Chief Economist at the SBM Professionals, Dr. Paul Alaje has argued that Nigerians would pay over N1,000 if the ongoing price war between the Dangote Refinery and the Nigeria National Petroleum Company Limited (NNPCL) ends.
Alaje, while speaking on Channels TV, on Tuesday, expressed support for the competition between both companies, noting that if one loses, Nigerians will pay above N1,000 as pump price for petrol.
Nairametrics reported that a price war between Dangote and the NNPCL has resulted in multiple slashes of PMS prices between the two. The Dangote Refinery has been the one initiating the price cuts while NNPCL often follows.
Petrol currently sells in NNPCL retail outlets and Dangote partner outlets for N860 to N900 based on locations, with Lagos having the lowest price.
Alaje said the price war is in the interest of Nigerians, noting that both companies are reducing what he termed “abnormal profits”.
He said: “Very recently, Dangote announced another one, at around 800, less than 850, and you have seen NNPCL responding to it. Yes, you may want to call it a price war, but you see, in economics, when a duopoly fights, it’s the best for the populace, because they will themselves, drive themselves to neutral profit.
“Now, people may ask, what is neutral profit? Neutral profit is that point where all factors of production have been catered for, which includes land, rent on land, labor, wages and salary of labor, profit, the real profit, entrepreneurs, and finally, interest on capital.
“What has therefore been eroded is the abnormal profit.”
Nigerians should be paying below the current pump prices
Meanwhile, Alaje argued that the current pump prices are still high. He said that based on current global trends, the pump price of petrol in Nigeria should be less than what it is.
“Ask me, have we gotten to that point where abnormal profit has been eroded? I will tell you, the answer is no. As of today, our computational review, that PMS should be around 795 to 830.”
NNPCL must stop importing and refine locally
The Economist called on the NNPCL to complete the refurbishment of its refineries and refine locally. He said that would further reduce the price.
He said with the competition still on and with both companies fully producing locally, the price of petrol can go down even below N700.
“This is economics at play. The question is, are we ready for it? I know a number of persons have called, some have even sent emails to explain this to them, could it be similar to what we saw in sugar when the sugar war happened? Could it be what we saw happen in cement, when cement happened? The difference here is that while Dangote claims that 100% of its PMS is produced locally, NNPCL, we still have traces that, perhaps, they cannot, the refinery as of today, could not refine locally.
“My advice is directly to NNPC, if you must compete, you must also produce locally. Why? You will give jobs, the way Dangote is giving it to Nigeria, which is my primary concern, to price before that goes down. We will suddenly realize that without subsidy, we can take a price even lower than 700, your businesses, to effect challenges. Even the gains that government is fighting for, it’s been exposed to the same.”
What you should know
- Dangote Refinery stated that it will make a N65/liter refund to marketers who purchased PMS at rates higher than N825 so Nigerians will benefit from cheaper fuel.
- The refinery noted that the price reduction is to ease the economic burden of Nigerians, and also a demonstration of support for President Bola Tinubu’s economic reforms.
