Farooq Kperogi: Conspiracy of price gouging between Dangote and NNPCL

Farooq Kperogi

Farooq Kperogi: Conspiracy of price gouging between Dangote and NNPCL

I had said to myself and to people close to me that I would never write again on the untenably rising prices of petrol in Nigeria because when I wrote column after column to presage the unfolding petrol-price-inspired cost-of-living tragedy, scores of people across the Nigerian political divide impassionedly disagreed with me because the presidential candidates to whom they abdicated their brains in 2023 also demonized “petrol subsidies” and promised to remove them.

But the extortionate prices Nigerians are still paying for petrol in spite of the well-justified hopes that the coming on stream of the Dangote Refinery would bring down prices—and the blindingly perplexing and never-ending cascade of blame games, accusations and counter-accusations between the Dangote Refinery and the Nigerian National Petroleum Company Limited (NNPCL)—compelled me to revisit this issue.

There appears to be a well-choreographed conspiracy between the Dangote Refinery and the NNPCL to take advantage of Nigerians by keeping petrol prices unjustifiably high. This is somewhat similar to what we call price gouging in the United States.

Price gouging occurs when businesses calculatedly raise the price of goods, services, or commodities to an excessively high level, especially during a crisis or emergency when demand spikes and supply is limited. In the context of fuel, price gouging is said to occur if a company or companies sharply increase fuel prices in response to supply shortages.

Although price gouging typically happens during natural disasters, pandemics, or situations where essential goods become scarce, it can happen anytime. It is, in essence, the exploitation of consumers’ vulnerabilities during critical times. That’s what I suspect is happening in Nigeria now.

NNPCL is the sole buyer and distributor of fuel from the Dangote Refinery. It controls the supply chain and effectively excludes independent marketers from accessing the refinery’s output. That’s not free-market capitalism; that’s state capitalism. That’s not deregulation; it’s regulated deregulation.

But the Dangote Refinery’s price regime is also puzzling. Oil industry expert Mr. Dan Kunle forwarded to me a WhatsApp message that breaks down the landing cost of petrol per liter, which added up to N1107. I haven’t verified the accuracy of the claim, but I assume that it must have some credibility to deserve being forwarded by Mr. Kunle whose knowledge of the industry I have a deep admiration for.

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The message says “based on publicly available data,” which it admitted “are subject to change and may vary depending on market conditions, exchange rates, and other factors,” Dangote Refinery is exempt from incurring costs related to freight (N86.48), jetty depot (N15.35), storage (N12.58), financing (N34.67), foreign exchange (N23.45), NPA charges (N10.58), NIMASA charges (N5.29), and customs duties (N51.17), and therefore should, by my calculation, charge no more than N518.35 per liter.

So it’s a mystery how Dangote and NNPCL agreed on N766. If Dangote Refinery acquired its crude oil in dollars, did it also cover salaries and operational costs in dollars? Crude oil is just one part of the overall production cost.

What’s more concerning, perhaps, is that ₦766 per liter cost seems to be the expected price even after Dangote begins purchasing crude in naira from the NNPC. How can this be justified, especially when the additional costs associated with exporting crude and importing refined products would no longer apply once Dangote receives domestic crude from October 1st?

Additionally, as my friend Professor Moses Ochonu pointed out during our August 31 “Diaspora Dialogues” show titled “Who Wants to Kill Dangote Refinery and Why,” under existing laws, NNPC is supposed to supply its own refineries with 450,000 barrels per day, which was historically sufficient to meet local demand before those refineries became defunct.

That crude was never meant for export. It only started being exported after the refineries stopped functioning. So, as Professor Ochonu pointed out, why not simply allocate that crude to Dangote Refinery, paying only for the refining process plus a modest commission or profit, and then sell the refined products to Nigerians at more affordable rates?

This approach would involve some level of subsidy, but that’s how the system was intended to function when state-owned refineries were operational. In any case, in spite of the sustained propaganda against subsidies, every serious country on earth dispenses subsidies, including energy subsidies, to its citizens. Nigerians are entitled to a subsidy on a quarter of the country’s crude output, and subsidizing petrol makes sense because of its broad impact on the economy.

Moreover, this method would be far less costly than the inflated and fraudulent subsidies that have been paid for imported fuel over the years.

I am, of course, aware that Nigerians have allowed themselves to be willingly brainwashed into assuming that there is no nexus between “subsidy removal” and petrol price hike. I hope the truth is becoming apparent now.

For example, in my April 29, 2023, column titled “Six Agenda Items for Tinubu’s Success,” I wrote, among other things: “Don’t increase petrol prices by other names. I know that there is now an artfully manufactured consent, particularly among the gilded classes in Nigeria, about the undesirability of ‘fuel subsidy.’

“I don’t care what it’s called, but any policy (call it deregulation, subsidy removal, appropriate pricing, etc.) that results in an arbitrary and unbearable hike in the price of petrol without a corresponding increase in the salaries of workers and an improvement in the living conditions of everyday people will sink Tinubu.

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“No responsible government shies away from subsidizing the production and consumption of essential commodities for its people. I have lived in the United States, the belly of the capitalist beast, for nearly two decades, and I can tell you that governments at both federal and state levels heavily subsidize petrol consumption—in addition to agriculture.”

In response, a Facebook friend who was inebriated with anti-subsidy propaganda retorted in the comment section: “I beg to disagree on your advice of his administration not removing fuel subsidy which has become [a] cesspool of corruption…. I prefer he use resources saved from its removal on foodstuffs, health and educational facilities as well as increase salaries of workers which PMB has commenced to FG workers with the 40% peculiar allowance to its staff with effect from last January and which arrears was paid with April Salary. Other points raised are apt.”

“At this rate,” I replied sarcastically, “I pray petrol price gets to 1,000 naira per liter so that everyone will get a taste of what I’ve been talking about.”

“Speculation, speculation and speculation!” he shot back. “Govt should be encouraged to put the refineries in good shape and encourage more private investors to build more just as Dangote and Ishiaku Rabiu [sic] are doing. All refineries should be supplied crude oil in naira and not buying in international oil prices in American dollars. Market forces would later force the prices down if monopoly is not allowed to fester just as happened when telecommunication was privatised and mtn simcard was 30k, others like Mtel, Glo, etc forced the price down and now costs next to nothing.”

Two weeks ago, I reminded him of our April 29, 2023, conversation and asked if he still stood by his arguments and what he thought about the N1,000 per liter prediction I made, which he had dismissed as “speculation.” I am still awaiting his response as I write this.

Well, Nigerians were flushed with enthusiasm at the prospect of the operation of the Dangote Refinery. They expected it to help reduce fuel prices, but the monopolistic control of NNPCL and the caginess and opacity of Dangote Refinery itself have spawned a jarring disconnect between expectations and reality.

As I have repeatedly pointed out, Nigeria, as an oil-producing country, should not withhold the reasonable expectation that its citizens benefit from lower fuel prices. To suggest otherwise is akin to giving someone a handful of cream while allowing their skin to remain parched — an act of neglect that borders on cruelty. Nigerians could more easily reconcile with elevated petrol prices if their country were not blessed with abundant oil resources.

Denying citizens the fruits of their nation’s wealth is no different from a wealthy parent who starves their own children while justifying the neglect by pointing to the deprivation of their less fortunate neighbors. Such a parent is not only irresponsible but unworthy of the trust and care of their children.