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From the Broad Street
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| Femi Otedola’s Zenon Oil controls 95 per cent of Nigeria’s diesel oil market, with aggregate storage capacity of about 150,000 tonnes. Almost the entire industrial sector of the economy gets its diesel supply from Zenon.
Otedola may have deployed huge financial investment, as well as tremendous amount of industry and raw guts to take control of this essential product market. But his competitors believe he succeeded through an arm-twisting device known as dumping pricing, also known as predatory or destroyer pricing.
Predatory or destroyer pricing is the practice of an operator selling a product at very low price with the intent of driving competitors out of the market, or create a barrier to entering into the market for potential new competitors. Usually, the other firms are not capable of sustaining equal or lower prices without losing money, so they go out of business. The predatory pricer is thus left with few competitors or even a monopoly, after which it raises prices above what the market would otherwise bear.
For the predator to succeed, it must have sufficient financial reserves or other sources of revenue to offset the short-term pain, while expecting long-term gain.
This is exactly the case with Otedola. In fact, he admitted that much sometime ago in one of the rare interviews he is known to have granted. “Yes, I am known for dumping prices. And why I do that is principally to stay afloat in business. I would rather make little margin on high volumes”, he told a national newspaper.
Today, Otedola’s 95 per cent share of the market has given him an almost total control to determine the price and supply of diesel to power the Nigerian economy. Ironically, his profit margin, in recent time, is far from being marginal, what with the current sky-high price of diesel.
Now, Otedola is on the move again. He wants to apply the predatory pricing treatment to kerosene, a commodity far more essential to the generality of the populace through AP, a major marketing company which he recently acquired. He announced recently the intention to crash the price of kerosene to N50 from the N85 per litre through massive importation.
Already, other dealers and importers of kerosene are jittery over the impending threat to their continued existence if Otedola carries his plan through. Similarly, stakeholders and consuming public are suspicious of the intentions, saying that what befell diesel market would eventually strike kerosene. This week, BSJ takes a critical look at the development, juxtaposing it against Otedola’s antecedents. The result is OTEDOLA’S KEROSENE MAGIC: Will it Work? It was written by Raymond Mordi, assistant editor.
Do have a pleasant week.
aogunlowo@bsjournal.com
08076290493
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Ademola Ogunlowo
aogunlowo@bsjournal.com
Edition 28 2008 |
