QuotaSystem:
Dangote's refinery will definitely be a game changer for the Nigerian economy.

What a genius strategy. Imagine a scenario where other African countries would be looking for Nigerian Naira in order to purchase Nigerian Petroleum Products. It would increase the organic demand for our currency thereby boosting its value significantly.



This does not make sense. There is no way Dangote's petrol would be more expensive because not only has the issue of landing cost been eliminated since we're no longer importing, but the market has also been deregulated (which is why we suffer price hikes whenever price of crude or USD rises).

You're right about elimination of subsidy which will save us significant amounts of money, but even greater benefits would come from saving millions of USD daily that would have been wasted to import refined petrol (a whopping 41% of our forex saved); further boosting our foreign reserves and the value of the Naira. The multiplier benefits from job creation and development of allied industries to support the refinery and petrochemical plant are better imagined.

Finally, the disgraceful economic anomaly wherein the 6th largest oil producer in the world is one of the biggest importers of petrol from less endowed countries, and continuously suffers whenever crude prices rise instead of enjoying the largesse like fellow oil producers, will finally come to an end thanks to Dangote's refinery. I wish him the best and I'm excited for Nigeria.

That's how you guys in the south usually start: with utmost degree of gullibility.
But with time, when the damage is already done, e go begin clear for una eye, just like those who vigorously campaigned and voted for Buhari.

QuotaSystem:
Dangote's refinery will definitely be a game changer for the Nigerian economy.

What a genius strategy. Imagine a scenario where other African countries would be looking for Nigerian Naira in order to purchase Nigerian Petroleum Products. It would increase the organic demand for our currency thereby boosting its value significantly.



This does not make sense. There is no way Dangote's petrol would be more expensive because not only has the issue of landing cost been eliminated since we're no longer importing, but the market has also been deregulated (which is why we suffer price hikes whenever price of crude or USD rises).

You're right about elimination of subsidy which will save us significant amounts of money, but even greater benefits would come from saving millions of USD daily that would have been wasted to import refined petrol (a whopping 41% of our forex saved); further boosting our foreign reserves and the value of the Naira. The multiplier benefits from job creation and development of allied industries to support the refinery and petrochemical plant are better imagined.

Finally, the disgraceful economic anomaly wherein the 6th largest oil producer in the world is one of the biggest importers of petrol from less endowed countries, and continuously suffers whenever crude prices rise instead of enjoying the largesse like fellow oil producers, will finally come to an end thanks to Dangote's refinery. I wish him the best and I'm excited for Nigeria.

Your analyses are on point, but some people in Nigeria have a way of hijacking any developmental stride in the country and starving the people of the attendant benefits, I hope that wouldn't be the case in this dangote refinery? As you are looking at what impacts dangote refinery will have in the economy, some people are looking at how it will improve their net worths. Just have it at the back of your mind that Nigerian governments have a way of stiffling out any economic advantages made before they get to the average people. You will remember this comment of mine when we start hearing different stories about this dangote refinery as it assumes full operation

No problem. But on the condition he sells petrol to Nigerians at less than N100 a liter.

We are yet to recover from the exhorbitant price of Dangote cement.

Originalsly:


As a private company.... if the price of fuel is subsidized... it is subsidized by the government... not the company. The government pays the subsidy to Dangote... he is not losing profit.

The problem with subsides is

1.Government pays you how much they the government thinks you should be making as a profit, which is 90% of the time far less than the actual profit you should make

2.Also, costs associated with refining fuel don't remain static, they rise and rise and sometimes fall. Then there is the value of the naira.

In practice, assuming (this example is for illustrative purposes only) it costs N150 to refine one liter of fuel in this country, and I need to sell at N190 to make a profit to cater for all my running costs, pay salaries, pay taxes, and pay for the insurance , and have something for pocket...yet government comes in, forces me to sell at N100 and pays me a subsidy of N40..where is the profit?

Plus, as my running costs, insurance, salaries , and taxes rise...in addition to the cost of refining fuel too rising...to something like now it costs me N180 to refine fuel, and I need to sell at N240 now, yet government still forces me to sell at N100 and stilll pays me that N40 SUBSIDY

At the end...I lose money heavily....to the tune of N100 per liter...meaning....

..either i go out of business, or I engage in sharp practices eg black marketeering, or lying about how much I refine, or I turn away from Nigeria and export to other countries....and pay government their share to keep them quiet...

Madness, oil is Nigeria's primary forex earner, so selling our crude to him in Naira would be suicidal.

ChybuzzDD:


That's how you guys in the south usually start: with utmost degree of gullibility.
But with time, when the damage is already done, e go begin clear for una eye, just like those who vigorously campaigned and voted for Buhari.

The modular refineries will compete and destroy the Dangote monopoly.

loswhite:
So the price of crude oil in USD converted to naira exchange and paid in naira doesn't mean selling cheap to dangote refinery...The focus is on strengthening the naira, part of the problem we are having currently is that our currency is weak

I agree on strengthening the naira. The issue will be with conversion rates. The refinery is likely to get the crude at the most competitive bank rates but after refining locally, they plan to sell to us at international rates leaving a wide profit margin already.

QuotaSystem:
Dangote's refinery will definitely be a game changer for the Nigerian economy.

What a genius strategy. Imagine a scenario where other African countries would be looking for Nigerian Naira in order to purchase Nigerian Petroleum Products. It would increase the organic demand for our currency thereby boosting its value significantly.



This does not make sense. There is no way Dangote's petrol would be more expensive because not only has the issue of landing cost been eliminated since we're no longer importing, but the market has also been deregulated (which is why we suffer price hikes whenever price of crude or USD rises).

You're right about elimination of subsidy which will save us significant amounts of money, but even greater benefits would come from saving millions of USD daily that would have been wasted to import refined petrol (a whopping 41% of our forex saved); further boosting our foreign reserves and the value of the Naira. The multiplier benefits from job creation and development of allied industries to support the refinery and petrochemical plant are better imagined.

Finally, the disgraceful economic anomaly wherein the 6th largest oil producer in the world is one of the biggest importers of petrol from less endowed countries, and continuously suffers whenever crude prices rise instead of enjoying the largesse like fellow oil producers, will finally come to an end thanks to Dangote's refinery. I wish him the best and I'm excited for Nigeria.

We all thought production of rice locally would bring down the price of rice, but here we are today.
I really hope same thing doesn't happen when the refinery starts operation in full.

Look at this scenario, if other outside buyers come offering dollars for the same products that we local consumer want to pay naira for, who do you think will get top priority...
I hope there will a policy in place that ensures local market is satisfied first, otherwise na one chance we go enter o.

Godarz:



The problem with subsides is

1.Government pays you how much they the government thinks you should be making as a profit, which is 90% of the with refining fuel don't remain static, they rise and rise and sometimes fall. Then there is the value of the naira.

Only in a Communist country or under a dictatorship the government can do that. That's not the case here. Dangote did not set up his refinery under conditions with the FG ... the refinery is not regulated by the FG. Electricity producers... they set up under conditions by the FG.... you will produce X amount of electricity 24/7 costing the consumer no more than Naira x/kilowatt for 12 months and we will give you a subsidy of N3 per kilowatt ... that's regulation.... the FG calls the shot. Dangote calls the shots.

Originalsly:


Only in a Communist country or under a dictatorship the government can do that. That's not the case here. Dangote did not set up his refinery under conditions with the FG ... the refinery is not regulated by the FG

.

Good, so you should not complain if Dangote sets his price, and we have to pay higher for fuel ,as a result. I won't be complaining....it is good economics after all.

Electricity producers... they set up under conditions by the FG.... you will produce X amount of electricity 24/7 costing the consumer no more than Naira x/kilowatt for 12 months and we will give you a subsidy of N3 per kilowatt ... that's regulation.... the FG calls the shot. Dangote calls the shots.

Yeah, and it is because of that arrangement that electricity companies cannot make enough profits to even meet up the demand in the agreements.

Infact the PWC report on power in Nigeria puts the inability of DISCOS to charge cost reflective tariffs, that prevents profits being made and thus our power supply gets worse.

Throw in the fact that as much as 40% of customers don't pay for electricity at all.

I've made the call during one of the economic discussion section( side talks) in the office. We cannot afford a dollarised economy with our abysmal exchange rate, it will only impoverished the poor the more. If this is done government will be domestication its debts in naira and that becomes easy to sort especially when dollar request fall

Godarz:
.

Good, so you should not complain if Dangote sets his price, and we have to pay higher for fuel ,as a result. I won't be complaining....it is good economics after all.

That's where subsidy comes in. If the said price is too much for the masses... the FG offset the price to the consumer by subsidizing.... Dangote is paid in full... part by the consumer.. part by the FG.

Emary:


I agree on strengthening the naira. The issue will be with conversion rates. The refinery is likely to get the crude at the most competitive bank rates but after refining locally, they plan to sell to us at international rates leaving a wide profit margin already.

When we say international rates it refers to the dollar equivalent. We must understand that there is no fix international rates for selling petrol. It varies base on alot of factors. So if you remove shipping cost I believe you know the price of petrol will go down so if the naira strengthens against the dollar you agree the price will also go down when do conversion(International rate). The truth is Dangote refinery has alot of positive to us as Nigerians and also our economy, so we should see it as positive development.

What happened to granting licence to Modular Refinery owners and operators in Southsouth? Chei

QuotaSystem:
Dangote's refinery will definitely be a game changer for the Nigerian economy.

What a genius strategy. Imagine a scenario where other African countries would be looking for Nigerian Naira in order to purchase Nigerian Petroleum Products. It would increase the organic demand for our currency thereby boosting its value significantly.



This does not make sense. There is no way Dangote's petrol would be more expensive because not only has the issue of landing cost been eliminated since we're no longer importing, but the market has also been deregulated (which is why we suffer price hikes whenever price of crude or USD rises).

You're right about elimination of subsidy which will save us significant amounts of money, but even greater benefits would come from saving millions of USD daily that would have been wasted to import refined petrol (a whopping 41% of our forex saved); further boosting our foreign reserves and the value of the Naira. The multiplier benefits from job creation and development of allied industries to support the refinery and petrochemical plant are better imagined.

Finally, the disgraceful economic anomaly wherein the 6th largest oil producer in the world is one of the biggest importers of petrol from less endowed countries, and continuously suffers whenever crude prices rise instead of enjoying the largesse like fellow oil producers, will finally come to an end thanks to Dangote's refinery. I wish him the best and I'm excited for Nigeria.

Can you please use this analysis to explain why Nigerians buy cement at the highest rate in the world despite having limestone in abundance?
I want to learn.

Emary:
So the plan is to sell this man our crude at cheap rates, only for him to resell the refined products to us at even higher rates than importers currently do? Real monopoly. Well, at least after this, we should hear no more about subsidy.

https://www.proshareng.com/news/Oil%20&%20Gas/FG--Dangote-Refinery-Will-Sell-Petrol-at-International-Price/53251

The fact that crude will be sold to him in naira does not make it cheap. If crude is currently $60 in international market and our exchange rate is $/N380, that means Dangote will buy a barrel of crude at N22,800. And this will change based on the variables of international price and exchange rate. The main benefit though is that demands for forex goes down. Since element of the cost input such as salaries of refinery staff, logistics, amin cost etc will now be in naira so we are less exposed to the currency devaluation, but not by much as we will still be exposed to the extent of international price and exchange rate.

Dangote will therfore determine his petrol price in naira based on all of the above.

Godarz:
.

Yeah, and it is because of that arrangement that electricity companies cannot make enough profits to even meet up the demand in the agreements.

Infact the PWC report on power in Nigeria puts the inability of DISCOS to charge cost reflective tariffs, that prevents profits being made and thus our power supply gets worse.

Throw in the fact that as much as 40% of customers don't pay for electricity at all.

They made an agreement. Some of those companies left.... that was their intention from the beginning because of the conditions set out by the FG. Is like the FG says to you..... we want the Badagry Expressway rebuilt as a first class roadway.... we will give you US$ 950 M upfront to mobilize the necessary equipment etc and get the project rolling for the first 50 miles and we are expecting this to be completed in 5 years. After 2 years.... you can set up tolls on the road completed thus far and charge no more than N200 per car. Tell me which business minded person will not take such a golden opportunity?... and after pocketingbhalfnof the upfront money.... exit by saying the N200 toll is too small?... it will take N2500 to make economic sense? That's what they did... pocket the money and run.

deeptechcool:


Can you please use this analysis to explain why Nigerians buy cement at the highest rate in the world despite having limestone in abundance?
I want to learn.

A lot of what you pay for in price of cement in Nigeria is due to the inefficiency from the factory to the end consumer. Here we use trucks, which in turn suffer from bad roads, police on the roads, area boys etc. Will all the truck drivers not be paid? Will all the trucks not be maintained? In developed countries there is non of that. In Europe and America, cement is transported by rail. One fully loaded train will carry what 100 trucks will carry, yet it has one driver. All what I described above alone can add up to N500 to the price of a bag, if not more.

Originalsly:


That's where subsidy comes in. If the said price is too much for the masses... the FG offset the price to the consumer by subsidizing.... Dangote is paid in full... part by the consumer.. part by the FG.

So, we are back to price setting by the government. Right.

Especially as government historically has found it difficult to pay for subsides for petrol because our revenue has never been sufficient enough to sustain it...also rising costs of refining fuel means that the amount spent on subsidizing it has to go up too.

At the end of the day, under such an agreement, Dangote loses money. Especially when government revenues from selling crude go down...

Of course there is another way for government to pay for subsides....raise taxes on our GDP. Nigeria's tax to gdp ratio is 6.1%..among the lowest in the world.

Really,we did what you have suggested for years...and the oil industry lost money...plus as costs rose, we kept on pouring more and more money to sustain a subsidy that increasingly became unsutainable.

OyinO:
What happened to granting licence to Modular Refinery owners and operators in Southsouth? Chei

First of all Walter Smith modular refinery is working not so?

Secondly most of those who for modular refinery license did so for fraudulent reasons. They thought they would be allocated oil, which they would in turn sell without doing any refining.

Operating a refinery, even a modular one, is very technical and requires a lot of planning and brain work, which Nigerian business men don't like. They always like easy buy and sell business, what there is little thinking required. And that goes for most Nigerians too. All we know is how we can get shop, so we can be trading. Or to build house for easy rent. Nothing creative.

Originalsly:


They made an agreement. Some of those companies left.... that was their intention from the beginning because of the conditions set out by the FG. Is like the FG says to you..... we want the Badagry Expressway rebuilt as a first class roadway.... we will give you US$ 950 M upfront to mobilize the necessary equipment etc and get the project rolling for the first 50 miles and we are expecting this to be completed in 5 years. After 2 years.... you can set up tolls on the road completed thus far and charge no more than N200 per car. Tell me which business minded person will not take such a golden opportunity?... and after pocketingbhalfnof the upfront money.... exit by saying the N200 toll is too small?... it will take N2500 to make economic sense? That's what they did... pocket the money and run.

Which businessman would allow government to set his prices?

That's how communist and socialist governments work, not capitalist governments.

As a result, DISCOS cannot charge cost reflective tarrifs...plus the government has been finding it difficult to pay counterpart funding over the years, plus we have had to take loans just to cover the losses

At this point, I suggest you read this .Pay attention to page 8.

Good afternoon

The plan to finish our crude has finally be perfected... Northerns holding our crude now they want to sell to their fellow.

sulaak:
Madness, oil is Nigeria's primary forex earner, so selling our crude to him in Naira would be suicidal.

Not necessarily. The refinery will produce far more than Nigeria needs and the remainder will be exported and Nigeria forex earnings go up that way. Note that for forex earnings its important for Nigeria as a corporate entity not necessarily the FG. There is a big difference. It does not matter who in Nigeria earns it. Do you think FG in America earns all the forex America needs? What Apple earns selling their products abroad is maybe more than American govt earns directly, but it all goes towards influencing dollar value.

Nigerian FG spends most of its money in Naira paying salaries. So if companies start to earn the forex Nigeria needs, nothing spoil.

COMPAQ:


A lot of what you pay for in price of cement in Nigeria is due to the inefficiency from the factory to the end consumer. Here we use trucks, which in turn suffer from bad roads, police on the roads, area boys etc. Will all the truck drivers not be paid? Will all the trucks not be maintained? In developed countries there is non of that. In Europe and America, cement is transported by rail. One fully loaded train will carry what 100 trucks will carry, yet it has one driver. All what I described above alone can add up to N500 to the price of a bag, if not more.

Now use this analysis to explain why we won't buy petroleum at the highest rate when the refinery is completed.

Godarz:



At the end of the day, under such an agreement, Dangote loses money. Especially when government revenues from selling crude go down...



Really,we did what you have suggested for years...and the oil industry lost money...plus as costs rose, we kept on pouring more and more money to sustain a subsidy that increasingly became unsutainable.

Take the second first. Bear in mind.... Dangote refinery is a private refinery. The government was pouring money in a public refinery.... a funnel that leads to the pockets of the connected. After the refineries ceased operations... millions was still poured into it.... it was a funnel. On subsidies... the FG never said how much the fuel cost... and what was the subsidy. Subsidy was another funnel. With Dangote... you will know how much the FG is subsidizing... if there will be a need for subsidy.Maybe his cost to us will be lower than the FG present cost with subsidy. Some people will not like that. Let's give it time to materialize and let's hope for the best.

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