Analysts at Chapel Hill Denham Securities have stated that at full operational capacity, the Dangote Refinery can supply the domestic oil market in Nigeria, thereby generating more domestic oil revenue for the government, if it sells directly to the refinery.
Chapel Hill Denham Securities made this disclosure in a document titled ‘Oil and Gas Sector Insight – 22 June 2022’
The domestic oil revenue Nigeria will realize by selling crude oil directly to Dangote Refinery will grow three-fold, thereby improving the country’s fiscal balance. What this will do is it will strengthen the government’s ability to bring people out of poverty considering that the inflation in the country has driven more people into poverty.
According to Analysts at Chapel Hill Denham, ”Under the Direct Sale and Direct Purchase scheme (“DSDP”), the NNPC reported total revenue of N2.40tn from the sale of the 19.9bn liters of white products in 2021, which translates to 54.5mn liters per day on average. With the preceding in mind, we believe that the FGN can triple its naira earnings from the sale of the entire 445kb/d domestic crude obligation instead of exchanging for white products through the DSDP scheme”.
The company believes that the fiscal burden on the government because of the heavy subsidies spent on imported products, though directed to benefit the low-class household, has little impact on such people, and rather benefits the wealthy household and foreign consumers of the country’s domestic supply (it estimates that about 15.84mn liter of PMS per day on average is being smuggled to neighboring African countries). In other words, the subsidy is not necessarily serving a good purpose.
The company stated that ”going by the figures we obtained from the World Bank, Households in the bottom 40% of Nigeria’s income distribution account for less than 3.0% of all white product purchases. For proper context, 75% of all white products sold in Nigeria are consumed by private firms, public transportation services, government agencies, and other business entities. Against this backdrop, one can potentially conclude that subsidy may have outlived its purpose”.
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