Uncharted territory of Nigeria’s petrol price wars
By Dr. Emeka Akabogu
In a flurry of pricing plyometrics, the Dangote Petroleum Refinery and the Nigerian National Petroleum Corporation have in the last few weeks, announced consecutive reductions of their ex-depot prices for premium motor spirit (gasoline). Largely, it has been the latter responding to the former. The price reductions of the two bulk suppliers have seen prices move from N990 to N890 to N865 and most recently, to N815. Clearly, it is great news for the consumer, and music to free market idealists.
But a note of caution – some petroleum marketers have suggested that the price reductions could be part of a careful business strategy to eliminate competition. Some complain of buying products for one ex-depot price, only to be undercut the next day with a price reduction by the same supplier. They are then left with unsellable stock unless they dispose of it at a loss. There are also cases of a bulk supplier picking and choosing who to sell to and at what price, or offering uneven incentives to different retailers. Dangote Refinery is reported for instance to have exclusive supply and pricing arrangements with specific offtakers, which enable them sell at rates lower than others. This has a potential of effectively distorting the market and disabling competition.
A range of marketers have reported suffering huge losses in the last few months. A sustained continuance of this pattern will drive many a petroleum marketer out of business before long, thereby opening the window for entrenchment of monopoly interests. This is the mischief that poses a grave danger to Nigeria’s energy security.
In competition law, there is a concept known as predatory pricing. It happens when a dominant market player employs a deliberate strategy of driving competitors out of the market by setting very low prices or selling below the incremental costs of producing the output. Once the predator has successfully driven out existing competitors and deterred entry of new firms, it can raise prices and earn higher profits. There are also other restrictive agreements or arrangements which have the effect of stifling and ultimately suffocating market operators who are not favoured by the dominant player.
Nigerian law is against such practice, and other trends as are considered anti-competitive. Section 72(1) and (2) of the Federal Competition and Consumer Protection Commission Act prohibits abuse of a dominant position by an operator, by among other things, “selling goods or services below their marginal or average cost” (see section 72(2)(iv)).
Other types of restrictive agreements are also unlawful, including those that facilitate discriminatory pricing and exclusive dealing. For instance section 62(1) of the FCCPC Act prohibits any two or more undertakings from agreeing “to refuse to supply goods or services to dealers except on terms and conditions that are less favourable than those applicable to other dealers carrying on business in similar circumstances…”
The Petroleum Industry Act also specifically prohibits a license holder from discriminating between customers or classes of customers “in respect of access, tariffs, prices, conditions or standards of service” (section 213). In addition, it requires the regulator to “monitor market behaviour including development and maintenance of competitive markets”, “determine whether there is any anti-competitive activity being carried on” and “arrest situations of abuse of dominant power” (section 210).
There is no doubt that the dynamics occasioned by the entry of Dangote Petroleum Refinery into the market has thrust the Nigerian downstream petroleum market into uncharted territory. It is an opportunity for strong regulatory action, further development of the law and for Nigeria to set a benchmark for the rest of Africa.
Dr. Emeka Akabogu is a commercial lawyer and Senior Partner at the law firm, Akabogu and Associates.