ZE Commentary on the 15% Fuel Tarrifs: Strategic Outlook and Complementary Policy Proposals.

By Chinedu Okoye 

Summary:

 

• The new 15% Tarrifs on petroleum imports by the federal government of Nigeria has sparked outrage from skeptical and idelogical experts, on the X (formerly Twitter) and LinkedIn platforms.
• This is understandable, however there are various other factors, and implications at place which critique is haven't looked at, save for a few.
• We digest the tarrif and implications in detail for a more concise view, adding factors that have been largely ignored.
• These include; Complimentary policies; other underlying price determining factors; policy optics and a tilt towards refined products.

 

 

Federal Government, Tarrifs and Public Objection:

The Dangote Refinery is one of the most consequential and more recently controversial developments in Nigeria’s industrial history. Not only does it promise to transform Nigeria from a net importer of refined petroleum products into a potential exporter, it redefines the structure of the downstream market and the government’s fiscal relationship with energy production.

The refinery’s emergence collides with a long-standing policy dilemma - how to balance protectionist industrial support with market liberalization and fiscal prudence with recent discussions around the 15% import tariff on imported fuel.

The 15% tarrifs announced by the Federal government has ignited a few uproars, with commentators citing monopoly concerns and free market principles and the elimination of consumer choices. These are valid concerns, but nonetheless oversimplified.

This commentary explores how Nigeria can design complementary policy frameworks that protect domestic refining, maintain revenue integrity, and avoid supply distortions that have historically plagued the petroleum sector. We cite some important factors and give alternate views that haven't been considered by the comments released so far.

The goal is not merely to debate whether Dangote should pay tariffs, but to outline a policy approach that aligns industrial growth, fiscal efficiency. Conclusions made are that there are complimentary policy actions and price determining factors that come into play and could offset the possible fears around monopoly pricing and increased energy costs.

ZE Proposed Complimentary Policy Actions:

The following complementary policy actions are necessary to ensure that Nigeria’s downstream strategy yields developmental outcomes, not distortions. They range from crude supply coordination to FX management and competitive safeguards.

Crude Supply and Pricing Framework:

The federal government should ensure stable and transparent crude supply to the refinery at market-reflective but predictable pricing. The Nigerian Upstream Regulatory Commission (NUPRC) can play a coordinating role in linking crude allocation to domestic refining needs.

Competition Policy and Anti-Monopoly Safeguards:

To assuage fears of monopoly and unfair pricing, the Federal Competition and Consumer Protection Commission (FCCPC) should monitor pricing behavior, market concentration, and offtake agreements to prevent abuse of market dominance. A fair playing field would encourage modular refineries and other entrants, expanding Nigeria’s refining base and employment capacity.

FX and Export Earning Management:

Refined product exports from the Dangote Refinery could generate much-needed foreign exchange inflows. However, without coordination with the Central Bank of Nigeria (CBN), such earnings might be trapped abroad or mispriced. The FG should develop a refinery-linked FX retention policy, allowing Dangote and would be exporters to retain part of their proceeds for operations while ensuring repatriation of a reasonable share to the domestic banking system.

 

Strategic Outlook: Proposed Complimentary and Implemented Policy Impact 

The tarrif policy implications extend beyond fuel. It represents a test case for Nigeria’s industrial sovereignty—whether the state can use one success story (i.e., Dangote Refinery) to catalyze others in petrochemicals, fertilizers, and heavy industry.

Policies should not merely shield the refinery but leverage it to deepen local industrial ecosystems—plastics, packaging, transport, and manufacturing that rely on refined inputs. This broader vision would convert refining from an isolated achievement into a structural pivot for industrial diversification (by encouraging more local refiners)

The tarrif policy aimed at ensuring refinery’s success could reframe Nigeria’s regional trade posture under the African Continental Free Trade Area (AfCFTA). By supplying West and Central Africa with refined fuels, making Nigeria a net energy exporter within the continent, balancing trade deficits and enhancing its geopolitical leverage.

As mentioned above, the government can ensure local demand is prioritized by local refineries (Dangote most especially), as well as an indefinite Naira sales guarantee to local marketers and distributors, in exchange for a waiver on the import classification of Dangote refined crude products given that it operates in a Free Trade Zone.

The Naira sales guarantee would insulate local distributors from exchange rate risks, and the prioritization of the Nigerian market would ensure availability and price stability.

Additionally, the government could also look to sway private investments in Refineries, and a spin off of NNPCL's Refineries would be the most immediate way to meet this endeavour.

This would essentially increase competition, and free up cashflow for the state owned oil company and also increase local supply, quelling the monopoly fears.

Other Factors:

Other price determining factor would be the possibility of a continuous Naira strengthening. This is something Aliko Dangote had suggested was an expectation. The local refiner imports about 50% of its Crude feed from the US and other countries, meaning it's exposed to FX fluctuations.

This, in a scenario where Naira strengthens, the cost of half of Dangote crude oil feed would essentially become cheaper in Naira terms lesser Naira would be required to purchase one until of USD.

The effects could be;

• a ceiling on prices of locally refined crude,
• a marginal reduction in prices of refined crude
• a partial offseting of the tarrif costs for independent marketers, stabilizing prices for this market segment.

Possible Optics:

Nigeria stands at a crossroads between being a crude exporter and an integrated energy power. The goal should be to leverage refining capacity not only for self-sufficiency but as a platform for industrial expansion across West and Central Africa.

Encouraging additional private refineries (ideally 3 to 4 medium-sized plants of at least 250,000 barrels per day) would ensure competition, enhance domestic value addition, and reposition Nigeria as a continental fuel supplier under the AfCFTA framework.

 

 Concluding Remarks:

• The tarrifs could lead to positive industrial and export gains, if complimented by the above policy actions proposed; local market prioritization, Naira PMS sales; and if the NGN/USD appreciates further.
• Further Naira strengthening which goes against ZE outlook but is in line with recent trends, could also offset the costs for independent marketers that import.
• This level of policy support can be harnessed and spur more investments in downstream oil and gas. A spin off of NNPCL refineries at discounted prices seems the quickest way to spur investments in this segment –refineries.
• This would then lead to a pivot away from crude oil export depenedncy to refined products, seeing up Nigeria as a major energy supplier in the continent.