Why Dangote's refinery won't solve our fuel crisis

Mar 21, 2022|Noelle Okwedy

Two core issues affect the downstream petroleum sector in Nigeria.

The first is our lack of refining capacity and the second is the government’s petrol price control. Essentially, supply and pricing.

Undoubtedly, the most important one is the petrol price control because better refineries would not solve our downstream petrol issues.

Some takeaways:

Price controls and lack of refining capacity are two major problems that affect the downstream petroleum sector in Nigeria.
Dangote refinery could solve the issue of refining capacity, but without deregulation, the downstream petroleum sector cannot be efficient.
But deregulation will come with a petrol price determined by market forces which, at least for now, will be higher than the current ₦165/litre.

Nigeria’s petrol price control has two dimensions. First, there’s a price cap—the government pays the difference between the cap and the market price, calling this difference the petrol subsidy.

The second element is the price regulation itself as the government sets the price for petrol, not the market.

This distinction is important because the government could increase the price cap from the current ₦165/litre to say ₦300/litre, closer to the market price. However, this would still be a form of price control because the government would determine the price rather than market forces.

We need deregulation, where government influence over the industry is reduced. Today, we’ll explore why and what a deregulated petrol price would look like.