20 billion refinery, the largest in Africa, rolls out its petrol to the Nigerian market, the NNPC’s interest in becoming its sole buyer raises concerns. […]

The Nigerian oil industry is at a critical juncture, and the recent development involving the Nigerian National Petroleum Corporation (NNPC) and the Dangote Refinery has sparked significant debate. As Dangote’s $20 billion refinery, the largest in Africa, rolls out its petrol to the Nigerian market, the NNPC’s interest in becoming its sole buyer raises concerns. While this partnership may seem like a strategic move on the surface, it carries potential risks that could undermine the principles of a free market, competition, and economic diversification. Here’s why the NNPC should not be the sole buyer of Dangote petrol.

Allowing the NNPC to monopolise the purchase of petrol from the Dangote Refinery could distort the market. Monopolies generally lead to inefficiencies, reduced competition, and higher prices. When a single entity controls supply, there is little incentive to innovate or improve service delivery. Furthermore, a monopoly can easily lead to exploitation, where consumers bear the brunt of poor decisions made at the top. Nigeria’s oil sector, already fraught with challenges, cannot afford additional risks associated with monopolistic practices.

The Dangote Refinery was established with private capital and embodies the potential of private sector participation in Nigeria’s oil and gas industry. If the NNPC becomes the sole buyer, it would stifle the broader private sector’s ability to thrive within the downstream market. Other players in the oil distribution chain may find it difficult to compete or even survive if they are excluded from purchasing Dangote’s petrol. This could discourage future investments and innovations, which are crucial for Nigeria’s economic development.

NNPC’s history is marred by concerns over transparency and accountability. Concentrating such significant power in the hands of one state-run corporation could exacerbate these issues. Without competition, there’s little pressure on the NNPC to operate efficiently or fairly. The absence of alternative buyers could lead to opaque pricing mechanisms and potential misuse of power. A competitive market, on the other hand, encourages transparency and ensures that prices reflect true market conditions.

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Nigeria has been working towards diversifying its economy, reducing its dependency on oil revenue. However, allowing the NNPC to dominate the purchase of Dangote petrol could hamper these efforts. By maintaining competition in the petroleum sector, Nigeria can encourage investment in other areas of the economy, fostering a more balanced and resilient economic structure. Economic diversification requires reducing the influence of oil and gas monopolies, not reinforcing them.

Another point is that Nigeria’s oil industry does not exist in isolation. It is part of a global market where international relations and trade agreements play crucial roles. If the NNPC monopolises Dangote’s output, it could disrupt Nigeria’s relationships with international buyers and suppliers. A diversified buyer base for Dangote petrol would enhance Nigeria’s position in the global oil market, fostering stronger trade relationships and reducing dependency on any single entity.

The Dangote Refinery is a milestone in Nigeria’s quest for refining self-sufficiency, but it should not overshadow the potential of other refineries. By ensuring that Dangote petrol is available to multiple buyers, Nigeria can encourage competition among refineries, both existing and new. This would drive innovation, improve efficiency, and ultimately benefit the consumer. The market should be open, allowing for healthy competition that rewards efficiency and quality.

While the NNPC’s involvement with the Dangote Refinery is understandable given the strategic importance of both entities to Nigeria’s oil industry, exclusivity in purchasing Dangote petrol could have far-reaching negative consequences. A diversified, competitive market is crucial for ensuring efficiency, innovation, and economic growth. To truly harness the potential of the Dangote Refinery, the Nigerian government must resist the temptation to centralise power in the hands of the NNPC and instead foster a competitive environment that benefits all stakeholders, from producers to consumers. The future of Nigeria’s oil industry—and its broader economy—depends on it.

Onogwu Daniel wrote from Utako, Abuja