High expectations as Dangote breaks NNPC’s monopoly, shrinks EU supply to Africa

• Questions over subsidy as stakeholders say state refineries may become obsolete
• Nigeria may save billions in freight cost as economy expects N9.7trillion
• CISLAC: Buhari govt overpromised, under-delivered on moribund refineries 

President Muhammadu Buhari, who did not bring to reality his pledges of overhauling state-owned refineries in Port-Harcourt, Warri and Kaduna, will today commission Dangote Refinery as stakeholders count the gains of the facility.

Amidst uncertainties over Nigeria’s fuel subsidy, Dangote Refinery, a 650,000 barrels per day (bpd) facility expected to be the biggest single refinery in the world, will according to Nigerian Economic Summit Group (NESG) add about $21 billion (N9.7 trillion at the current exchange rate) yearly to the Nigerian economy.

This is coming as some stakeholders yesterday said Nigeria’s 445,000 barrels per day refineries, despite being repaired, may become obsolete and difficult to sell going by the new Dangote Refinery.

Concerns are however mounting as stakeholders, who spoke in separate interviews asked Nigerians to get ready to buy products at a higher price as they insisted that while the new refinery broke the monopoly in the sector, pricing mechanism would have to change.

In promises detailed in the APC policy document and manifesto, Buhari’s 100 days covenant, speeches at campaign rallies and town hall meetings, Buhari before winning the 2015 election, pledged to remove fuel subsidy and fix the refineries, barely nine days to leave office the promises remained a mirage.

Although the refineries have been awarded, the Port-Harcourt Refinery has failed deadlines given by the Nigerian National Petroleum Company Limited (NNPCL).

While Europe is relying on Nigeria for crude export after banning export from Russia, its previous reliance on African countries would face a yearly reduction.

Nigeria currently sends about 547.5 million barrels of crude into the international market yearly, with an agreement to supply 300, 000 barrels per day to the Dangote Refinery, adding to its regional supplies, the oil market would automatically face a shortfall of 109.5 million barrels yearly. With obligations to supply about 445,000 barrels per day, initially meant for the refineries to contractors on the Direct Sale Direct Purchase (DSDP) deal, the development could push Europe to rely more on Middle East and Asia to meet its supply while the global market could have close 700,000bpd shortfall from Nigeria.

In 2022, the West African bloc was supplying about additional 200,000 barrels per day to Europe to augment the loss from Russia.

On the product side, while the West Africa region imported about one million barrels per day of petroleum products last year, with 60 per cent of all products coming from Europe, at full capacity, Dangote Refinery alone would have reduced the import by over 65 per cent if most West African countries turn to the refinery for supply.

Energy Expert, Ademola Adigun said the impacts of the Dangote Refinery remained positive for the economy.

According to him, it is an elixir for the midstream and downstream segment of the industry as there are potential gains from the commissioning.

He however said: “There is still a need for clarity in some areas. How ready is the refinery to supply the product? The effect of subsidy on petrol and logistics as well as linkages to the market and so on.”

Adigun added that the existing refineries could be rendered “a little more obsolete” as finding new buyers would be difficult.

Former President of the Chartered Institute of Bankers of Nigeria (CIBN) and professor of economics at Babcock University, Segun Ajibola described the new refinery as the end of an era in many respects.

According to him, the development broke the government monopoly in local oil refining as the existing four oil refineries are government owned, with a myriad of institutional challenges ranging from corruption, lack of accountability, poor maintenance culture, economic rent syndrome, among other challenges.

“It should reduce importation of refined products and conserve foreign exchange as well. The Dangote Refinery, which is a wholly private sector driven initiative provides a good template for assessing operating efficiency in petroleum refining business. As a profit motivated investment, Dangote is expected to shake off the current burdens carried by the moribund local refineries.

“With an optimal operating template, the refinery is expected to change some narratives in this segment of the oil and gas industry. If Dangote Refinery turns out to be a success story, it will attract investors to the industry. By and large, government involvement in oil refining may become less and less significant in the country,” he said.

Ajibola however said pricing may become an issue, especially at the take-off stage, depending on the operating cost of the refinery.

According to him, Dangote may price its products commercially, devoid of subsidy.

Ajibola said, on the short run, contribution to national output and income, employment generation, tax revenue; foreign exchange earning potentials from export of refined products to especially the neighboring countries would be assured.

For that to happen, he said unless economies of scale drives down unit cost, Nigerians may have to make do with a higher than existing price of the products from Dangote Refinery.

Partner at PWC, Habeeb Jaiyeola said being a private business, which is expected to yield returns for its investors, there is a need to ensure the enabling environment exists to enable the refinery to thrive.

Jaiyeola said the downstream sector must be fully deregulated for reasonable returns on investment, as the shareholders are not restricted by regulations.

“It is built in a free trade zone, the refinery is therefore able to seek markets outside Nigeria as well,” he said.

African Refiners and Distributors Association (ARDA) had said refinery output on the African continent would peak in 2027 at 77.6 million metric tons per year.

The association also noted that the start-up of the 650,000 bpd Dangote Refinery, which has been designed to produce AFRI-6 (10 ppm sulphur) fuels from the onset, would be a game-changer for the continent’s clean fuels journey and bolster Africa’s energy security while significantly reducing foreign exchange utilisation on imports.

Executive Secretary of ARDA, Anibor Kragha said: “We commend what the Dangote Refinery is doing to make the refinery come on stream. This new refining capacity will definitely serve as a game changer for the various African economies.”

With rising demand for fuel as population increases on the African continent, Dangote Refinery is expected to process a variety of light and medium grades of product that would address demand for gasoline, diesel, jet fuel and polypropylene.

Developed with an estimated investment of $19 billion with an acquisition of 20 per cent minority stake NNPC for $2.76 billion, the project is expected to generate 9,500 direct and 25,000 indirect jobs.

Meanwhile, Executive Director at Civil Society Legislative Advocacy Centre (CISLAC), Auwal Musa Rafsanjani, said it is encouraging that Nigeria now has a functioning refinery though it is privately owned.

He noted that the move speaks volume of how patriotic some citizens are by ensuring that they build something that would benefit the country in terms of job creation and revenue streams.

“The Dangote refinery will lift the fuel scarcity that Nigerians are suffering in the sense that fuel will now be readily available for consumption by the citizens.

“In addition to that, the refinery will also provide the opportunity for Nigeria to be an exporter of oil thereby reducing government spending in importation of oil and also give a boost in government revenue. On top of that the entire West African region will benefit from this refinery and it’s products,” Rafsanjani said.

He, however, said the development signals a serious concern as to when the Nigerian government would commit itself to reviving the country’s refineries, adding that the Buhari-led administration overpromised but under-delivered on reviving the dead refineries.

“It is deeply disappointing and disheartening to see that despite all the promises made by the President to revive our state-owned refineries, he is leaving office with no legacy to look up to as to the current condition of our refineries. But we are not surprised as this is one of many promises that the President failed to fulfill.

“We must remember that the President promised to fight corruption, insecurity and create employment opportunities especially for our teeming youths who have no work to do,” Rafsanjani said.

He urged incoming administration to revive the refineries, because that would help boost oil production/consumption, create more jobs, increase government revenue through export of the refined fuel to other countries.