Challenges Faced by Diesel Traders in Purchasing Dangote Products
Fresh insights have emerged revealing the reasons behind why diesel traders are buying less from Dangote Refinery. Despite launching production of diesel and aviation fuel earlier this year, only around 3% of local oil marketers have patronized the refinery. This has led to the company exporting 97% of its refined products.
Devakumar Edwin, vice president of Dangote Industries Limited, expressed concern about the low patronage during an X space event on September 11, 2024. He stated, “The conglomerate of all oil marketers is refusing to buy from us,” adding that it is perplexing to see local traders turning to international markets instead.
Policies Hindering Diesel Traders’ Purchases
A significant factor causing diesel traders to buy less from Dangote Refinery is the company’s trade policies. Marketers revealed that restrictions on minimum purchase quantities have made it difficult for smaller players to participate. For instance, Dangote has set a minimum purchase requirement of 20,000 metric tonnes (5 million litres) per buyer, which has proven challenging for traders who typically buy in smaller quantities, such as 10,000 metric tonnes.
These traders, primarily small to medium-sized businesses, rely on credit and cannot afford the large cash outlays required. One marketer noted, “It is nearly impossible for smaller players to buy from Dangote because the minimum requirement excludes them.”
Currency and Payment Challenges
Another major obstacle for diesel traders buying less from Dangote is the mode of payment. The refinery requires payments to be made in US dollars, which adds pressure to traders who would prefer to pay in Nigerian Naira. This dollar-based requirement has led many traders to seek alternative suppliers in more flexible markets.
Additionally, the need for letters of credit and bills of lading further complicates transactions for local oil marketers, putting additional strain on those already facing liquidity issues. A trader explained, “If Dangote allowed payments in Naira, it would ease the financial burden on us and encourage more purchases.”
International Traders Benefiting While Local Traders Struggle
Interestingly, some of the diesel sold by Dangote Refinery to large international players is later resold to Nigerian traders. However, these smaller volumes are often available only offshore, further complicating access for local businesses. Many of these traders buy back the product from international markets at terms they are unfamiliar with, leading to dissatisfaction with the current policies.
Despite the challenges, many local oil companies, such as Asharami, Rainoil, and MRS Oil and Gas, have shown commitment by purchasing from Dangote Refinery, demonstrating the potential for growth if the refinery revisits its trade policies.
Call for Policy Review
The marketers agree that the Dangote Refinery needs to adjust its policies to cater to smaller traders. They argue that by easing restrictions on purchase volumes and offering Naira payment options, Dangote Refinery can increase its local market share. One marketer said, “It’s up to the refinery’s management to widen the scope of local patronage by making policies more trader-friendly.”
While local traders continue to buy less from Dangote due to these hindrances, they remain optimistic that adjustments to the current trade terms could enhance relationships and foster growth within the Nigerian oil market.
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