(Ecofin Agency) - As Nigerians adjust to the new fuel prices, the long-anticipated move to deregulate downstream supply and end NNPC’s monopoly will likely drive up gasoline costs.

Nigeria’s state-owned oil company, NNPC, has officially raised the fuel pump price to 998 naira ($0.60) per liter, up from the previous rate of $0.50. This price adjustment follows the NNPC's decision to give up its exclusive purchasing rights for fuel distribution from Aliko Dangote's refinery, allowing independent traders direct access to the refinery’s fuel supply.

NNPC NEW PMS PUMP PRICE
Lagos - ₦998
SW - ₦1,025
Abuja - ₦1,030
SE - ₦1,045
SS - ₦1,075
NE - ₦1,070
This is becoming unbearable pic.twitter.com/5wXfdxdo6n

— Coc (@Cocmez) October 9, 2024

It also comes amid ongoing uncertainty about the actual price of Dangote’s refinery products. The refinery previously denied NNPC's claims about the price NNPC pays for fuel. NNPC had reported buying fuel from the refinery at 898 naira per liter, then adding fees for the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), the Midstream and Gas Infrastructure Fund, distribution, and logistics, bringing the pump price at NNPC stations to 950.22 naira ($0.50).

Many had hoped that ending NNPC's monopoly as Dangote Refinery’s exclusive buyer would lower prices, but concerns remain. Some fear NNPC will keep prices high to protect its interests in fuel imports. Meanwhile, Nigeria’s House of Representatives has called for the government to allow independent traders to directly participate in fuel distribution from the refinery to ensure transparency.

For years Nigerians were repeatedly told that a local refinery will make the cost of petrol cheaper. We now have a local refinery and the cost isn’t cheaper. It has been months of press releases and media war between NNPC and Dangote. The lack of transparency and accountability…

— Dr Dípò Awójídé (@OgbeniDipo) October 9, 2024

Independent retailers may now take advantage of the situation and sell fuel for more than 1,000 naira per liter in remote areas, particularly in the southeast and northern regions, where prices could rise to between 1,200 and 1,300 naira or higher.

Despite these increases, Nigeria’s fuel prices remain among the lowest in the region. For instance, they are around 40% lower than in neighboring Benin. According to Global Petrol Prices, Nigeria’s current fuel price is estimated at $0.47 per liter, compared to $0.62 in Saudi Arabia, the world’s largest oil producer. Compared to countries in the CEMAC, WAEMU, and ECOWAS regions, Nigerian fuel is about 60% cheaper.

However, experts warn that low fuel prices are taking a toll on Nigeria’s middle class. Aliko Dangote, head of Dangote Refinery, said in a recent interview with Bloomberg Television, that while fuel is affordable in Nigeria, it heavily impacts household budgets due to the population’s low income. Combined with the naira’s depreciation, this worsens the country's economic difficulties.

Dangote Refinery’s real challenge lies in meeting domestic demand while maintaining profitability. Although Nigeria is a major supplier of petroleum products in ECOWAS, with Côte d'Ivoire as its top export market, the gradual removal of fuel subsidies could push prices even higher at the pump. The government is still spending billions of naira to keep fuel prices relatively low, with a projected 5.4 trillion naira set aside for subsidies in 2024, despite President Bola Tinubu’s efforts to reduce them.

Without these subsidies, prices could rise even more, threatening the competitiveness of Nigerian fuel both locally and in neighboring markets. Moreover, the continued depreciation of the naira could lead to even more unpredictable price swings.

It’s also worth noting that Nigeria is already less competitive in diesel markets. In Saudi Arabia, for example, diesel costs $0.84 per liter, much lower than in Nigeria.