Why FG should stop subsidizing petrol right away – Dangote

Alhaji Aliko Dangote, the president and chief executive of the Dangote Group, has urged the federal government to fully eliminate fuel subsidies.

Along with confirming ownership of two oil blocks in the upstream sector, he stated that the removal will aid in determining the nation’s true gasoline usage, with production scheduled to begin next month.

Dangote added that the $20 billion mega refinery he built in Lagos will assist relieve pressure on the naira by producing fuel. Every day, the refinery can process 650,000 barrels of crude oil.

Our correspondent observed Dangote’s 26-minute interview with Bloomberg Television in New York on Monday, during which he stated that the time has come to eliminate petroleum subsidies.

The president and CEO of the Dangote Group, Alhaji Aliko Dangote, has pushed for the federal government to completely do away with fuel subsidies.

Production is set to start next month, and he added that the removal will help ascertain the country’s actual gasoline consumption in addition to verifying ownership of two upstream oil blocks.

Dangote continued, “By producing fuel, the $20 billion mega refinery I built in Lagos will help relieve pressure on the naira.” The refinery has the capacity to process 650,000 barrels of crude oil per day.

In a 26-minute interview that our correspondent watched on Monday in New York with Bloomberg Television, Dangote declared that the time had come to end petroleum subsidies.

“Some say, it’s less. But right now, if you look at it by us producing, everything can be counted. So everything can be accounted for, particularly for most of the trucks or ships that will come to load from us. We are going to put a tracker on them to be sure they are going to take the oil within Nigeria, and that, I think, can help the government save quite a lot of money. I think it is the right time, you know, to remove the subsidy.”

Dangote who recalled the challenges faced after the project’s launch in 2013, experiencing a five-year delay due to issues with state government and host communities and a running loan of $2.4bn, said he is personally proud to achieve the feat.

On whether the subsidy will make the refinery viable, Dangote said, “Well, you see, we have a choice of either one. We produce, we export, and when we produce, we sell locally. But we are a big private company. And yes, it’s true, we have to make a profit. We build something worth $20bn so definitely we have to make money.

“The removal of subsidies is totally dependent on the government, not on us. We cannot change the price, but I think the government will have to give up something for something. So I think at the end of the day, this subsidy will have to go.”

President Bola Tinubu removed the subsidy when he took office in May 2023, exacerbating a cost-of-living crisis that sparked protests, but quickly reinstated it as inflation spiked.

Another step to ending it was taken in early September when the gasoline cap was eased — though the price remains below the market level.

Nigeria, until Dangote’s refinery came on stream was fully dependent on imported petroleum products, and has been taking tentative moves to finally end the nation’s pricey fuel subsidies, which in 2022 cost $10bn.

Dangote, who has the choice to sell his fuel locally or export it, acknowledged that the government made the decision about subsidies but noted that reducing imports of gasoline will have a significant positive impact on the exchange rate.

Since regulations that kept the naira’s value artificially high were loosened last year, the naira has lost about 70% of its value relative to the dollar.

However, the necessity to pay for imported petroleum in dollars exacerbates the dollar’s scarcity in the Nigerian foreign exchange market, which continues to put pressure on the naira.

“Petroleum products consume about 40 per cent of our foreign exchange,” Dangote said, adding that fuel from his refinery, which started supplying gasoline on Sept. 15 to the state-owned oil company for domestic sale, “can actually stabilize the naira.”

Continuing in the interview, the businessman revealed the details of the pricing disagreement that occurred with the Nigerian National Petroleum Company Limited.

He said the national oil company bought its current stock from the refinery at a cheaper price than its imported fuel but gave a uniform price for all products.

“There wasn’t really a disagreement, per se. NNPC bought from us on the 15th of September at the international price, which they also bought, about 800,000 metric tons of gasoline imported. So the one that they bought from us actually is cheaper than the one they are importing.

“And so when they announced our price, the guy, I don’t know whether he was authorized. It wasn’t really the real price. What they have announced is most likely that is what it cost them, including profit and other expenses.

“And then the other one is one that they imported. But the people don’t know how much they spend in terms of imports, but their importation is almost, maybe about 15 per cent more expensive than ours, you know.

“So what they are supposed to do is to sell at a basket price, or if they want to remove subsidy, they can announce that they will remove subsidy, which is okay, everybody you know will adjust it.”

On the planned crude oil sales anticipated to begin in October, Dangote said that discussions are still ongoing and a detailed agreement will be finalised this week.

Revealing details of the deal, he explained, “We will sell the crude in naira after we have bought in naira. So now we are currently working out with the committee that the exchange rate is going to be priced. It is going to be normal pricing, you know, if crude is at $80, we will pay that price at an agreed exchange rate.

“And then we will also sell in the domestic market. What that will do is that it’s going to remove 40 per cent pressure on the naira. So because, see, the petroleum products consume about 40 per cent of foreign exchange, so you know, and then, you know, it’s like you have 40 per cent of demand been taken out so that can actually stabilize the naira and even if they subsidise, they would know what they are paying for.

“The deal is to give the government something that they want. It’s also a win-win situation for all and it would benefit the country.