Nigeria: Dangote refinery speeds up deregulation of the oil sector by opening up to local traders.

Nigeria's petroleum sector is entering a new era with the possibility for local traders to buy petrol directly from the Dangote refinery, marking the end of the exclusive purchasing rights held by the national oil company, NNPC. The decision, announced by Finance Minister Wale Edun last Friday, is part of a wider strategy to completely deregulate the petroleum products processing sector.

Since the start of operations at the Dangote refinery in September, NNPC Ltd had been designated as the sole purchaser of petrol, enabling the government to continue subsidising petroleum products. This subsidy, while supporting local consumption, represented a heavy burden on public finances.

However, a major turning point came when the NNPC increased fuel prices by more than 15% this week, now selling petrol at market prices for the first time in more than 30 years. The price hike marks the end of a costly subsidy programme, often criticised for its inefficiency and negative impact on government finances.

With the opening of the Dangote refinery to local traders, they will now be able to negotiate commercial terms directly with the refineries, fostering a more competitive environment. "This direct purchasing mechanism enables traders to negotiate commercial terms directly with refineries, thereby fostering a more competitive market environment and enabling a smoother supply chain for petroleum products," said Wale Edun in a statement.

The Dangote refinery, with its impressive capacity of 650,000 barrels per day, is the largest in Africa. It is seen as a solution to Nigeria's costly dependence on imported petroleum products, despite its status as a major oil producer. The initiative to open up sales to local private players should also stimulate competition and, potentially, lead to a stabilisation of fuel prices in the future.

In addition, NNPC will continue to play a central role in supplying crude oil to the Dangote refinery. A government committee chaired by Wale Edun has approved the sale of naira crude to the refinery in a move aimed at strengthening the local economy. This measure is accompanied by the refinery's commitment to fully meet the country's fuel needs, enabling a gradual transition to a fully deregulated market.

The long-awaited deregulation of Nigeria's oil sector is a crucial step in the transformation of the country's economy. By ending subsidies, the government is seeking to free up financial resources that can be redirected to other priority sectors. Deregulation should also attract new investors in the refining and petroleum products sector, increasing local processing capacity and reducing import costs.

The Finance Minister also specified that this direct purchasing directive applied to all local refineries operating in the country, not just Dangote. This paves the way for a more open and dynamic market, where the forces of supply and demand will play a more decisive role in setting prices.

The deregulation of the oil sector is welcomed by many observers as an opportunity to strengthen Nigeria's economic resilience and stimulate growth. However, challenges remain, particularly with regard to the impact of higher fuel prices on consumers, who are already facing high inflation.

The future of this reform will largely depend on the government's ability to manage the transition to a deregulated market while minimising the negative social and economic effects. The first few months will be crucial in assessing whether the liberalisation of fuel sales will create a more balanced and accessible market for Nigerian consumers.