This is the second of the two-part article that seeks to propose a collaborative strategy that will be a win-win for all players in the petroleum downstream sector in Nigeria, against the background of major emerging competitive developments in the sector that may not be in the overall interests of the Nigerian economy. In May and June 2025, only about a quarter of the fuel consumed in Nigeria was locally produced in a situation where there was local capacity to meet all or nearly all of our fuel needs. Equally unsettling is the plan by Dangote Refinery to supply fuel products directly to fuel outlets, bypassing fuel marketers. While these may be competitive antics in a free market economy, the economic consequences will be far-reaching and undesirable. Now that the Nigerian economy is at the cusp of a turnaround, what is needed most is an elevated sense of purpose and a collaborative spirit.
Read also: A win-win strategy for Nigeria’s petroleum downstream sector (part one)
The recent coming on stream of the Dangote Refinery presents Nigeria with a powerfully unique opportunity for a fantastic economic turnaround. However, public-private partnerships and private-private collaborations are required for the desired accelerated growth and development and possibly the attainment of a $1 trillion economy by 2030.
Against the foregoing background, it is necessary for Dangote Industry Limited (DIL), owners of Dangote Refinery, and petroleum marketers and other operators in the Nigerian downstream oil and gas sector, including fuel depot owners, to work collaboratively to diffuse the prevailing atmosphere of mutual distrust and find a mutually beneficial solution to the menacing possibility of Dangote Refinery as an integrated midstream-downstream monopoly, on the one hand, and the combined effort by petroleum marketers and fuel depot owners, on the other hand, to undercut that perceived monopoly power by massive fuel imports, with consequential huge pressure on the Nigerian foreign exchange market.
“Now that the Nigerian economy is at the cusp of a turnaround, what is needed most is an elevated sense of purpose and a collaborative spirit.”
Inaugurating a forward-integrated midstream-downstream operation through the mobilisation of 4000 CNG-powered fuel trucks for direct supply of petroleum products nationwide to filling stations and industrial customers will confer on Dangote Refinery excessive monopoly power, which will be antithetical to creating a level playing field in the Nigerian downstream oil and gas sector. This no doubt has been a competitive response by Dangote Industries Limited (DIL) to the low patronage of its locally refined petroleum products by fuel marketers in preference for imports. Consequently, 71.38 percent of the daily fuel consumed in Nigeria in May and June was imported, which meant that only 28.62 percent was sourced locally from the Dangote Refinery. This has created an unhealthy cat-and-mouse competitive scenario in the downstream oil and gas sector, which is detrimental to the overall interest of the Nigerian economy.
As a way forward, the following win-win solution that should be to the benefit of all parties, including the Nigerian economy, is hereby proposed:
o Dangote Industries Ltd should shelve the plan to directly supply fuel to filling stations and corporate clients across the nation.
o The 4000 CNG-powered trucks should be sold to a special purpose vehicle (SPV) that will operate the trucks.
o The SPV should be owned by all fuel marketers and private petroleum truck owners/members of the National Association of Road Transport Owners (NARTO) who operate in the downstream sector, all of whom will also hand over their own trucks to the SPV as part of their equity in the SPV.
o All legacy fuel trucks handed over to the SPV should be converted into CNG-powered or hybrid CNG-diesel-powered trucks with GPS tracking systems.
o A Nigerian Petroleum Downstream Investment and Development Fund (NPDIDF) should be created to mobilise funds for the financing and operations of the SPV. It is to be a financial institution registered by both the Central Bank of Nigeria (CBN) and the Nigerian Securities and Exchange Commission (SEC). It will be able to raise long-term funds from the capital market in the form of investment bonds, including long-term non-interest financial instruments.
o The SPV itself should be able to raise short-term funds from the money market, like commercial papers, among others.
o A private GPS tracking firm should be appointed to track all the fuel trucks in the service of the SPV. Its dashboard should be accessible to all stakeholders, including the Nigerian Midstream and Downstream Petroleum Regulatory Commission (NMDPRC), the Ministry of Petroleum Resources, the Nigerian National Petroleum Corporation Ltd (NNPCL), DIL/Dangote Refineries, all petroleum marketers, and all fuel tanker owners, among others.
o Dangote Refinery should be declared a regulated monopoly in the national interest. A regulated monopoly is a firm allowed to be the sole operator, producer or supplier in a market subject to government supervision in order to protect consumers and other stakeholders. This arrangement should not exceed a maximum period of five years, during which time other local producers of refined petroleum products are expected to enter the market.
o However, petroleum marketers should be allowed to import any amount that represents the shortfall between total daily demand for petroleum products and total daily supply by Dangote Refinery.
o The pricing template of the products to be supplied by Dangote Refinery to the local market should incorporate a margin that compares favourably with what petroleum marketers would have received from imported products, taking into account unfair competitive tactics by foreign refiners.
This framework admittedly does not fully reflect the interests of fuel depot owners who have invested billions of naira in fuel storage facilities in the era of massive fuel imports, when there was near nil local fuel production and when the prospects of local fuel production seemed far away. Alternative uses could possibly be found for the fuel depots for storage of other liquid products or as grain silos. The government should also consider the possibility of setting up a compensation or loss adjustment fund in the form of a Petroleum Downstream Structural and Loss Adjustment Fund. It should, however, be clear to fuel depot owners that the era of massive storage of petroleum products in fuel tank farms is gone forever.
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The benefits of this proposal are immense and include the following:
o There will be a ready and assured local market for the products of Dangote Refinery.
o Fuel marketers’ interests will be fully covered both in terms of retaining control over local supply of petroleum products and earning a competitive margin, compared to imported products.
o The interests of owners of fuel trucks will be covered as well.
o The GPS tracking of all fuel trucks will minimise smuggling.
o The predominant use of CNG-powered trucks will reduce the price of petroleum products nationwide.
o With the phasing out of fuel imports, the naira exchange rates will significantly improve by as much as between 20 and 30 per cent or possibly more.
o Inflation will nosedive, and economic hardship will ease considerably.
o The dollar-denominated gross domestic product (GDP) of Nigeria will increase by as much as 20 to 30 percent, or possibly more.
o The dollar-denominated wealth of Nigerian billionaires will likewise increase significantly, as well as the number of Nigerian dollar-denominated millionaires.
In conclusion, a win-win solution to the face-off between Dangote Refinery and the petroleum products marketers is a win-win for the entire economy that will put it on the path of a turnaround that will also attract the interest of foreign investors and increase the inflow of foreign direct investments (FDI) and other capital inflows, further strengthening the naira.
Mr Igbinoba is Team Lead/CEO at ProServe Options Consulting, Lagos.
