Nigeria’s First Locally Produced Fuel: Pricing Set by FEC Sparks Debate on Market Principles

Yesterday was historic as Nigeria finally produced it first petrol and diesel products locally. However, one little detail has not received the scrutiny amidst all the excitement – the fact that the price of the finished product will be set not by production costs as per free market principles but by the company and the FG – specifically the FEC.

As monitored in the interview yesterday, the billionaire investor, Alhaji Aliko Dangote did mention that the price of the finished products will be set by the Federal Executive Council (FEC). It is then safe to say that the organisation and the FG have adopted a mixed approach – a partially open full market pricing.

For this position, there are positives and negatives. The positives are:
A. The government ensures the producer gets the raw material (crude oil) as at when due
B. The raw material is sold to the producers in the local currency
C. The exact volume of products released as well as traceability for quality and all other properties are guaranteed. This is assuming no imports are allowed.

The negatives are:
A. The final pricing is open to political leanings which can have an adverse effect if the honeymoon ends for some reason or a ‘Pharaoh that doesn’t know Joseph’ comes into office

B. The legitimacy of the arrangement can be challenged as the FEC is not setup to be a price controlling body for the country. Some lawyers might not agree with this.

C. The likelihood of a strengthened monopoly if the honeymoon in Point A in this section thrives and the politicians continue to disconnect from the led.

D. It also raises the question of subsidy being gone as a policy as announced by the FG as it reintroduces (when crude oil prices go up as well as production costs), subsidy at the production (supply of crude, sales in Naira etc) and sales (FEC determining the final selling price) sides as against the previous situation of only at the sales side (discounted landing costs or under recovery)

E. It doesn’t guarantee cheaper fuel.

All in all, it isn’t a new system per se. It is just one that still leaves the biggest challenge that Nigerians dread in place – that of her leaders who are low in social trust, making decisions for them.

Time will tell if it solves our fuel availability problem without exacerbating existing or creating new issues.