Nigeria on Monday, May 22, 2023 will score a global first, a huge turning point in her 62 years of chequered history. On that day, Dangote Petroleum Refinery, the world’s largest single-train 650,000 barrels per day petroleum refinery with a 900 KTPA Polypropylene Plant, will be commissioned by President Muhammadu Buhari.
According to Dangote Group, the refinery can meet 100 percent of the Nigerian requirement for all refined oil products – Petrol, 53 million litres per day; Diesel, 34 litres per day; Kerosene, 10 million litres per day and Aviation Jet, 2 million litres per day – and also have a surplus of each of these products for export.
According to experts, Dangote Group is one of the few companies in the world executing a petroleum refinery and a petrochemical complex directly as an Engineering, Procurement, and Construction (EPC) contractor. It has been stated that no individual owner has done the complete EPC Contract for a petroleum refinery.
Designed to process a large variety of crudes, including many of the African crudes, some of the Middle Eastern crudes and the US Light Tight Oil, the facility indeed proves a game changer in the Nigerian economy with a record of energy deficit.
The 435 MW power plant in the refinery alone will be able to meet the total power requirement of Ibadan DisCo of 860,316 MWh covering five states, including Oyo, Ogun, Osun, Kwara and Ekiti States.
The Governor of the Central Bank of Nigeria, CBN, Godwin Emefiele, recalled recently that the shared dream of Dangote had sounded like a crazy idea at the time in 2007. “So crazy, that on account of it, the US lender J.P Morgan, threatened to expel Nigeria from its Government Bond Index for Emerging Markets,” Emefiele said.
Nigeria’s economic landscape is therefore set for a great change as the 650,000 barrel Dangote Petroleum and Petrochemical Refinery nears operational take-off. The symbolic commissioning of the world class facility by President Buhari marks the beginning of the journey to a zenith never attained by the country before. This is because the facility is a critical juncture that will alter the economic history of a country that has suffered decades of energy challenges with crippling effects on the economy.
Nigeria is the largest oil producing country in Africa and the sixth in the world, yet it is engulfed in energy deficit. Its four state-owned refineries are currently maintained at a huge cost, yet producing nothing and the economy depends on imported petroleum products.
Nigeria imports refined petroleum products at a huge cost to the people. The country is also blessed with a huge gas reserve, yet it cannot generate electricity nor is domestic cooking gas affordable to the households. Amid such wealth, Nigeria is the poverty capital in the world.
The year round, energy poverty remains a huge economic problem that has defied solution in Nigeria among successive governments. This manifests in the entrenched challenge of Premium Motor Spirit (Petrol), diesel, aviation fuel and electric power. Energy deficit underpins the persistent collapse of key fiscal and monetary instruments, year-in-year-out, as supply assumes worsening status.
CONCERNS AND DOUBTS
While the Refinery is considered a game-changer to Nigeria’s perennial energy challenge, concerns are being expressed over the flipside.
The flipside essentially resides in the symbolic commissioning of the Refinery by President Muhammadu Buhari as the facility may not commence actual production until the next eight months because of the work involved.
According to industry sources familiar with the matter, Dangote Refinery is still undergoing pre-production tests in its critical lines, especially the aspects of the Fluid Catalyst Cracking Unit (FCCU) which is about the most crucial part of the actual production process.
A former top NNPC official who is familiar with the system told THEWILL that “Dangote refinery will not be ready for production till first quarter of 2024.” Prodded further, the source asked, “Is it ready for operation? When was it test-run and what output did it produce? I think they are just playing to the political gallery, to make it seem as if the refinery was commissioned under the Muhammadu Buhari administration.”
For the source, the haste for the presidential inauguration of the facility now, and wait for the actual production to commence early 2024, may trigger anxieties in Nigerians who are eagerly waiting to see petroleum products flow from the facility.
Contacted, Head, Corporate Communications, Dangote Group, Anthony Chiejina, said they were engrossed in preparations for the commissioning slated for May 22, in Lagos and had no further comment on the issue.
The Senior Special Assistant, Media and Publicity to the President, Garba Shehu, did not respond to calls on his telephone while the text messages sent to him kept bouncing back.
There is another concern about the commissioning that is attracting the attention of stakeholders and industry experts.
An independent oil marketer in Lagos, Femi Balogun, said the coming of the refinery will shift attention from Nigeria’s refineries, which have consumed so much of the nation’s resources without refining any crude.
Balogun expressed concern that with the coming of Dangote refinery, the country’s refineries might be subjected to asset stripping by unscrupulous individuals both within and outside the industry.
Crude supply is another challenge. Nigeria is currently under-producing: 1.3 million barrels per day as against the 1.8 million set in the 2023 budget. That means Dangote Refinery may resort to import crude to augment its inventory.
Nigeria’s oil production in April fell to less than 1 million barrels per day, indicating that feedstock could pose a challenge to the Dangote Refinery.
The commission is shaping out to be symbolic, considering that ongoing technical work has not progressed to the point of introducing raw hydrocarbons into the plan, let alone distributing the refined products.
Upon completion, the refinery will apply for a licence to operate.
When completed, the refinery, with a capacity to process 650,000 barrels per day (bpd), could find itself scrounging for feedstock. The bulk of the crude for the refinery operations is expected to come from Nigeria, given that the Nigerian National Petroleum Company Limited (NNPCL) holds a 20 percent stake in the company on behalf of the federation, but the declining crude output would present a challenge.
Analysts, quoting data from the Organisation of Petroleum Exporting Countries (OPEC) on Nigeria’s oil production since 1999, revealed that output has declined by 42 percent and it has hovered around 1.5 million bpd under President Buhari.
The greatest challenge that led to the drop in production in this administration has been oil theft.
The Group Managing Director, NNPCL, Mele Kyari, said in September 2022 that Nigeria lost $10 billion to crude oil theft in seven months. Although security agencies had said they were investigating the incidents, no arrests or prosecutions seem to have been made ever since. Crude oil theft has not ceased.
MULTIPLE COVERED SINS
Government and NNPC officials who amassed wealth through the oil sector may suffer no sanction. Kyari, at different times shed light on the monumental mismanagement of the nation’s refineries when he disclosed that no turn around maintenance (TAM) of the refineries was carried out for over 42 years, despite humongous resources earmarked for sale by successive administrations.
Little wonder, in 2019, the refineries lost some N167 billion ($439.47 million), and only the Warri Refinery processed any crude. The following year, they were all shut down, pending rehabilitation.
Sadly, Nigeria, Africa’s largest oil producer and the sixth largest oil producing country in the world, is battling scarcity of fuel amidst a spike in international crude oil price which should yield more revenue to reactivate its economy battered by the COVID-19 pandemic.
The Group Public Affairs Manager, Mr Garbadeen Mohammed did not respond to calls and messages.
However, Group General Managing Director, NNPC Limited, Mele Kyari said during the week that the company will supply 300, 000 barrels of crude oil to the Dangote refinery head of the official commissioning on Monday.
DANGOTE AND NIGERIA
Nevertheless, the Dangote Refinery would address the knotty challenges of petroleum products in Nigeria when it becomes fully operational. The key economic concerns this facility is set to address are the perennial and entrenched Premium Motor Spirit supply issues, such as scarcity, adulteration and the overheated/never ending subsidy debacle. Aviation fuel and diesel fuels driving domestic commerce have been struggling to secure sustainable, viable supplies in recent times.
In the last five years, there has been an import upsurge of bitumen and tar for increasing construction work demands. This signifies the expanding requirements of the basket of petroleum products in the Nigerian economy. A viable refinery of Dangote status is a critical asset in the trajectory of the Nigerian energy market.
DIVERSIFIED AND STRENGTHENED
The promoters bought over 1,209 units of various equipment to enhance the local capacity for site works since the biggest local civil contractors are unable to handle even small portions of our construction requirement. It also bought 332 cranes to build up equipment installation capacity since the current capacity in Nigeria is extremely poor.
The facility has the world’s largest granite quarry to supply coarse aggregate, stone column material, stone base, stone dust and material for breakwater with a 10 million tonnes per year production capacity.
To actualise the target, the refinery has 177 tanks of 4.742 billion litre capacity with a total tanker loading of 2,900. Experts say this number is based on tanker capacity of 33KL.
Facility experts say the Dangote Refinery is a legacy project that will see Nigeria netting $21 billion per annum. This is evident in the land mass on which the facility sits in Ibeju-Lekki, Lagos, covering a land area of approximately 2,635 hectares, which is seven times the size of Victoria Island, a highbrow area of Lagos bounded by the Atlantic Ocean.
The refinery is built with a self-sufficient marine facility that possesses freight optimisation, the largest in the world, enabling the facility to produce diesel and gasoline products that conform to Euro V specifications.
“The refinery design complies with World Bank, US EPA, European emission norms and Department of Petroleum Resources (DPR) emission/effluent norms, with a state- of-the-art technology.
“The complexity index design of this refinery will enable it to operate five processing units, with the sixth unit – catalytic unit – upgraded into four components comprising, hydro refining, reforming, cracking, and hydrocracking,” the company said in a corporate document.
HUMAN CAPITAL DEVELOPMENT
The huge facility offers massive human capital development opportunities. Already, the training of 900 young engineers in refinery operations outside the country has been put in place. Another six mechanical engineers were trained in GE University in Italy. About 50 process engineers were trained by Honeywell/UOP for six months and 50 management trainees seconded for succession,
DOMESTIC IMPACT
It is obvious that the main beneficiaries of this world-class project are the fiscal and monetary authorities as it will impact their policy formulations and implementations towards achieving robust foreign trade balance and defending the value of local currency. This can be deciphered from the data by the National Bureau of Statistics (NBS).
According to the NBS, the import value of other oil products imported in the third quarter (Q3) of 2022 stood at N1.615 trillion, constituting a massive 28.10 per cent of total imports. This indicates an increase of 9.11 per cent from the N1.480 trillion recorded in Q2, 2022. Potentially, the run-rate to end of 2022 import value translates to N6.2 trillion of other petroleum products imported into the Nigerian economy in 2022.
Analysts say the 2022 trade position of the country’s international trade balance would have improved by N6.2 trillion or 28.10 percent if the Dangote refinery had begun supply of these products earlier, Trade surpluses are positive contributions to a nation’s Gross Domestic Product (GDP).
The Dangote Refinery Gate Price will not be denominated in naira. The implication is that there will be an inbuilt template for substantial foreign exchange savings, which will translate into a massive reduction of the pressure on the Central Bank of Nigeria (CBN) with the mandate of defending the naira.
According to an energy analyst, Kanye Williams, this is found from extracting the foreign exchange components of the landing cost of PMS before under/over recovery administration, a euphemism for subsidy, is carried out.
These components include freight charges, traders margin of US$10/30,000mt, Ship-ship charges, receipt losses of 0.3 per cent, NPA $28,000 per day demurrage after 10 days allowance, $10.5/mt NPA handling charges, cost of stock financing for the imported products, US$2.50/mt and lithering expenses.
It is established that these components usually comprise 27 percent of the total pump price of any petroleum product. In financial terms, this translates to N1.674 trillion that was brought to the foreign exchange market to buy foreign exchange for payment of imported petroleum products that a domestic refinery would have saved.
This is established from the PPPRA landing cost template, quarterly petroleum products import from NBS and average official exchange rate from the CBN.
The multiplier effect of its target 135,000 permanent jobs for Nigerians and displacement of plastics imports in the fiscal space are part of the economic springboard this refinery brings to the Nigerian economy.
“This refinery is one edifice that will turbo-charge the engine of the Nigerian economy, unstrap the strings holding the development of the economy and wade off external and domestic headwinds against efficacies of fiscal and monetary instruments.
“It is when the refinery comes to be that we may realise the harm the poor management of the petroleum industry has done to the development of the Nigerian economy, since the end of the civil war,” Williams said.
FOREX RELIEF
With a target performance of 50 million litres PMS and 17 million litres of diesel and aviation fuel per day, the Dangote refinery is set to reduce the pressure of foreign exchange demand by an estimated $3.857 billion in avoidable cost of imports.
Every business endeavour and well-intentioned government policy in Nigeria has been harmed by the poor management of petroleum products, chiefly, PMS, directly or indirectly.
Seeing that the greatest burden of foreign exchange has been borne by the CBN, in terms of avoidable pressure on the naira, the decision of the federal government to buy a 20 percent stake in the N19 billion plant becomes understandable.
DREAM REALISED
The dream of Dangote building the world’s largest refinery was borne out of ‘frustration’ when the late President Umaru Musa Yar’Adua in 2007 reversed the sale of the Port Harcourt and Kaduna refineries (two of Nigeria’s moribund refineries) to Blue Star, the Dangote-led consortium.
Blue Star had paid about $670 million for the plants in the twilight of the Olusegun Obasanjo Administration and gone away thinking it was a done deal. It wasn’t.
Even though the refineries were producing at about 20 percent of their capacity at the time of sale, the Yar’Adua government, egged on by labour, insisted that the “national patrimony” were under-valued and under-priced, hence the sale was reversed.
Dangote walked away only to ‘return’ six years later to announce plans to build a private refinery in Lagos with a capacity of 650,000 bpd – over 200,000 bpd more than the combined 450,000 installed capacity of Nigeria’s four refineries combined.
Notwithstanding the subsequent unforeseen delays, including project cost reviews from the original $12-$14 billion, then to $19billion, energy transition concerns, the glut in global oil supply caused by COVID-19 and spooky markets caused by the Russia-Ukraine war, the refinery eventually became set for official commissioning on May 22, 2023 by the outgoing President Buhari who is eager to perform the inauguration of the facility, seven days to the end of his tenure on May 29.
CONTINENTAL TOUCH
Aside from an estimated 250,000 direct and indirect jobs that the refinery would create, the facility is also expected to spin off other business opportunities, a story that Dangote loves to share in a country with 33 percent unemployment.
S&P Global had reported two months ago that early commencement of the Dangote Refinery would not only benefit Nigeria, but could also benefit Africa, which is currently suffering a shortage of diesel as a result of the closure of three of five refineries in South Africa.
The continent imports about 700,000 bpd of diesel. Diesel is one of the four quality Euro-V products expected from Dangote Refinery. Others are petrol, jet fuel and polypropylene. Better Alternative
Dangote Refinery is poised to start the production of critical materials, such as naphtha and polypropylene, that will help activate affected industries like cosmetics, detergent, textiles, and plastics among others.
The Lagos Chamber of Commerce and Industry (LCCI) has lauded the efforts of its visionary, Aliko Dangote, and the Federal Government of Nigeria’s support in berthing the project.
The Director-General of the Chamber, Dr Chinyere Alumona, noted that the 650,000 b/d capacity refinery, expected to be Africa’s biggest oil refinery and the world’s single-trained facility, will meet Nigeria’s need for refined petroleum products and bring about a huge positive impact on the Nigerian economy
“The Refinery will create jobs, positively affect the value of the naira, broaden prosperity for the downstream sector, and provide growth opportunities for businesses. It will also stimulate economic growth by impacting the country’s balance of payments.
“In addition, the Chamber expects the refinery to fuel further growth and development across its value chain, including cosmetics, plastics, textiles, etc,” LCCI said.
Provision for fuel subsidy in 2023, the government is now projecting to spend N7.35 trillion more than it will earn this year as it makes room for a nine-fold jump in petrol subsidy costs than earlier budgeted.
By this, the country will be recording the highest budget deficit in 23 years (since 1999) which amounts to about five percent of GDP.
Nigeria spent N400bn monthly on subsidies in 2022, according to Minister of Finance, Budget and National Planning, Zainab Mohammed. It spent $10bn on subsidy in 2022,
A former executive and National Treasurer, Petroleum and natural Gas Senior Staff Association of Nigeria (PENGASSAN), Mr Victor Ononokpono, welcomed Dangote Refinery as a game-changer to Nigeria’s perennial energy challenges. In a note to THEWILL, Ononokpono said that in addition to boosting the nation’s revenue, the refinery will create thousands of jobs for Nigerians.
A property expert, Lanre Taiwo, said the commissioning of Dangote Refinery will attract investment in housing and estate development.
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
