By Kenechukwu Aguolu
Nigerians have long waited for the commencement of the sale of Premium Motor Spirit (PMS), otherwise known as petrol, by Dangote Refinery due to its expected benefits. The refinery commenced its first loading of PMS on Sunday, September 15, 2024, which according to the Ministry of Finance is a significant step in Nigeria’s journey toward energy self-sufficiency.
However, according to the federal government, the Nigerian National Petroleum Company (NNPC) Limited will be the sole buyer of PMS from the refinery for now, and from October 2024, the NNPCL will begin selling crude oil to Dangote Refinery in Naira and purchasing PMS from the refinery in Naira, while diesel will also be sold in Naira to independent marketers. The decision to make NNPCL the sole off-taker of the PMS from the refinery has raised a lot of dust.
Many people were disappointed when the NNPCL announced a hike in the price of PMS, as there was a general belief that PMS prices would drop once Dangote Refinery commenced production and sales. The refinery, which is privately owned and profit-oriented, won’t sell PMS for less than its production cost. Some major determinants of its production cost are the price of crude oil on the international market, the Naira-to-dollar exchange rate, and the cost of refining crude per litre.
The Minister of Finance and Coordinating Minister of the Economy, Mr Wale Edun, said in a TV interview on Sunday, September 15, 2024, “We are expecting that as this refinery and others ramp up production, scale, and achieve greater economies of scale, there should be the opportunity—and there is definitely the potential—to reduce their costs, which should be passed on to the consumer.”
There are concerns from many quarters that the recent hike in the price of PMS could cause a rise in inflation, which Nigeria has seemingly tamed. According to the National Bureau of Statistics, Nigeria’s headline inflation on a year-on-year basis dropped to 32.15% in August 2024, from 33.4% in July 2024. Food prices have been the major driver of inflation, and therefore, ordinarily, as we fully enter the harvest season, a continued decline in inflation would have been expected. However, the recent hike in the price of PMS and fluctuations in the foreign exchange rate will affect the inflation figures for subsequent months.
The price of PMS is expected to reduce in the long term as economies of scale are achieved by refineries, when more refineries come onstream, leading to competition, and as the Naira begins to gain value. Selling crude oil to domestic refineries in Naira and purchasing refined products from them in Naira will significantly reduce the pressure on foreign exchange.
According to the Chairman of the Federal Inland Revenue Service (FIRS), Zach Adedeji, this policy will save $7.32 billion annually by conducting all crude transactions with local refineries in Naira. It will also result in a more stable and stronger Naira.
The federal government, NNPCL, and Dangote Industries Limited should be commended, as this is the first time in about 30 years that Premium Motor Spirit production has begun in Nigeria. The price of PMS is expected to decrease soon, therefore, Nigerians should be patient.
While the hike in PMS prices will impact inflation in the coming months, I don’t expect it to be very significant because food prices, which are the major driver of inflation, will drop further as we move deeper into the harvest season. Beautiful times lie ahead for Nigerians. May God bless the Federal Republic of Nigeria.