By Abraham Amah
The practice of deliberately reducing prices to eliminate competition and subsequently increasing them once rivals are weakened or eliminated is known as predatory pricing. This strategy is often employed by large firms with significant financial resources to suppress competition, allowing them to dominate a market in the long run. Recent developments in Nigeria’s oil and gas sector raise concerns about whether Dangote Refinery’s pricing approach is a strategic attempt to undermine the newly operational NNPC-operated refinery, which has just resumed production. While Dangote’s reduced fuel prices appear to benefit consumers in the short term, the long-term consequences of this pricing war must be carefully analyzed.
In recent weeks, Dangote Refinery announced the sale of petroleum products at rates significantly lower than both the NNPC’s refinery prices and imported fuel costs. This move, while seemingly aimed at reducing Nigeria’s dependence on fuel imports, coincides with the NNPC’s renewed efforts to revamp its refinery operations. The timing of Dangote’s price reduction has sparked speculation that it could be an attempt to push NNPC out of the refining market, ensuring that Dangote Refinery remains the dominant local supplier.
If this is indeed a predatory pricing strategy, the risks to the NNPC refinery and other potential competitors are significant. The NNPC, which has only just restarted domestic refining after years of inactivity, still requires time and investment to optimize production. If forced to operate at a loss due to Dangote’s aggressive pricing, the government-owned refinery may struggle to sustain operations, leading to reduced production capacity or even shutdowns. This scenario would effectively hand Dangote Refinery a near-monopoly over Nigeria’s refining sector, limiting future competition.
Should the NNPC refinery be unable to compete and either scale down or halt production, Dangote Refinery would gain unrivaled control over the domestic supply of refined petroleum products. With no major competitors left, Dangote could then gradually increase fuel prices, setting rates at levels that maximize its profits while keeping alternative suppliers out of the market. This would negatively impact consumers, who, having initially benefited from lower prices, would find themselves paying higher costs in the long run due to the absence of competition.
Beyond the immediate competition between Dangote and NNPC, this situation also discourages new entrants from investing in Nigeria’s refining sector. Potential investors observing the aggressive pricing war may be deterred from entering the industry, fearing financial losses similar to those that could cripple the NNPC refinery. This would limit future innovations, investment opportunities, and the expansion of Nigeria’s refining capacity, keeping the country dependent on a single dominant player.
Regulatory bodies such as the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) and the Federal Competition and Consumer Protection Commission (FCCPC) must closely monitor the unfolding market dynamics. If Dangote Refinery’s pricing strategy is found to be anti-competitive, regulatory intervention may be necessary to ensure a level playing field, prevent market manipulation, and protect consumers from future monopolistic pricing. The government must also provide strategic support to the NNPC refinery to enable it to compete effectively and ensure the sustainability of domestic refining.
In conclusion, while Dangote Refinery’s recent price reductions may seem consumer-friendly, they could potentially be a strategic move to eliminate competition, particularly from the newly operational NNPC refinery. If unchecked, this approach could result in a long-term monopoly over Nigeria’s fuel supply, leading to higher prices, reduced investment, and limited options for consumers. Therefore, regulators, policymakers, and industry stakeholders must take proactive measures to maintain market fairness and prevent a single entity from controlling the nation’s refining industry.
Amah writes from Umuahia, Abia State
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