Renowned economist and Managing Director of Financial Derivatives Company (FDC) Limited, Bismarck Rewane, Wednesday maintained that it would be suicidal for the Dangote Refinery to sell petrol below its production cost.
Speaking on Channels Television, Rewane argued that the Dangote refinery or any refinery for that matter, remain in business to make a profit.
Rewane emphasised that Dangote will only produce at a price point where its marginal cost equals its marginal revenue and will not sell below cost, explaining that otherwise, the company would have its operations grounded.
“What Dangote Refinery is assuring the country is quality and quantity but that pricing is not necessarily in the hands of Dangote Refinery but in the hands of the market.
“The market determines the price including the global crude price, guaranteed margin and the cost of processing. It’s as simple as that. Nobody goes into business to sell below its cost price, that is suicide.
“I think we should get that, rather than be carried away by false expectations. Yes, it’s good to know that the petrol is being lifted, it is a milestone from our own refineries which we had before.
“But now, we have the largest single-train refinery in the world. We have it as a result of the initiative of Alhaji Dangote, but now it is business time,” he asserted.
Rewane also said the August inflation figure which showed a decline was not sustainable, explaining that the petrol price increase hadn’t happened at the time the computation was done.
“I think one thing we have to put out there so that everybody knows this is that inflation data happened at a period before the petrol price increase and the data was taken at the time of the protests.
“So, we saw prices of perishable commodities decline, and we did not feel the impact of the increase in petrol prices. It is good news but we shouldn’t get too excited because the September data is beginning to point to the fact that more likely than not, we are going to have an increase in the price level so that’s what we’re going to see in September.
“Our forecast and our view is that moderation in inflation is going to be more visible at the end of the year rather than at this time. We had expected it in September but now it’s more likely to happen in December. It is short-lived because it happened in between protests and petrol price increase,” Rewane maintained.
Also, an economist, Muda Yusuf, has described as worrisome, the “dramatisation” of petrol prices between Dangote Refinery and the Nigerian National Petroleum Company Limited (NNPC), arguing that the drama could scare investors away and affect public perception of the new alternative.
“I’m worried about the ‘dramatisation’ of the cost the NNPC is buying from Dangote. Coming to the public space to exchange the things we’re hearing, I don’t think it’s good for the economy, it’s not good for our perception and it’s not good for investors’ confidence,” Yusuf stressed.
He said that Nigeria can’t walk away from the issue of petrol subsidy removal yet because of the low social safety net for the poor and vulnerable in the country.
Yusuf, who is the Managing Director of the Centre for the Promotion of Private Enterprise (CPPE), said even after the presidential statement on May 29, 2023, that the subsidy was gone, the NNPC admitted to shouldering cost differentials with imported petroleum products.
“We cannot walk away so quickly from this problem of subsidy otherwise it would make life extremely difficult. Things are already very difficult. Up until now the NNPC was subsidising, although progressively the level of subsidy is being reduced which is fine.
“But to talk of a complete deregulation of the whole system in an economy without a social safety net will not be appropriate at all,” he explained.
He stated that the citizens were economically overstretched, adding that the hike in the pump prices of petrol had made the situation worse.
“The economy is about human beings and we need to recognise that because we are driving the citizens almost to their limits,” the economist said.
According to him, total deregulation is not possible in a country like Nigeria which doesn’t have a safety net for the citizens to fall back on.
He further proposed that the government reduce the demand for imported products through import substitution across all sectors of the economy.
“If we’re able to move that pressure away, it will have a significant impact on the exchange rate. If progressively we can look inward and reduce import we’ll be making progress,” he stressed.
