Illusions Of A Cabal In The Mindset Of An Entrepreneur
By Mfei Alol-Nugo
In recent publications, Alhaji Aliko Dangote, President of the Dangote Group and the owner of the $20 billion dollars Dangote Refinery, was quoted as declaring that he will “defeat the cabal” in Nigeria’s oil sector! Not only is this misleading, but it is also a strategic diversion from the pressing issues facing our nation’s energy landscape, a diversionary move from Dangote’s monopolistic embrace which other stakeholders in the downstream petroleum sector will find difficult to accept considering its impact on their businesses and Dangote’s antecedents in the cement and food sectors.
In a country long plagued by fuel scarcity, mismanagement, and state-sanctioned inefficiency, Aliko Dangote has rebranded himself as a ‘saviour’. Draped in the robes of patriotism and progress, he now accuses other sectoral operators: marketers, depot operators, logistics providers, and fuel station owners, of forming a “cabal.” With one sweeping accusation, he seeks to erase decades of sacrifice, resilience, and investment made by thousands who kept Nigeria running when government refineries collapsed and NNPC vessels sat idle at sea. It is therefore necessary to shed light on the realities that contradict the assertions of the existence of a cabal in that narrative.
Monopoly Under the Guise of Progress
Aliko Dangote’s $20 billion dollar, 650,000 barrels per day capacity refinery, positions itself as a solution to Nigeria’s refining challenges. However, this behemoth of a refining capacity raises significant concerns about monopolistic and domineering control of the market space. The dangers of such centralization include stifling competition and leaving the nation vulnerable to supply disruptions. Let us not confuse scale with benevolence. The Dangote Refinery, boasting a 650,000 barrel-per-day capacity, may be the largest in Africa, but its emergence has ushered in something far more dangerous than inefficiency and it is called monopoly under the guise of national interest.
Dangote Refinery’s preference restricting off takers to ex-gantry loading operations in contrast to marine coastal vessel loadings for private depots is a move towards monopolistic dominance of the market. The refinery had consistently released prices which put landing cost of its products, ‘into-tank’ for private depots, at a disadvantage in contrast to ‘ex-gantry loading’ price. This disadvantage is the main reason adduced by marketers who opted for PMS imports as the cost ‘into-tank’, shipping expenses inclusive, were lower and more beneficial to the buying publics than Dangote Refinery’s coastal cargo (shipping expenses included) prices.
Several marketers experienced a situation of paying for product today at a higher price and Dangote Refinery slashes the price of the same product the following day while the initial buyer, a marketer, a private depot or even a retailer, is now stuck with expensive stock that will be hard to sell without making a loss. This impacts negatively on the marketer and discourages stocking of large quantities fearing sudden price drops. But for the import option as enshrined in PIA 2021; this could have created supply disruptions at retail outlets which could result in fuel scarcity, return of fuel queues and ‘black-market’ fuel racketeering to the detriment of the populace.
The refinery is projected to handle over 2,000 trucks per day (inbound and outbound), transporting crude oil, refined products, chemicals, and other materials. This will place intense pressure on local roads, many of which are already poorly maintained or inadequately sized resulting in accelerated road deterioration
Such concentration of heavy-duty trucks and tankers increase the wear and tear, and without timely maintenance, roads could develop potholes, cracks, and structural failures more rapidly. With concentrated usage of heavy-duty vehicles on the roads, major roads in the vicinity of the refinery may experience additional strain due to increased freight handling while last mile, smaller local roads may be damaged as they are used more frequently by support vehicles and logistics operators with the probability of accident rates, particularly involving tankers, rising. All these are avoidable if marine distribution option, to the various depots spread nationwide, is embraced by the refinery.
A dominant Dangote Refinery will give marketers very little bargaining power reducing the opportunity to compete for patronage at the retail end and thus restricting the buying publics to its dictated price which is an offshoot of the margin given to the retailer who lifted directly from the refinery’s gantry. Off takers from Dangote Refinery will become price-takers, fully at the mercy of the refinery’s pricing and sales strategy which, in the long term, with regular price cuts, will erode the working capital of many smaller players who can’t absorb price shocks. This reduces competition and ironically makes the market less healthy despite all these, it is the ‘cabal’ that he focuses on!
Questionable Crude Supply Agreements
The refinery’s operations have been bolstered by substantial crude oil allocations from the Nigerian National Petroleum Company Limited (NNPC), totalling over 84 million barrels since its inception. While supporting local refining is commendable, the preferential treatment and exclusive agreements raise questions about fairness and transparency in the allocation process.
Dangote’s receipt of first choice or priority volumes of Nigeria’s Bonny Light and other high-grade crude at stable naira prices, regardless of fluctuations in the international market grants the refinery a vast advantage, a pricing edge, over smaller local refiners or modular plants even if these also qualify for the same naira for crude oil policy.
Dangote may price refined products based on international benchmarks (e.g. Platts prices) rather than cost-reflective naira inputs, despite paying for crude oil in naira.
This allows the refinery supernormal profit margins, as crude oil is cheaper in naira, but fuel is sold at prices benchmarked to USD. Consumers pay international prices while Dangote enjoys local cost structures but nay it is the ‘cabal’ that he focuses on!
Impact on other sector operators / marketers
The dominance of a single refinery has significant implications for private depot operators whose business model is to lift their fuel cargoes via vessels for delivery into their various depot storage facilities and retail same through their company owned / branded retail outlets’ network or via the vast network of independent petroleum station outlets. Private depot operators had viewed Dangote Refinery’s tanker trucks loading gantry set-up, the largest, not only in the country but also in West Africa, with trepidation as it connotes the intentions of large-scale tanker trucks loading and distribution operations, which had hitherto been the area of influence and dominance of private depots, and while the competition is welcome, he focuses on the ‘cabal’!
Many marketers, however, did not have direct sales contracts or easy access to lift products due to the refinery’s sales policy and some marketers’ inadequate financial muzzle. Only bigger, better-financed firms were able to negotiate good supply deals and offtakes were restricted to gantry tanker-trucks loading operations.
When eventually its marine sales loading operations began, the refinery’s pricing policy also put such option at a disadvantage as the landing cost, ‘into-tank’ for any off-taker, was consistently higher than the ex-gantry loading price. This disadvantage and the opportunity, as enshrined in the PIA 2021, that allows marketers to import local supply shortfall, encouraged private depot operators to opt for PMS imports, with competitive lower landing cost and by extension, retail price. This was however viewed as ‘unfair advantage’ by the refinery’s management with the resultant series of price slashes, ostensibly to undercut import competition. The Nigerian buying public is however better off as the price war simply made the prices of diesel and petrol cheaper than it ordinarily would have been.
The shift in pricing dynamics, with Dangote’s refinery influencing petrol prices, has led to a price war that challenges the sustainability of smaller operators. Such market conditions threaten the diversity and resilience of Nigeria’s fuel distribution network. With massive daily output and cost advantages, Dangote could undercut local competitors, offering fuel at thin margins just long enough to force them out and the implication is ‘classic predatory pricing’. The idea that one man should singularly dictate refinery outputs, pricing, and distribution channels in a country of over 200 million people isn’t visionary, it’s predatory and once competition is wiped out, prices could be increased with impunity, locking in a monopoly, yet he focuses on the ‘cabal’!
Conclusion
Labelling other sectorial participants or operators as a “cabal” to be ‘defeated’ overlooks the critical role they play in sustaining Nigeria’s energy needs while competing amongst themselves, giving the buying populace more options in retail service delivery from which they can choose. While the Dangote Refinery represents a significant investment in the sector, a pride and proud achievement to all Nigerians, it is essential to foster a competitive and inclusive market that benefits all stakeholders. Monopolistic tendencies must be checked to preserve the integrity and resilience of Nigeria’s downstream petroleum industry and not waste precious energy on fighting a non-existent cabal!
