$19bn Dangote Refinery: Experts line up expectations, pitfalls ahead commissioning

Dangote refinery is coming on steam hoping to be a game-changer to the dying state-owned Kaduna, Warri and Port-Harcourt refineries, with the newest being more than 31 years old.

According to industrial statistics, the history of Nigeria’s four government-owned refineries centres around abandonment, neglect, unproductivity and revenue wastage.

It is the case of the old Port-Harcourt Refinery, with 60,000 barrels per day commissioned in 1965; the Warri Refining and Petrochemical Company, 125,000 bpd capacity; Kaduna Refining and Petrochemical Company, with 110,000 bpd capacity commissioned in 1980 and the New Port Harcourt with the capacity of 150,000 bpd commission in 1989.

Cumulatively, the four state-owned refineries have 450,000 bpd capacity.

On March 6 2022, a 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.

Despite this huge spending, millions of Nigerians need access to a full and unhindered fuel supply.

The report added that about N82.82 billion was reportedly spent in 2015; N78.95 billion in 2016; N604.127 billion in 2017; N426.66 billion in 2019; N218.18 billion in 2019, and N64.534 billion expenditure was recorded from January to June 2020.

DAILY POST learnt that Buhari, who doubles as the Petroleum Minister, has spent $26.5 billion from the inception of his administration on turnaround maintenance of the four refineries without impact.

Amid the vast spending, Nigerians have continued to suffer from fuel scarcity.

Another consequence is the fuel subsidy arising from the importation of PMS.

Mele Kyari, Group Chief Executive Officer (GCEO) of National Nigerian Petroleum Corporation Limited, said during the official launching of NNPCL in 2021 that Nigeria had continued to spend an average spend N400 billion monthly on subsiding imported fuel products.

According to public data, fuel subsidy payment usually consumes a chunk of Nigeria’s annual budget.

In January, NNPC 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 Minister of Finance, Budget and National Planning, Mr Zainab Ahmed, had hinted at fuel subsidies payment removal by June end; however, she backtracked. The development created confusion in the industry.

However, analysts have said Nigeria’s spending on fuel importation subsidies would be a thing of the past if the Dangote refinery starts operations.

Projected benefits of $19 Dangote Refinery

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 would spend N3 trillion on fuel subsidies; if the subsidy payment persists, it will spend N4 trillion in the next half of the year.

Experts familiar with the industry said the billions of naira spent on fuel importation and subsidies payment would be saved when the Dangote refinery comes onboard.

A week ago, Aliko Dangote, during an interview with the Economist Magazine, disclosed that the company could save Nigeria $10 billion in foreign exchange (FX) and generate another $10 billion in exports when the facility begins operation.

Speaking with DAILY POST, Oil and gas experts, the Chairman of International Energy Services, Dr Diran Fawibe, Bala Zakka, and Nick Agule said the Dangote refinery would be a game-changer in Nigeria’s downstream petroleum industry.

Fawibe said he was optimistic that the emergence of Dangote Refinery would end fuel and diesel importation in Nigeria.

“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 up to 30-33 per cent of foreign exchange earnings on importing petroleum products into the country.

“If Dangote refinery’s product goes on full steam, this will end this importation; in other words, we shall no longer be importing petroleum products,” he said.

Similarly, Agule said the entrance of the Dangote refinery would save a lot of revenue that could have been spent on transportation costs during importation of petroleum products into the country.

“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, the cost of shipping the products back to Nigeria, including insurance, clearing and demurrage. Dangote Refinery will not incur all these costs and the Government’s huge expenditure on subsidies will be saved,” he noted.

He added that the refinery would boost Nigeria’s “job creation with thousands of Nigerians taken off the unemployment market directly and indirectly, savings in forex as the pressure to source the dollar to import petroleum products will be eliminated, tax revenue for government along the whole fuel value chain and Nigeria will be insulated from petroleum products shocks; for instance, 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”, he said.

Also, Zakka aligned with Agule and Fawibe on the economic benefits of the Dangote refinery.

He noted that if properly harnessed, the Dangote refinery would lead to the end of persistent fuel scarcity in Nigeria.

A 650,000 barrels per day capacity would cover Nigeria’s currently consumed daily 60 million litres of PMS.

On this note, Fawibe explained, “So, the expectation is that by 2024 Nigeria should not, all things being equal, be importing any litre of petroleum into this country”.

Pitfalls

There are fears that the entrance of Dangote Refinery may likely lead to the vandalization of Nigeria’s four refineries.

The fund expended every here and there on the turnaround maintenance would result in a waste of state resources. Obviously, this could be the case.

For eight years, the Buhari administration made yearly budgetary allocations and approved funds for turnaround maintenance but the production capacity of the country’s refineries had remained stagnant.

Importantly, Dangote Refinery is a private entity with the sole aim to maximise profits.

Unlike state-owned refineries, the Dangote Refinery would be driven by the niche to make profits.

However, most members of the Organization of Petroleum-Producing Countries operate largely state-owned refineries.

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 under state ownership.

However, the type of ownership will not affect the international price of crude oil sales, according to Zakka.

But, the issue of petrol pricing would likely be a debacle. Nigerians would have to pay more to get fuel, diesel.

Although 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 in Africa’s biggest refinery, the issue of pricing would hit Nigerians differently.

Fawibe said, “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 in appropriate pricing”.

On the role of oil marketers, the President of the Independent Petroleum Marketers Association of Nigeria (IPMAN), Mr Chinedu Okoronkwo, in an exclusive interview with DAILY POST on Monday,, said its members were ready to work with the Management of Dangote Refinery to ensure that Nigerians get uninterrupted supply of fuel.

“It is a welcome development; let’s see it come onboard”, he said.

On the aspect of pricing and any challenge, he said there is no cause for alarm.

“When we get there, we will cross it”, he disclosed.

“We are happy that the company is coming on stream; it would mean that more petrol products would be available for supply by our members across the country,” he added.

The issue of monopoly in the downstream would significantly affect the commodity’s pricing, especially with the recent 22.22 per cent April inflation rate and the continued surge in the country’s inflation figure.

In this regard, Fawibe asked that the Federal Government should consider licensing modular refineries, especially in the Niger Delta region.

He said this would create competition and then shut down prices.

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 180,000 bpd capacity.

Similarly, the El Nasr refinery is 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.