New Telegraph

Dangote Refinery: Expected Positive Game-Changer in Energy Sector

The entrance of Dangote Refinery into the Nigeria market has elicited excitement from stakeholders who have expressed joy and proffered suggestions over the commencement of crude refining by the privately owned refinery, SUCCESS NWOGU writes

A new dawn

The commencement of crude oil refining by the Dangote Refinery on Friday January 12, 2024, has elicited both excitement and caution by industry operators and other Nigerians. They stated that it will be a positive game changer in the energy sector, industrialisation, socio-economic, business activities and the corporate sector of Nigeria and Africa. According to them, it will also positively improve the lives of Nigerians and that of other West African countries. It had been an unpleasant narrative that Nigeria, one of the leading producers of crude oil globally, for many years, did not have a functional refinery and so depended solely on importation of refined petroleum products for its domestic needs. Nigeria’s dependence on importation not only cost the country trillions of dollars, but also depleted its foreign exchange, put pressure on the available resources, increased inflation, impeded business growth and employment generation as well as negatively impacted on the living standard of Nigerians and on the psyche of the nation. The fuel importation regime and the consequent ‘subsidy abracadabra’ that held Nigeria in the jugular almost strangulated and snuffed life out of the hemorrhaging and emancipated nation, that was almost living on life-support.

$24.9bn fuel import in 2022

Afrinvest in 2023 said that over the last five years, Nigeria’s crude oil and gas imports rose by a cumulative annual growth rate of 21.1% to $24.9 billion in 2022 due to the non-functional of local refineries among other factors. However, Reuters disclosed that Nigeria spent $23.3 billion on petroleum products’ imports in 2022. While the Central Bank of Nigeria (CBN) in its October 2022 Economic Report said Nigeria spent a total of $12.44 billion on the importation of petroleum products between January and October 2022. An analysis of the apex bank’s economic report for the first quarter (Q1) of 2022, showed that $4.21 billion was spent on petroleum products’ import and that the nation spent a total of $12.44 billion on oil imports in the first 10 months of 2022. According to the data, the quantity of foreign exchange expended on the importation of petroleum products into Nigeria in 2021 was $1.04bn while it was $1.32bn in 2020. More findings also showed that Nigeria’s foreign reserves was on a downward trend in recent months, falling to a low of $39.77bn on February 15, 2022 from $40.54bn at the end of 2021.

The apex’s bank’s data on sectoral utilisation for transactions valid for forex showed that $45.76m was utilised in January 2021 for fuel imports; $64.67m in February, and $142.31m in March. Forex for fuel import transactions reduced to $77.96m in April and $85.64m in May but increased to $86.42m in June. In addition, the country utilised $83.73m in July and $103.70m in August for petroleum products importation while $66.66m was used for fuel imports in September, $74.01m in October, $82.65m in November and $131.25m in December.

N13.7 trillion on petrol subsidy in 15 years –NEITI

According to the Nigeria Extractive Industries Transparency Initiative (NEITI), the Federal Government spent N13.7 trillion ($74.386 billion) on fuel subsidies in 15 years, between 2005 and 2020. NEITI Executive Secretary and National Coordinator, Dr Orji Ogbonnaya Orji dis- closed this in a report he presented to the House of Representatives ad-hoc committee investigating the fuel subsidy regime between 2013 and 2022 in Abuja He revealed in the report submitted to the House committee chaired by Hon. Ibrahim Aliyu that the subsidy payments in 2005 were N351 bil- lion ($2.66 billion); 2006 was N219.72 billion ($1.70 billion); 2007 was N236.64 billion ($1.89 billion); 2008 was N360.18 billion ($3.03 billion); 2009 was N198.11 billion ($1.60 billion), and 2010 was N416.45 billion ($2.76 billion). The report further stated that the payment for 2011 was N1.9 trillion ($12.18 billion); 2012 – N690 billion ($4.34 billion); 2013 – N495 billion ($3.11 billion); 2014 – N482 billion ($2.92 billion); 2015 – N316.70 billion ($1.62 billion); 2016 – N99 billion ($0.39 billion); 2017 – N141.63 billion ($0.44 million); 2018 – N722.30 billion ($2.36 billion), 2019 – N578.07 billion ($1.88 billion), and finally, 2020 – N134 billion ($0.37 billion).

In May 2016, the Nigerian National Petroleum Company (NNPCL) being the sole importer of petroleum products, took over, making deductions from the sale of domestic crude, which it termed under-recovery. Orji in the report noted that subsidy payment expected from NNPC in 2018, was N2.294 trillion including subsidy of N722.257 billion, and N138.945 billion for pipeline repairs and management costs; N28.329 billion for crude and product losses and N998.285 billion being balance that NNPCL should have remitted, while actual remittance stood at N897.922 billion, leaving outstanding (unremitted fund) of N100.363 billion for 2018. He added that in 2019, the sum of N2.145 trillion comprising subsidy of N518.074 billion, and N126.664 billion for pipeline repairs and management costs; N31.844 billion for crude and product losses and N1.498 trillion being the balance that NNPCL should have remitted, but actual remittance stood at N821.563 billion, leaving outstanding (unremitted fund) of N170.675 billion for 2019; while in 2020, payment of subsidy was worth N133.74 billion, and N54.49 billion for pipeline repairs and management cost; N133.06 billion for crude and product losses.

According to the report, Domestic Crude Allocation for 2018 was 107.63 million barrels, out of which 13.581 million barrels (13%) were delivered to the refineries, 94.045 million barrels (87%) were exported under the Direct Sale Direct Purchase (DSDP) arrangement and that NNPCL was expected to make remittances within 90 days.

Fuel pricing regime

Findings show that a litre of fuel was sold in 1978 for N0.5 during the military administration of General Olusegun Obasanjo. It was sold for N.02 in 1982 during the civilian regime of late President Shehu Shagari. It was sold for N0.20 in 1984 and 1985 respectively during the military administration of General Muhammad Buhari; between 1986 and 1989 it sold for N0.395 during the regime of General Ibrahim Badamasi Ba- bangida (IBB). Under IBB still in 1990 it sold for N0.60 (IBB), 1991 for N0.70, 1992 for N3.25, and 1993 for N11.00. While between 1994 and1998 it was sold for N11.00 and during the administration of late General Sani Abacha in 1998, it was sold for N11.00 and during the Abacha and General Abdulsalami Abdusalami, and 1999 it sold for N20.00. Also during the administration of Abdul- salami and civilian administration of Obasanjo. Under Obasanjo in 2000, it went for N22.00; 2001 for N26 00; 2002 for N30.00; 2003 for N40; 2004 for N55.00; 2005 for N60.00; 2006 for N65 00; 2007 for N70.00 (Obasanjo and late President Umaru Yar’Adua.

While between 2008 and 2010 it sold for N65.00 (Yar Adua); 2010 for N65.00 and under former President, Dr. Goodluck Jonathan between 2012 and 2014 it went for N120.00; 2015 for 145.00 (Jonathan and the civilian administration of Buhari); and 2016 it sold for N145.00 (Buhari).

Sudden removal of fuel subsidy

The price spiraled when on May 29, 2023, President Bola Ahmed Tinubu, during his inaugural speech, unilaterally announced the removal of fuel subsidy, this led to the skyrocketing of fuel prices and the concomitant hardship on Nigerians as well as dislocation of socio-economic and business activities. It jumped from N145 per litre to the current price regime oscillating between N580 and N700 depending on the part of the country it is sold. Following the announcement, the Nigerian National Petroleum Company Limited (NNPCL) directed its fuel stations nationwide to dispense fuel between N480 and N570 per litre.

NNPCL justifies rise in fuel prices

Group Chief Executive Officer, NNPC Ltd, Mele Kyari, while speaking to journalists af- ter a closed-door meeting with Vice President Kashim Shettima at the State House in Abuja, recently, said the rise in the petroleum pump prices in the country was as a result of ‘market forces’. He stated that with the deregulation of the oil sector, market realities will force the price of petrol up sometimes and at other times force it down. He said: “We have the marketing wing of our company. They adjust prices depending on the market realities. “This is really what is happening; this is the meaning of making sure that the market regulates itself so that prices will go up and sometimes they will come down also. This is what we have seen, and in reality, this is what (how) the market works. “When you go to the market, you buy the product; you come to the market, you sell it at the prevailing market prices. Nothing to do with supply. We don’t have supply issues. There is a robust supply. We have over 32 days of supply in the country.

Yes, what I know is that the market forces will regulate the market. “Prices will go down sometimes; sometimes, it will go up. But there will be stability of supply, and I’m also assuring Nigerians that this is the best way to go forward so that we can adjust prices when market forces come to play.” While the Chief Executive Officer of the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), Farouk Ahmed, attributed the rise in price to the global crude oil price increase. He said: “As a regulator, I told you back in May (2023) that we are not going to be setting prices. The market will determine itself, and as you saw back in early June when prices came out, it was based on the cost of importation plus other logistics of distribution and, of course, the profit margin by the importer. “This market is deregulated; it is open to all participants. As I mentioned yesterday, when I was in Lagos, we have about 56 marketing companies that applied and obtained licenses to import.

“So, when you say market forces are working, basically, what it is that you buy, you con- sider the price of crude going up. A couple of weeks ago, the price of crude was hovering around $70/barrel. Now it’s hovering around $80/barrel. “So, the crude price also drives the product price. You know, because the importers are importing, they are basing it on the cost of importation plus the freight and other cost elements in terms of local distribution.”

World Bank on subsidy removal

The World Bank (WB) which strongly pitched for fuel subsidy removal to the Federal Government said after the removal that Nigeria’s government will save a total of N11 trillion from the fuel subsidy removal implementation. It, however, noted that the policy would push more people into poverty in Nigeria if the government did not provide palliatives to alleviate the effect of the reforms. The Bretton Woods Institution, in its report: Nigeria Development Update (NDU), stated that over four million people were pushed into poverty between January and May 2023. According to the report, titled; ‘Seizing the Opportunity’, the World Bank advised the country to implement a comprehensive reform package that encompasses a range of complementary measures, including a new social compact to protect the poor and most vulnerable, to maximise the collective impact on growth, job creation, and poverty reduction.

“The removal of the petrol subsidy and foreign exchange (FX) management reforms are crucial measures to begin to rebuild fiscal space and restore macroeconomic stability, and the opportunity should be seized to take further, necessary policy reform steps,” the report noted. “In the first part of 2023, Nigeria’s economic growth weakened, and real Gross Domestic Product (GDP) growth fell from 3.3 per cent in 2022 to 2.4 per cent year-on-year (y-o-y) in Q1 2023. The challenging global economic context has put pressure on Nigeria’s economy. “However, domestic policies play a major role in determining Nigeria’s economic performance and resilience to further external shocks. The previous mix of fiscal, monetary, and exchange rate policies, including the naira redesign programme, did not deliver the de- sired improvements in growth, inflation, and economic resilience.

“The new government has recognised the need to chart a new course and has already made a start on critical reforms, such as the elimination of the petrol subsidy and reforms in the FX market. “With the petrol subsidy removal, the gov- ernment is projected to achieve fiscal savings of approximately N2 trillion in 2023, equiva- lent to 0.9 per cent of GDP. These savings are expected to reach over N11 trillion by the end of 2025.”

Subsidy withdrawal impact

World Bank said the recent reforms would have a more direct effect on the poor and vulnerable. It stated that in the immediate term, the removal of the petrol subsidy caused an increase in prices, adversely affecting the poor and economically insecure Nigerian households. It suggested that while the policies are being implemented, measures should be activated to lessen the effect on the poor. It said: “Petrol prices appear to have almost tripled following the subsidy removal. The poor and economically insecure households, who directly purchase and use petrol as well as those that indirectly consume petrol, are adversely affected by the price increase. “Among the poor and economically insecure, 38 per cent own a motorcycle and 23 per cent own a generator that depends on petrol. Much more use petrol-dependent transportation. “The poor and economically insecure households will face an equivalent income loss of N5, 700 per month, and without compensation, an additional 7.1 million people will be pushed into poverty.”

It added: “Similarly, the move to harmonise the FX windows will help to improve the efficiency of the FX market, unlock private investment, and reduce inflationary pressures, but it is crucial to complete this important reform by removing FX restrictions, clearly communicating how the new FX regime will operate, and implementing supportive monetary and fiscal policies.” Nigerian Country Director of the global lender, Shubham Chaudhuri, said: “Nigeria should now seize the opportunity to implement a robust, large-scale cash transfer programme to provide quick relief to the poor, near poor, as well as low-income households, which are most directly affected by higher petrol prices, as part of a broader compact to redirect scarce fiscal resources towards development priorities.”

Apparently, to assist Nigeria address some of the consequential challenges, it allowed Nigeria to secured $800 million from the bank to scale up its national social programme ahead of the removal of its costly but popular subsidies on petrol in June, as the then Finance Minister, Zainab Ahmed, disclosed. Ahmed had in 2022 said that Nigeria had set aside N3.36 trillion ($7.3 billion) to spend on fuel subsidies until June 2023, and that after that there would be no provision for fuel subsidy.

IMF’s angle

The International Monetary Fund (IMF), while commending the Federal Government for fuel subsidy removal, advised that efforts must be activated to protect poor citizens from the high cost of living crisis. The Washington-based lender urged the Federal Government to complement the fuel subsidy removal with a set of policies that could help lower inflation and protect the most vulnerable citizens. Assistant Director, Fiscal Affairs Department, IMF, Era Dabla-Norris, at a press briefing session titled, ‘Fiscal Monitor.’ stated these during the World Bank/IMF Annual Meetings in Marrakesh, Morocco. Dabla-Norris said, “The first is to protect the most vulnerable from the (high) cost of living, and there’s a number of targeted programmes that can be ramped up and the poor, the really vulnerable populations, are protected. “A set of other policies, macroeconomic policies are needed to durably bring inflation down. In the case of Nigeria, the revenue-to-GDP ratio is quite low relative to other emerging markets and developing countries. So efforts will need to be made to increase revenue collection in an efficient manner. Our research shows that countries like Nigeria have large untapped tax potential.”

IPMAN cries out

… as 60 per cent marketers are rendered redundant Speaking on the development the Chairman of the Independent Petroleum Marketers Association of Nigeria (IPMAN), NNPC Depot, Ore Western Zone of Nigeria, Engineer Shina Amoo, decried the harsh effects of the subsidy removal and revealed that some IPMAN members had converted their filling stations to car parks, car marts, abattoirs, and event centres. He also said that about 60 per cent of his members are now redundant, since the decision of the FG to remove payment of fuel subsidy on petrol. According to him, ‘‘life has become unbearable for many marketers, following the attendant sky rocketed fuel tenure.’’ He further noted that the hardship was as a result of low sales as many marketers cannot break even. Amoo lamented that many of them were having issues with their banks, which have continued to decline credit facilities to them. He revealed that some marketers have even fled the country because of business failure and financial frustration. The IPMAN Chairman stated that before deregulation, they bought fuel at an ex-depot price of N172 and sold at N190 or N195 as pump price but now, the ex-depot price has skyrocketed, explaining that before deregulation, they bought a truck of fuel for less than N9m but now, it is sold to them at about N26m.

Amoo said, “Deregulation is the best regime in our sector but the problem with this current regime is that our refineries are not working. Dangote Refinery, which we believe will open is not ready. “All our government-owned depots are abandoned. All the pipelines are vandalised. There is no solution to the free flow of the product in the country. We are still on importation. That is what we are facing now. More than 60 per cent of independent marketers are seriously affected. We are not doing something, we just go to work. “We are now selling a ridiculous volume. There is nothing much we are doing. They are selling to us at ex-depot prices the pump price they sell at their stations and we are expected to compete favourably with them.Whereas we also incur transportation costs and other costs. “As we sell N600, they sell N580.

Which customer will patronise us when he can get it at N580 as we sell N600? “Before they removed subsidies, for example, two or three years back now, many of us could not enjoy the advantages of our licenses, meaning, we had not been getting the product from government depots officially. Many of us had been buying at premium up and down. “Now that there is deregulation and subsidy has been removed, we expected an advantage of getting the product from the private depot owners at ex-depot prices. But as I talk to you, many of the private depot owners are selling to us at their pump price rate as ex-depot price. “With this development, many of our members are out of business. What we are looking out for is how the government can come to our aid and allow independent marketers to operate.”

Dangote Refinery enters

Dangote Oil Refinery is a 650,000 barrels per day (BPD) integrated refinery complex sitting on 2,635 hectares of land located in Dangote Industries Free Zone in Ibeju-Lekki, Lagos, Nigeria and is projected to employ over 100,000 persons. The complex also has a 435 megawatt power station, deep seaport and fertiliser unit. It is also said to be designed for 100 per cent Nigerian crude with the flexibility to process other crudes. The Pipeline Infrastructure at the Dangote Petroleum Refinery is the largest anywhere in the world, with 1,100 kilometers to handle 3 Billion Standard Cubic Foot of gas per day. The Refinery alone has a 435MW Power Plant that is able to meet the total power requirement of Ibadan DisCo. The refinery will meet 100% of the Nigerian requirement of all refined products and also have a surplus of each of these products for export. Dangote Refinery is a multi-billion dollar project that will create a market for $21 billion per annum of Nigerian Crude. It cost about $19 billion to build after years of delay – above initial estimates of between $12 billion and $14 billion.


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