Local content and monopoly risk: Why Nigeria must rethink its energy future

BY NAZEER BABA

The federal government’s decision to impose a 15 percent tariff on imported diesel and petroleum products is, without doubt, a commendable move. It is a deliberate attempt to support and promote local content, encourage domestic refining, and ease the pressure on Nigeria’s foreign exchange. However, this policy, though well-intentioned, comes with a heavy price for the entire nation if not managed with foresight and balance.

Energy security is national security. Allowing the future of Nigeria’s energy sector to rest solely in the hands of one man or one company, without real competition, is a recipe for disaster. Across the world, energy independence and resilience are treated as critical components of national defence, alongside borders, food, and cybersecurity. For example, the United States, China, and even smaller Gulf states like Iran all consider their strategic petroleum reserves and energy diversification as instruments of national stability and sovereignty.

With the new import tariff, the Nigerian government has inadvertently created an enabling environment that overwhelmingly benefits local refiners, largely the Dangote Refinery. While this aligns with the goal of boosting domestic production, it also means that traditional oil marketers may soon be forced out of business. This concentration of power in one entity’s hands should worry policymakers. If left unchecked, it risks creating a “state within a state,” much like what Russia experienced during its post-Soviet privatisation era.

After the collapse of the Soviet Union in the early 1990s, Russia embarked on a chaotic privatisation programme to transition from a state-controlled economy to a capitalist system. In that process, a handful of businessmen acquired massive state-owned energy assets, becoming what the world came to know as oligarchs. These men didn’t just own oil wells; they controlled the entire energy chain, from exploration and refining to transport and export. Their influence stretched beyond business. They shaped domestic fuel prices, influenced foreign trade balances, and, at times, undermined the authority of the Russian state itself.

This unchecked control persisted until around 2003, when President Vladimir Putin decisively moved against the oligarchs, seizing the assets of Yukos, the country’s largest private oil company and reasserting state control over the energy sector. The Russian case remains one of the most striking lessons in how the privatisation of strategic national assets, without adequate checks, can undermine national sovereignty.

Nigeria must learn from this experience before it is too late. To avoid a similar fate, the government must actively encourage competition in the refining sector. This means supporting the establishment of additional refineries, both public-private partnerships and independent ventures with significant government stakes, to protect consumers and prevent market manipulation. Traditional oil marketers, on their part, must evolve. Rather than remaining on the sidelines, they should form alliances, pool resources, and invest in small and medium-scale refineries to balance the current dominance. Building a diversified and competitive refining ecosystem is not just good economics; it is essential for Nigeria’s social and political stability.

The government should also introduce a flexible tariff mechanism, an “exit window” policy that allows the temporary suspension of the 15 percent import duty during periods of national emergency or supply shortages. This ensures that in the event of a disruption or production gap, marketers can import fuel without bureaucratic hurdles, keeping the market stable and consumers protected.

Nigeria cannot afford to trade one form of dependency for another. True energy independence is not about replacing foreign imports with a local monopoly; it is about building a system that is competitive, transparent, and resilient. That is the real test of national energy security.

Nazeer Baba writes on governance, policy, and economic inclusion. He can be contacted via [email protected]