August 15, (THEWILL) – What is going on between Dangote Refinery and the NNPCL/Federal Government is a show of shame by the managers of our collective interests. How can a project that by all definitions attained the stature of a ‘national interest project’ be marred in this depth of embarrassing controversy that is playing out in the full glare of the local and international investing community?
Even if Dangote is not perfect or perhaps has a glaring case of monopolistic tendencies as alleged, this is not the time to drag him to the market square for a naked dance.
Except President Bola Tinubu is not neutral in this matter, it is in our national interest and a matter of urgency too for him to immediately launch an independent audit of the Dangote Refinery, NNPC and Nigerian Upstream Petroleum Regulatory Commission (NUPRC) transactions on the buying of stakes in the project by the nation’s oil concern and the ongoing crude oil feedstock supply crisis. Evidence has shown that something seriously murky has occurred and needs to be fully unravelled for public accountability.
The crude feedstock availability crisis rocking the Dangote refinery every day takes a new turn. Now, Dangote is accusing the Nigerian Upstream Petroleum Regulatory Commission of failing to effectively enforce the domestic crude supply obligations as stipulated in Nigeria’s Petroleum Industry Act (PIA) of 2021.
With the information in the public space, certain issues need to be clarified.
On paper, the NUPRC Chief Executive, Gbenga Komolafe, believes the pricing issues should not hinder domestic refining: “In crude pricing, we will never allow price strangulation to disincentivise our domestic refining capacity optimisation. We will continue to work to ensure that crude supply profiteering as a negative factor that can strangulate our domestic refining capacity optimisation is disallowed.
“We need to discuss pricing, especially as parties (producers) have committed to respecting their domestic crude oil obligation. For us as the regulator, we don’t want the upstream sector to be operated sub-optimally through cost under-recovery. So, the regulator is very alive to that.”
Is this not pure double talk at best and at worst mere political jive?
The NUPRC boss cannot say that “there is a need to have a rule of engagement to ensure that the pricing model from the oil producers is not seen to be strangulating the domestic refineries” and at the same time also be saying that “the Federal Government and Crude Oil Producers in the country have committed to a sustainable supply of crude oil to Nigerian refineries under a market-determined pricing system”.
The second declaration cancels out the first.
If “the Federal Government and Crude Oil Producers in the country have committed to a sustainable supply of crude oil to Nigerian refineries under a market-determined pricing system,” that means we are still revolving around the willing seller, willing buyer model as the market price will be the only determinant on how the producers will sell and how the buyer will agree to buy.
Earlier in the year, we were told that the NUPRC had directed local and international oil companies to prioritise the supply of crude oil to local refineries. The regulator further set a target of 483,000 barrels to local refineries with the Dangote refinery expected to receive 325,000 barrels daily.
The intent of the PIA is that international oil companies must first meet local demand by supplying crude oil to domestic refineries before exporting any surplus. But the spirit of the Act from what’s on ground is a total ballgame entirely.
Now, to Dangote Refinery, “All we are asking for, is for refineries in Nigeria to buy crude directly from the companies that produce it in Nigeria, rather than from international middlemen. This is specified in the PIA.”
This is where the real problem lies but because the NNPC lacks the willpower or maybe outrightly incapable of communicating the truth and also as a result of its years of serial lies and deceitful communications, even when they are telling the truth, no one takes them seriously any more.
Without sentiments, we need to get this clear: Nigeria is a member of OPEC and other regulatory bodies. At any given point in time, as the market dictates, there is a market price for Nigeria’s crude oil grades, which every buyer and seller should adhere to, including Dangote Refinery. That is the standard professional practice.
However, as stated by an analyst, “Street Sense” vs Professional Standards are currently at war in the Dangote–NNPC/FG dispute. What most Nigerians believe is the “street knowledge,” that “Nigeria has crude oil and there is no reason Dangote should be buying crude oil from abroad.” The professional explanation is different. Agreed, Dangote Refinery should be able to buy the necessary feedstock required locally, but you don’t have to force someone to sell to you (at your own fixed price) because that means it is no longer a free market.
Agreed also that the Domestic Crude Oil Supply Obligation (DCOSO) has a convergence with the nation’s energy security, NUPRC and NNPC fail woefully in communicating the truth which is that most of the operators in our arena, including the NNPC itself, have little or zero ‘spare volumes/capacity’.
So the question is where and how are we going to find the crude volume to sell to Dangote because of supply commitments by the IOCs?
My suggestion is that while we wait for the NNPCL to come up with a workable strategy on how to get more crude from existing and even new fields, the only option we should be zeroing in on now is the 450,000 barrels of crude the NNPC takes every day as the set-aside volume for domestic refining and products supply for our local consumption.
Also, while we wait for the three and half NNPC-owned Refineries to resurrect from the dead, the government/NNPC should find a way to work out how the home-based Dangote Refinery should receive this 450,000 barrels per day to process for our domestic consumption and still make required profits from the refining operations.
So if Dangote can be sure of about 450,000 bpd coming from the NNPC, at least for now, the shortfall of about 200,000 bpd can be sourced elsewhere even from some of our major indigenous marginal producers or even offshore.
If Tinubu is serious about addressing this gridlock and if the President himself is not an “interested party” in this game of throne, he should make the NNPC account for what it does with that volume of crude (450,000 bpd) it rakes in every day and ask the company to rather sell that volume to Dangote as a national interest arrangement.
Another area to look at for a solution to this crude feedstock availability to Dangote Refinery is the output from the Nigerian Petroleum Development Company (NPDC), the upstream strategic business unit of the NNPC.
Not much is made public as it concerns the daily production output of this subsidiary of the NNPC which has commendably grown from a tiny marginal producer operating only in Oredo Field to a major producer by all standards (onshore and offshore) after a series of asset acquisitions and ‘farm-ins’.
How much crude does the NPDC pump out every day from all its wells/fields? How does the NNPC account/dispose of these produce from its in-house operation because it’s not part of the joint venture-shared production?
The cross-banting between some oil agencies of the government and Dangote Refinery is very unnecessary. We need to sit down to do some critical thinking because I believe the solution to this problem of crude availability can easily be gotten from our NNPC system. All we need is just the willpower to be sincere and honest.
What should be done by the government is to concede to a framework that would be mutually beneficial with a focus on ensuring that the local refineries are not strangulated with off-the-curve prices. We’re just talking of the Dangote refinery, just wait until the NNPC’s Port Harcourt, Warri, and Kaduna Refineries come onstream, if they will ever. The current availability of crude feedstock will be in multiples of ten because even NNPC does not have spare crude to send to its own refineries as feedstocks.
All the government needs to do right now is to find a way around the naughty issues and honestly address them. The Dangote project needs to be helped to fully come onstream because whether anybody wants to hear this or not, it is really too late to try to fight and kill the project and whether they buy crude locally or not, the refinery would still get its crude feedstock but at what cost? God bless Nigeria!
Ifeanyi Izeze, THE WILL
