- Bickers With NNPCL, As Pains Over Petrol Hike Bites Harder
BY AWELE OGBOGU
Alhaji Aliko Dangote may be the richest man in Africa but his mood these days is a reflection of the adage which says that the rich also cry. He continually talks about the obstacles posed to his refinery business by the NNPCL and the so-called oil cabal, including the reluctance/ refusal of the former to give him prices at which to sell his refined petrol, while keeping the citizens of this country ‘salivating’ over the presence of Dangote fuel at filling stations across the country at affordable prices just as he had promised.
As the waiting continues, many wonder if this is a game between two sides- NNPCL which some believe is using every trick in the book to maintain its monopoly in the sector and Dangote whose promises to the people might have been ambushed by unforeseen circumstances, notably the fuel subsidy removal. The Pointer investigation, looking at the Dangote refinery, its vision, challenges and the road ahead, gathered that Dangote Refinery faces challenges due to declining domestic crude production, reliance on expensive sweet crude, outdated technology, lower complexity and profit-reducing lower conversion rates.
In an ambitious move that highlights Nigeria’s potential for economic self-reliance, the Dangote Group embarked on constructing the world’s largest single-train refinery. The $20 billion investment by Aliko Dangote was envisioned to revolutionise Nigeria’s oil and gas sector, addressing the country’s persistent refining deficits.
However, the journey has not been without significant difficulty and criticisms, raising questions about the strategic decisions underlying this colossal project.
An analyst in the sector, Ben Ezeamalu and others have hoped against hope that after years of delay, Africa’s biggest oil refinery can bring respite to a badly managed petroleum industry. The 650,000 barrel-per-day facility, built from scratch on reclaimed swampland, aimed to end Nigeria’s reliance on fuel imports. Owned by Africa’s richest man, Aliko Dangote, the $20 billion refinery said it received its first crude shipment in December 2023. Last week, it got a sixth cargo, allowing initial production of diesel and aviation fuel to commence. Akin Omole, Managing Director of Dangote Ports Operations, said the receipt of six million barrels of crude facilitated the initial run of the refinery and that it began the production of diesel, aviation fuel and liquefied petroleum gas.
Interestingly, Omole rose to the occasion to inform the country that it had began the production of Premium Motor Spirit (PMS), so why the delay? In a statement, he had said that “meeting all of Nigeria’s domestic fuel needs, the refinery can also export surpluses, even hoping to commence premium gasoline production onreaching full capacity by 2025. Further details given was that the refinery will scale up to its full capacity, loading 2,900 fuel trucks daily and projected to produce 10.4 million metric tons of gasoline and 4.6 million tons of diesel annually. He said back then that“this is a big day for Nigeria. We are delighted to have reached this significant milestone. This is an important achievement for our country as it demonstrates our ability to develop and deliver large capital projects. This is a game changer for our country.” Today, it appears, from all indications, that a wait-and-watch tactic has become the name of the game.
Indeed, when Dangote announced the flag-off of the construction of his refinery, a lot of respite was expected in the minds of stakeholders in the oil and gas industry. This is because there are no functional refineries in Nigeria. As an oil-producing country, Nigeria has to import refined crude oil from abroad and this creates a higher price for cooking, automobile, and aeronautic fuel in Nigeria. It remains worrisome that a country that extracts crude oil from its environment does not have the refinery to process this crude oil.
Yet, Mr. Ugo Uwana, a concerned citizen in Asaba said “they are downsides that should be considered as well. He asked: “what is the level of incentives enjoyed by the business mogul, Aliko Dangote? One, the Nigerian government does not joke with its crude oil since it is the mainstay of the economy. This means that they would go to any length to make as much profit as they can. Two, there are foreign markets for Dangote to sell its processed crude to, this could act as a bargaining chip to get any form of incentives to sell refined crude in the Nigerian market.”
“Again, there is a tendency for a monopoly. Anywhere in the world where monopoly thrives, the following issues are prevalent – artificial scarcity, higher prices than a perfectly competitive market and reduction in consumer surplus and less economic welfare. In Nigeria currently, there are momentary phases of fuel scarcity resulting in long queues and stampede in filling stations. Considering the potentials of artificial scarcity by Dangote refinery, the challenge may get worse. Furthermore, the emergence of the Dangote refinery may fully cripple all the decrepit refineries in Nigeria. These refineries are notoriously cost centers, not generating enough revenue to cover their cost, let alone streaming any net profit to the government revenue coffers. There has been a lot of suggestions to the government to revamp these refineries. One of the popular suggestions is that the Nigerian government should eliminate fuel subsidies and invest the savings in revamping the refineries. Another suggestion is that the Nigerian government should enter into a private-public partnership in the ownership and management of refineries. However, with Dangote refinery coming on board, there is a major chance that local refineries may fight back.”
“From an environmental perspective, the Dangote refinery will worsen the level of heat within Lagos, where the refinery is located. Sadly, the government and environmental stakeholders are not paying attention to the environmental consequences of the refinery in Lagos. Already, the sea level is rising in Lagos, the frequency of rainfall is distorted, the temperature level is high and there are no active afforestation activities within Lagos. Since the government is unconcerned, it is no surprise that Aliko Dangote himself has not spoken on the environmental consequences of the refinery.” He posited that although the Dangote refinery portends great benefits for the Nigerian economy, there are serious concerns that the Nigerian economy will get the maximal benefits.“
Critics like Uwana argue that Dangote’s decision to build the refinery without securing an exploration license for crude oil production may have been a strategic mis-step. At the project’s inception, Nigeria’s total crude output was below two million barrels per day, with much of it committed to existing contracts and swaps with foreign refineries. This left the Dangote refinery dependent on imported crude, primarily from the United States, despite the order to sell crude to him in Naira, which nullified some of the logistical and cost-saving advantages of domestic refining.
Uwana had it that if he had started drilling when he began building the refinery, he would now be producing enough to feed his refinery. “This perspective suggests that an integrated approach combining production and refining might have mitigated supply chain risks and ensured a more stable feedstock for the refinery, rather than always talking about the NNPCL.
The Dangote refinery’s reliance on imported crude has broader implications for Nigeria’s economy and policy landscape. While local refining theoretically reduces transportation costs and increases local employment, the benefits are diluted if crude must be sourced internationally. Furthermore, the project’s viability is tied to Nigeria’s policy environment, which has historically lacked consistency in supporting domestic production and refining initiatives. One significant policy issue is Nigeria’s allocation of crude oil for local refining. Unlike other oil-producing nations where refineries often operate independently of domestic crude production, Nigeria’s policy framework has not consistently supported such a model. “Not all refiners in other climes own oil mining licenses (OMLs). It is Nigeria, as a policy, that ought to dedicate some percentage of its daily production to local feed”, emphasised an industry expert.
The financial aspects of the project have also drawn scrutiny. The Nigerian National Petroleum Corporation (NNPC) invested $2 billion in the refinery, a decision questioned by many given the uncertainties surrounding crude supply and the refinery’s repeated delays. “Why did NNPC put our money in a refinery where they can’t guarantee crude supply?” is a sentiment echoed by several analysts. Additionally, the environmental impact of the refinery cannot be overlooked. Concerns about pollution and the sustainability of such a massive industrial complex in Nigeria’s economic landscape are significant, especially as global trends move towards greener energy solutions.
Despite these challenges, some industry observers believe that Dangote’s long-term strategy may still yield significant benefits. “Dangote plays the long game—he is waiting for Nigeria in the future. Ultimately, he will have the upper hand in an integrated value chain business.” The refinery could eventually displace European refiners from the Nigerian market and secure a substantial share of the African market if supply chain risks are managed effectively. Moreover, the refinery’s potential to produce premium motor spirit (PMS) and other refined products domestically could transform Nigeria’s energy landscape. The strategic investment, if managed well, might offer dividends similar to those from the Nigeria LNG investment, which has consistently provided returns despite initial skepticism. There were strong indications that they could be further delays by Dangote Petroleum Refinery in hitting filling stations in nooks and crannies of the country as envisaged.
Truly, experts said the Dangote Group last month made good its projection that the refinery would begin the production of petrol between August 10 and 12, 2024. However, findings showed that the 650,000 barrels per-day capacity refinery has not stopped fighting with both real and imagined enemies.
But multiple officials close to the development confirmed that all was set for the refinery to begin the delivery of the much-awaited Premium Motor Spirit anytime from now. “All is set. The refinery will roll out petrol this month. However, its concern is that the refinery cannot stop for one minute, it needs the constant supply of crude to keep going,” one of the officials close the refinery said on condition of anonymity. However, further findings show that the ongoing crude supply crisis might be a setback to the Dangote oil refinery which is supposed to commence the supply of the much-awaited Premium Motor Spirit, popularly called petrol, into the market.
This was also as PMS marketers await the sale of the commodity by the refinery this week.
The Pointer reliably gathered that the refinery has put efforts in full gear to roll out petrol last August, even as it awaits 29 million barrels of crude oil from the Nigerian Upstream Petroleum Regulatory Commission. Reliable sources privy to the development told our correspondent that the refinery was ready to release petrol last month, regardless of the crude crisis. The sources, who did not want to be mentioned because of the sensitivity of the matter, disclosed that the company is 100 per cent ready to pump out petrol as planned. However, they said the low supply of crude may impact the process.
“I can confirm to you that we will start the sale of PMS, though the low supply of crude oil has always been affecting the process. But from the information at my disposal, we are 100 per cent ready for the supply of PMS,” a source stated. Another informed person said the refinery is still awaiting 29 million barrels of crude oil from the NUPRC.
“The NUPRC is yet to fulfill the supply of the 29 million barrels promised to Dangote. They are still waiting for that. Surprisingly, the 29 million barrels were allocated on paper, they didn’t get to the refinery, yet the NUPRC told the press recently that the crude was supplied. “Dangote refinery needs 15 cargoes for September, only six cargoes have been supplied. Where do you want him to get the remaining nine cargoes? He will have to import again. Though the President said local refineries should buy in naira, but if it is at the international rate. What is the difference?”, a source asked.
Our correspondent reliably gathered that though Dangote will surely roll out the supply of petrol, the product may not be sold locally due to price differential. Experts familiar with the company stated that the current price being offered by the Nigerian National Petroleum Company Limited for petrol is not competitive for any trader.
“For Dangote to sell to Nigerians, it has to be at a competitive rate. Dangote will source crude at the international rate, how do you expect him to sell at a rate below the cost price? So, it will be better to sell outside the country than to sell in Nigeria at a loss. “There is a lot of politics in oil and gas and this is heavily killing Nigeria. Just like former President Olusegun Obasanjo said, those making money from fuel importation are frustrating Dangote,” the expert said anonymously.
Other sources who spoke reluctantly to our reporter maintained that all was set for the sale of petrol, but they would not know the exact date and the price. “I learnt PMS will be out probably by next week, but I don’t know the exact date”.
As August ended amidst a petrol price hike Nigerians are beginning to ask whether or not the Dangote refinery will be able to supply petrol this month as promised by the President of the Dangote Group, AlhajiAlikoDangote.
The Pointer recalls that Dangote had to postpone the supply of PMS like three times since the refinery began the sale of diesel and aviation fuel in April. In May, Dangote told Nigerians that fuel importation would completely stop in Nigeria the moment the refinery began the sale of petrol in June. In the same month, Dangote informed Nigerians that his plan to release petrol into the market in the sixth month of the year would no longer be possible, sparking reactions from Nigerians. While on a tour of the facility with Governor Babajide Sanwo-Olu of Lagos State and other dignitaries, he announced, “we had a bit of delay, but PMS will start coming out by 10 to 15 of July. But then, we want to keep it in the tank to make sure that it settles. So, by the third week of July, we’ll be able to come out to take it into the market,” Dangote had said. However, this could not happen in July as Dangote again told pressmen that the supply of petrol was impacted by a fire incident that broke out at the refinery’s effluent treatment plant on June 26. He said the product would be out between August 12 and 15.
All the same, marketers await Dangote. Petroleum marketers in Nigeria said they are still waiting to hear from the refinery on when it would begin the release of petrol. Both major and independent marketers showed interest in buying PMS from Dangote, especially after years of depending on the Nigerian National Petroleum Company Limited for petrol. The Executive Secretary of the Major Energies Marketers Association of Nigeria, Clement Isong, said that the major marketers are waiting to hear from the Dangote Group. According to him, MEMAN members are currently buying PMS from the NNPC while most of them get diesel and aviation fuel from the Dangote refinery. “We are still waiting for them. Currently, it is only the NNPC that imports PMS because of the price differential. So, we are waiting (for Dangote refinery). “Currently, we are all buying AGO (diesel) and ATK (aviation fuel) from the Dangote refinery. To the best of my knowledge, marketers are not buying PMS yet,” Isong stated. It could be recalled that the management of the Dangote Group had alleged that the International Oil Companies were still frustrating crude supply to the 650,000-capacity refinery. The group said the IOCs insisted on selling crude oil to its refinery through their foreign agents, saying the local price of crude will continue to increase because the trading arms offer cargoes at $2 to $4 per barrel, above NUPRC’s official price. It also alleged that the foreign oil producers seem to be prioritising Asian countries in selling the crude they produce in Nigeria.
The Vice President of Oil & Gas, Dangote Industries Limited, Mr. Devakumar Edwin, had said, “If the Domestic Crude Supply Obligation guidelines are diligently implemented, this will ensure that we deal directly with the companies producing the crude oil in Nigeria as stipulated by the Petroleum Industry Act.” Edwin insisted that IOCs operating in Nigeria have consistently frustrated the company’s requests for locally produced crude as feedstock for its refining process. He highlighted that when cargoes were offered to the oil company by the trading arms, it was sometimes at a $2 to $4 (per barrel) premium above the official price set by the Nigerian Upstream Petroleum Regulatory Commission.
Edwin was reacting to a statement by the Chief Executive of the NUPRC, Gbenga Komolafe, who in an interview on national television said, “It is ‘erroneous’ for one to say that the International Oil Companies are refusing to make crude oil available to domestic refiners, as the Petroleum Industry Act has a stipulation that calls for a willing-buyer, willing-seller relationship.”
Bad enough, the Chief Executive of Nigerian NMDPRA, Farouk Ahmed, had also debunked the claim by the Dangote official, saying Nigeria could not rely heavily on the Dangote refinery for its fuel supply. Ahmed had also alleged that Dangote diesel had a higher sulphur content than the ones imported into the country.
But the President of the Dangote Group, Aliko Dangote, had denied the allegation, wondering how he could be a monopoly when the Nigerian National Petroleum Company Limited was renovating government-owned refineries with $4 billion.
Oil marketers who weighed into the matter called on the NNPC and the International Oil Companies to hasten the process of crude oil supply to local refineries both in naira and adequate volumes. Reacting to the claim by Dangote and other domestic refiners that they had yet to get crude both in naira and as required, the National Publicity Secretary, Chief Ukadike Chinedu, said, “I think the NNPC is on this matter. “While we admit that there are processes, we are advising those implementing these processes to make haste so that the refineries will start refining as quickly as possible and bring down the costs of these petroleum products which have remained a burden on Nigerians. “It is not sensible that we are an oil-producing country and refined products are still high in our nation, and we are still importing from other refineries when we have refineries in Nigeria. We have to act and it has to be fast.”
Also speaking on the matter, the National Operations Controller of IPMAN, Mustapha Zarma, called on NNPC and IOCs to strive to supply crude oil to domestic refineries both in naira and the required volumes. This, he said, was because of the enormous gain that the domestic supply of crude oil would have on the local currency and the Nigerian economy.
“The directive of Mr. President on the supply of crude oil to Dangote and other local refineries is a welcome development and will help the naira appreciate.
The worries of many Nigerians may stem from what Uwana termed a “pricing saga” in which “Dangote is yet to own up to the fact that he cannot sell at below the NNPC pump price and NNPC cannot fix a price for him because they are no longer the regulator, so he should apologize to the masses for not being able to deliver on his over-bloated promises, cover his head in shame and go on to sell abroad. “That is the bitter reality”, Uwana said.
