Dangote Refinery has reduced its price – yet again. “Dangote Petroleum Refinery & Petrochemicals has slashed the price of Premium Motor Spirit (PMS), or petrol, for the second time this month. It has cut N65 off the previous price of N890, bringing it down to N825 per litre at the gantry (ex-depot),” the company announced a week ago.

“Nigerians will be able to purchase high-quality Dangote petrol at the following prices across our partners’ retail outlets: For MRS Holdings stations, it will be sold for N860 per litre in Lagos, N870 per litre in the South-West, N880 per litre in the North, and N890 per litre in the South-South and South-East regions,” the refinery added.

That was like a guided missile, showing prospective buyers where to go.  It spread quickly, and redefined the dynamics of the sale and purchase of petrol in Lagos. Across the city, rational motorists could be seen rushing to where the product was cheapest, notably MRS stations. There, queues could be seen elongating into the roads or streets.  On the contrary, marketers who still held to prices as high as N945 per litre, had their stations virtually deserted.

Responding to this move, the Nigerian National Petroleum Company Limited followed suit and cut its pump price to N860 per litre. Nigerians are thrilled.  They have not seen it this way before in the country. This would not have happened under the old regime. We didn’t have a market in that sector. Rather, what we had was a contrivance under which groups of people with similar interests banded together and decided at what price to sell, and it was so.

Now, a petroleum products market is gradually developing in Nigeria. And this is arising from the ongoing reforms in the industry and the structural changes being implemented across various sectors of the economy generally. This is because markets are created through institutional interventions that impose order on a chaotic environment dominated by powerful groups.

Nigeria’s downstream sector has always been an opaque enclave, with no alternatives available to the consumers. For a long time, Nigerians could source their petroleum products requirements from only one supplier: NNPC. In that monopolistic domain, the sole producer/supplier reigned supreme. Nigerians remember vividly the days when, while the price of crude oil was falling on the international market, they would be made to pay more for refined products at home. They could not understand the reasons for that inverse relationship. This explains the strident calls that went out for a deregulation of the industry to inject competition into it.

Competition comes with market structures and always triumphs over all other forms of economic arrangements. This is one of the things that the local downstream sector of Nigeria’s oil industry has lacked. Nigerians have been squeezed dry by a clique that banded together to extort the consumers because the system called a market did not exist in the industry.

Some people believe that NNPCL might have reacted this way to Dangote’s market moves just to be seen to be doing something. And quite appropriately, they noted that it is important that such a move be sustainable. In other words, should Dangote decide to cut its prices again (which is not out of place, going by its records so far), NNPCL should be able to respond in like manner. Otherwise, what it has just done would be akin to the story of a sheep that heard that its neighbour had calved, and, to show that she could do the same, went ahead to have a premature baby.

It is unlikely that the NNPCL of today would take such an important step without being conscious of its significance. That is not the principle of competition. Such a knee-jerk response to the system will not work in today’s evolving market structure. A price war, which it seems NNPCL has accepted, should be based on a concrete, verifiable war chest that can support the responder. The former public corporation, now a private-sector player, must be prepared to act as a price taker because Dangote is pressing toward low costs as it scales up its capacity.

Rather, the appropriate response should be based on the fundamentals of a market economy, which thrives on competition.  A firm that wants to compete in the industry must first compete with itself by taking a hard look at its structures and operations. It must take a dispassionate look at itself and decide to shed all fads that have made it unnecessarily heavy and inefficient. And that is what the new management at NNPCL seems to have been doing for some time now.

This price war has just begun. It will intensify. It will not abate until there is a price discovery in the local market. More players will join the fray soon, as smaller, modular refiners are licensed and begin operations. Taking advantage of their sizes and locations, they produce at lower costs and supply their catchment areas accordingly. It will be a dream come true for Nigerians.