Gathoni William
Prices, as we often teach in introductory economics, are fundamentally determined by the interaction of supply and demand. Yet the real world is rarely so simple. Some commodities—such as staple foods, transportation, healthcare, education, and energy—carry deep developmental impact for society. Governments and institutions like the World Bank frequently seek to balance the competing needs of ensuring affordability for consumers while supporting producers’ capacity to sustain and expand supply. Nowhere is this tension more visible than in Nigeria’s quest for energy security, where a newly constructed mega refinery—Dangote Refinery—has become both a symbol of national pride and a subject of debate. One key point that any serious economist must underscore is that unfettered monopoly power can lead to unfair pricing, even when a new enterprise has made significant private investments. That is precisely why the argument that Dangote Refinery should compete directly with international imports stands as a compelling strategy for promoting fair prices and fostering growth in Nigeria’s energy sector.The Scale Advantage: Size and Multiple Products The Dangote Refinery, with a processing capacity of 650,000 barrels of crude oil per day, is among the largest refineries in the world, currently ranked seventh. This large scale allows for: 1. Economies of Scale: By processing such a high volume of crude daily, the refinery can spread its fixed costs over a greater output, resulting in lower unit costs. 2. Multiple Output Streams: From petrol (PMS) to diesel (AGO), jet fuel, kerosene, and liquefied petroleum gas (LPG), a high-capacity refinery can diversify its product slate to match market needs and ensure more stable revenue streams. 3. Adherence to Modern Specifications: With advanced processes (Euro 5 or Afri 6), the refinery not only meets stringent environmental standards but also raises the bar for competition, both locally and abroad. Because of its sheer size and technological sophistication, Dangote Refinery is positioned to supply Nigeria’s needs and still export surplus. Comparatively smaller refineries—especially those older facilities processing 150,000–200,000 barrels a day—will struggle to achieve a similar cost-to-output ratio or upgrade quickly enough to remain competitive. Why Build a Mega Refinery? Mega refineries exist to address modern fuel specifications and capture larger refining margins. Contemporary environmental mandates demand cleaner fuels, necessitating expensive upgrading of refining equipment. For older, medium-scale refineries that need substantial retrofitting, funding such expansions often proves challenging, and many cannot compete with mega plants’ lower per-unit refining costs. This challenge is particularly acute in Nigeria, where the state-owned Nigerian National Petroleum Company Limited (NNPCL) operates several smaller refineries. Years of underinvestment, maintenance
