The Managing Director of Financial Derivatives Company Limited, Bismarck Rewane, has warned that it would be economically dangerous for Dangote Refinery to sell petrol below its production cost.
Speaking on Channels Television’s ‘Business Morning’ segment of “Sunrise Daily” on Tuesday, Rewane emphasized that no refinery, apart from government-owned ones, can survive by selling at a loss.
“Dangote Refinery, or any refinery for that matter, is in business to produce at a profit,” Rewane stated.
“They will produce at a price point where their marginal cost equals their marginal revenue. Selling below production cost consistently would drive them out of business. That would be suicidal.”
Rewane added that while Dangote Refinery guarantees both quality and quantity, the pricing is determined by the global market and not solely by the refinery itself.
“Pricing is not in the hands of Dangote Refinery but in the hands of the market, which includes global crude prices, guaranteed margins, and processing costs. Nobody goes into business to sell below cost if not, that is suicide,” he reiterated.
With the refinery poised to make a significant impact on Nigeria’s energy landscape, Rewane cautioned against false expectations.
“It’s good to celebrate the milestone of lifting petrol from our own refineries, but now it’s business time. We have the largest single-train refinery in the world thanks to Alhaji Dangote’s initiative, but we must understand it’s still a business venture.”
Inflation Decline Not Sustainable
Rewane also addressed Nigeria’s recent inflation data, cautioning that the reported August decline may be short-lived. He explained that the drop in inflation came before the latest increase in petrol prices and during a period of protests that temporarily affected the prices of perishable goods.
“We shouldn’t get too excited because the September data is beginning to show signs of an increase in price levels,” Rewane noted. “Our forecast suggests that the moderation in inflation is more likely to be visible towards the end of the year rather than now.”
He predicted that inflation pressures could resurface as the effects of rising petrol prices take hold. “The current inflation reduction is short-lived, and we expect to see price increases in September due to these factors,” Rewane concluded.
As Nigeria continues to navigate economic challenges, Rewane’s insights suggest a cautious approach is needed regarding both fuel pricing and inflation management in the months ahead.