By Ariemu Ogaga
The May 22, 2023, commissioning date for the long-awaited $19 billion Dangote Refinery is a piece of good news for Nigerians. Outsiders may not immediately understand why. But anyone who has been following the travails of the Nigerian nation over refined petroleum products in the past 30 years will have an idea of the significance of this development.
For more than 25 years, Nigeria and its citizens have been bearing the albatross of fuel scarcity. The situation is a paradox that can only be explained by The Rime of the Ancient Mariner, the poignant poem that gave the world the phrase “water, water, everywhere, not a drop to drink,” usually employed to describe conditions of being unable to benefit from something that is in abundance.
Aside from being a major oil-producing country, Nigeria’s crude oil types are sought-after across the world. The irony is that the country itself is plagued by a perennial scarcity of petroleum products, from Premium Motor Spirit (PMS) to diesel to kerosine. The situation led to the entrenchment of the aberration of government-subsidised importation and the anomaly of prohibitive pump prices.
While the answer to the problem lies in getting a refinery working to handle domestic consumption, Nigeria has laboured in vain, and inexplicably so, for over 28 years to get its four refineries working. In the end, it is commonly believed that the refineries are jinxed.
This is why the Dangote Refinery is a landmark achievement and a panacea to the fuel scarcity conundrum.
As we count down the days to May 22, there are permutations in the public domain on how this milestone development will impact the dynamics of petroleum marketing in Nigeria. The pros give wings to optimism; the cons call for caution.
Breaking the refinery jinx
The history of Nigeria’s four government-owned refineries is a dismal narrative of neglect, unproductivity, waste, corruption and possibly sabotage.
The old Port Harcourt Refinery, with 60,000 barrels per day (bpd) capacity, was commissioned in 1965. The Warri Refining and Petrochemical Company Limited, built in 1978, has a 125,000 bpd capacity. The 1980-commissioned Kaduna Refining and Petrochemical Company had a 110,000 bpd capacity. And the New Port Harcourt Refinery, whose capacity was 150,000 bpd, was commissioned in 1989. Cumulatively, the four state-owned refineries had 450,000 bpd of capacity.
Nigerians, however, have forgotten the time when the refineries served useful purposes. All they hear every year are uninspiring stories of how the facilities are undergoing turnaround maintenance.
The country had built its hopes on getting the four refineries into their optimal states; year after year, however, the hopes were dashed until it was evident that Nigeria needed a fresh alternative.
The idea of private refineries is not new. A significant number of Africa’s largest private refineries are located in Africa’s major oil-reserve countries, such as South Africa, Egypt, and Libya.
For example, the SAPREF refinery, operated as a joint venture between BP and Shell, is the largest crude oil refinery in southern Africa, boasting a 180,000 bpd capacity.
Similarly, there is the El Nasr refinery, owned and operated by Nasr Oil, the second largest in Egypt, with a capacity of 132,000 bpd.
These are examples of private oil companies that succeeded.
Dangote is Nigeria’s first.
With the capacity to process 650,000 crude barrels per day, hope is rekindled that the Dangote Refinery is going to be a game changer.
The big question is: will it meet the demand of Nigeria’s daily consumption of 74 million litres?
Benefits of $19 Dangote Refinery
One big relief is that it will save the Nigerian state the agony of wasting national resources on many fronts.
The first front is the turnaround maintenance of moribund refineries, which consumes gargantuan money.
A March 6, 2022, report by the Socio-Economic Rights and Accountability Project (SERAP) said President Muhammadu Buhari’s government spent $396 million to maintain the country’s refineries between 2015 and 2020 alone.
The report added that N82.82 billion was reportedly spent in 2015, N78.95 billion in 2016, N604.127 billion in 2017, N426.66 billion in 2018, N218.18 billion in 2019, and N64.534 billion from January to June 2020. Despite this vast spending, the status quo did not change. Nigerians have continued to suffer from fuel scarcity.
On the second front, the country will save resources spent on fuel subsidies arising from the importation of PMS.
Mele Kyari, Group Chief Executive Officer (GCEO) of National Nigerian Petroleum Corporation Limited, said during the official launch of NNPCL in 2021 that Nigeria is spending an average of N400 billion monthly on subsidising imported fuel. According to public data, fuel subsidy payments usually consume a chunk of Nigeria’s annual budget.
In January, the NNPCL said the country spent N4.39 trillion on fuel subsidies in 2022. According to the Minister of Finance, Budget, and National Planning, Nigeria would spend N3 trillion subsidising fuel from January to June 2023. The same amount would likely be expended on fuel subsidies in the next half of the year.
The National Bureau of Statistics’ Fourth Quarter Report of 2022 said Nigeria spent N1.79 trillion on the importation of petrol and diesel; this is coupled with the N4.39 trillion spent on fuel subsidies.
In the first quarter of 2023 alone, Nigeria spent N3 trillion on fuel subsidies; if the subsidy payment persists, it will spend N4 trillion in the next half of the year. The economics of fuel subsidies is destructive to the country’s long-term development and is also unsustainable.
With the advent of the Dangote Refinery, the government is in a position to end the regime of fuel subsidies.
The Minister of Finance, Budget, and National Planning, Zainab Ahmed, had hinted at fuel subsidy payment removal by June’s end. The process, however, was suspended. It is hoped the incoming administration will pursue it to a logical conclusion.
Experts familiar with the industry asserted that the billions of naira spent on fuel importation and subsidies would be saved when the Dangote refinery comes on board.
A week ago, Aliko Dangote, during an interview with the Economist magazine, disclosed that the Dangote Refinery could save Nigeria $10 billion in foreign exchange (FX) and generate another $10 billion in exports when the facility begins operation.
Speaking with Nigerian Newssphere during the weekend, oil and gas experts all agreed that the refinery, the biggest of its type in the world, would be a game-changer in Nigeria’s downstream petroleum industry.
On his part, Dr Diran Fawibe, Chairman, International Energy Services, is optimistic that the emergence of the Dangote Refinery will end fuel and diesel importation in Nigeria.
According to him: “The refinery coming on stream will have a tremendous impact on the petroleum industry and the Nigerian economy. You have a situation right now where Nigeria is spending 30 to 33 per cent of foreign exchange earnings or 35 per cent of foreign exchange earnings on importing petroleum products into the country. If Dangote refinery’s product goes on full stream, this will back out this importation; in other words, we shall no longer be importing petroleum products.”
Similarly, Nick Agule, a chartered accountant and business intelligence consultant with 21 years of unbroken oil and gas industry experience, opines that the Dangote refinery would save a lot of revenue that could have been spent on the transportation of petroleum products into the country.
He says: “We will save costs from the importation of petroleum products. Currently, Nigerian consumers or the government (through subsidies) are paying the cost of shipping crude to foreign refineries, the cost of refining at high costs with a minimum wage of over $1000 in foreign refineries, taxes paid by foreign refineries, and the cost of shipping the products back to Nigeria, including insurance, clearing, and demurrage. DR will not bear all these costs and not transfer them to Nigerian consumers, or the government’s huge expenditure on subsidies will be saved.”
He also adds: “The refinery would boost Nigeria’s job creation with thousands of Nigerians taken off the market directly and indirectly by the refinery, savings in forex as the pressure to source the dollar to import petroleum products will be eliminated, tax revenue for the government along the whole fuel value chain, and Nigeria will be insulated from petroleum product shocks, e.g., the war in Ukraine impacted negatively on our ability to source products on the international market. With local refining, we’ll be saved from such shocks.”
The opinion of Bala Zakka, an accountant, engineer, and tax expert who is a member of the Engineering Research and Public Policy Committee of the Institute of Chartered Accountants of Nigeria (ICAN), also aligned with that of Agule and Fawibe on the economic benefits of the Dangote refinery. If properly harnessed, the refinery would lead to the end of persistent fuel scarcity in Nigeria, he notes.
Experts also agreed that the refinery’s capacity of 650,000 barrels per day would cover Nigeria’s current daily consumption of 60 to 74 million litres of PMS.
On this note, Fawibe explains: “The expectation is that by 2024, Nigeria should not, all things being equal, be importing any litre of petroleum into this country.”
Perspectives on pitfalls
On the flip side, the Dangote Refinery has implications.
It is all but a given that the entrance of the Dangote Refinery on May 22 is the final death knell for Nigeria’s four government-owned refineries. While it was nice to see the money-guzzling contraptions gone, their absence raised questions that bordered on monopoly.
The Dangote Refinery is a private company; unlike state-owned refineries, it would be driven by profit-making motives. Therein lies the concern of a school of thought that pointed out that most members of the Organisation of Petroleum-Producing Countries (OPEC) operate largely state-owned refineries.
For instance, the Saudi Arabian Oil Company, Aramco, with a net income of $16.6 billion, according to 2022 financial records, is an example of a state-owned refinery. Similarly, Kuwait, Angola, Iran, Iraq, and other OPEC member states operate refineries under state ownership. What Nigeria ended up with is a model that is at the polar end of the spectrum, where petrol pricing would likely be at the behest of a private citizen and a capitalist.
Another school of thought, however, pointed out that the unit price of a litre will not be a big issue since the Nigerian government owns a minority stake in the refinery. Indeed, in August 2021, Timipre Sylva, the former minister of state for Petroleum Resources, said the FEC approved the sum of $2.76 billion to acquire a minority stake.
Zakka believes there is no basis for fear over price of petroleum products, noting that the Dangote Refinery cannot operate outside of global oil economics. Ownership type doesn’t dictate the international price of crude oil or sales, he states.
On this, Dr Fawibe also says: “We only hope we will be able to manage the fallout of this in terms of pricing that will enable the Dangote Refinery to recover its investment with appropriate pricing.”
He further calls on the Federal Government to consider licencing modular refineries, especially in the Niger Delta region. This, according to him, would create competition and keep prices down.
There is also the fear of sabotage by faceless cartels that have long held the Nigerian petroleum market by the jugular.
Fuel subsidies had become a big racket, with powerful forces frustrating every effort to discontinue the regime.
The attempt by the Goodluck Jonathan administration to end fuel subsidies was met with massive protests across major cities in Nigeria, with Lagos, in particular, becoming a cauldron of protests by interest groups, activists, and opposition politicians. There were stories of bodies with vested interests that bankrolled groups and labour forces to mount fierce opposition to the move.
The advent of Dangote Refinery will pull the rug from under their feet. Whether they will fight back, how, and when, only time will tell.
In an exclusive interview with Newssphere, however, the President of the Independent Petroleum Marketers Association of Nigeria (IPMAN), Chinedu Okoronkwo, gives the assurance that his members are ready to work with the management of Dangote Refinery to ensure that Nigerians have an uninterrupted supply of fuel.
“It is a welcome development; let’s see it come onboard,” he says.
On the aspect of pricing and related challenges, Okoronkwo avows that there is no cause for alarm.
“When we get there, we will cross it,” he affirms. “We are happy that the company is coming on stream; it would mean that more petrol products would be available in-country for supply by our members across the country.”
Looking ahead
The refinery is a laudable development. Ordinary Nigerians hope it will bring the needed succour. Stakeholders in the downstream sector are banking on it to usher in new dynamics that will allow Nigerians to enjoy the benefits of being an oil-producing country.
In the best-case scenario, the Dangote refinery will be an open door to Nigeria’s stability in terms of domestic petroleum consumption sufficiency, availability, and affordability.
At worst, Nigerians will have to adjust to a new era where they pay more to fill their vehicles’ tanks but fuel scarcity becomes a thing of the past.
In between the two scenarios, there is a point where the situation can be a win-win for the country, its citizens, and the investor who took the bull by the horn to break the jinx of having functional petroleum refineries in Nigeria.
