The $19 billion Dangote Refinery could meet Nigeria's refined product needs. This upsets prosperous local importers - and the regulators who have lived comfortably in their pockets.
Almost a month ago, Farouk Ahmed, head of the Nigerian Midstream and Downstream Regulatory Agency, accused businessman Aliko Dangote of monopoly, jeopardising the country's energy security, and saturating the local market with low-grade diesel sourced from his 650,000-bpd petrochemical refinery in Lagos.
Dangote's rebuttal came with a striking revelation. He accused the state agencies of sabotaging local oil capacity by intensifying oil imports while suggesting that his diesel offers far superior grades to imported products. When a diesel sample from his refinery was tested before federal lawmakers for sulphur content, it had 87.6 parts per million (PPM). In contrast, two imported diesel products had at least 1800 and 2000 PPM, respectively. He then challenged the regulator to do the same publicly and publish the results.
To absolve himself of any allegation of monopoly in the future, Dangote said he would no longer proceed with the construction of a new 5,000-ton steel plant scheduled for 2025.
"If we do, we will be called all sorts of names," he said. "Let other Nigerians also go and do it, because we are not the only Nigerians here; there are even some Nigerians with even more cash."
The issue has divided sentiment and views among top entrepreneurs, politicians and policy affairs analysts. Femi Otedola of FBN Holdings, as well as former governor of Nigeria's central bank, Lamido Sanusi and President of the African Development Bank Akinwumi Adesina have all voiced their support for the billionaire.
Public disagreements like this come at a cost for the country and might send negative signals to external investors, says Paul Alaje, chief economist and partner at SPM Professionals, a management consultancy and risk advisory firm in Lagos.
He said the public spat will negatively affect the country as investor confidence is very low, given that Dangote tops the list of investors in Africa. In the past year, at least eight multinationals have exited the country.
"If Dangote feels he has been treated unfairly in his own country, how will someone who wants to play significantly big in Nigeria coming from another country be confident enough to invest in Nigeria?" poses Alaje.
Analysts say the toll on Nigeria if Dangote decides to withdraw his investment would be heavy: massive job and revenue losses (he is the largest private sector employer of labour in the country).
Jide Pratt, Nigeria's Country Manager at TradeGrid, says allegations against Dangote hold no water and that authorities should take serious steps to resolve the matter and save Nigeria the embarrassment. Efforts to resolve the issues are ongoing and fruitful, with the federal cabinet's recent approval of crude oil sales to Dangote in local currency.
Political undertone
But the issues are beyond just exchanging handshakes and trading pronouncements; implementation of regulations and agreements is a significant problem in Nigeria, says Antony Goldman, Director at Promedia Consulting, a political risk-advisory firm. The fact that the federal cabinet had to step in adds political layers to it, he says. "This affair has been driven, at least in part, by political factors," Goldman told African Arguments.
"The position or concern of the private sector outside Nigeria is that many of the key decisions impacting businesses are seen through the prism of political factors."
Yet, the issue date back many months, when the refinery was commissioned.
Dangote had accused the state-owned Nigerian National Petroleum Company Limited (NNPCL) of failing to meet its payment obligation to increase its stake in the refinery to 20% from 7.2%. NNPCL had earlier agreed to take a 20% stake in the refinery and said payment for the stake would be made through the crude supply of 335,000 barrels a day to the refinery. But Dangote said, as of June this year, NNPCL had yet to fulfill its obligation.
Pratt says NNPCL has consistently failed the transparency test. NNPCL is "badly managed", and its failure to acquire the agreed 20% stake in Dangote refinery is a testament to that, he says. "She (NNPCL) is yet to share the details of the loan she took for 20% shares in the refinery, which she has scaled down to 7%."
In January this year, officials of the anti-graft agency, the Economic and Financial Crimes Commission, raided the head office of the Dangote Group in relation to investigations into FX allocations to companies and individuals by the former central bank governor, Godwin Emefiele. President Bola Tinubu suspended Emefiele a few weeks after taking office, and he is now facing multiple charges, including abuse of office, forgery, and unlawful allocation of FX to the tune of $4.5 billion and £2.8 billion.
Dangote described the raid as an "unwarranted embarrassment," adding that "no accusation of wrongdoing" has been levelled against the company.
Before the raid, the refinery was commissioned on 24 May, 2023, by Nigeria's outgoing president, Muhammadu Buhari, five days before Tinubu was sworn in. Tinubu, the president-in-waiting and whose political base is Lagos, was unusually absent at the ceremony, graced by presidents from neighbours Senegal, Ghana, Niger, Chad and Togo.
The commissioning was rushed to credit Buhari's government for the refinery's success, while it could have been done when Tinubu had settled in as the new president, says Oyewale Suraj, petroleum industry policy analyst and director at Fortrose Consulting, a Lagos-based energy consultancy firm. Tinubu's absence at the event was a clear political statement, which careful observers understood, Suraj says, adding that the fact that the refinery did not start operations until January this year deepens the intrigue.
Nigeria's petroleum industry and economy
Dangote Refinery is the largest single-train refinery in the world. Construction of the mammoth $19 billion project started in 2017 and was completed about seven years later. With an installed capacity of 650,000 barrels a day, it currently produces aviation fuel, naphtha and diesel at 350,000 barrels a day. The output is expected to increase to 550,000 barrels a day before the end of the year when it begins producing Premium Motor Spirits (PMS) or gasoline.
The refinery holds significant promise for Nigeria and its economy: it has the capacity to meet the country's daily gasoline requirements - it hovers at 50 million litres or 305,513 barrels per day - and other petroleum product demands and help it cut FX spending.
For decades, the country has relied on the importation of refined products despite being the top crude oil producer in Africa and among the top 15 in the world. The importation of petroleum products has been a massive source of income for Nigeria's elites for decades - even as it has cost the West African country billions of dollars in FX. In 2022 alone, Nigeria spent $26 billion--equal to about two-thirds of the country's gross FX reserve as of July 26, 2024-- importing refined petroleum products.
One of Dangote's allegations is that some elites and importers don't want his refinery to work. He specifically accused top NNPCL officials and some influential people in the industry of having a blending plant (a plant with no refining capacity but produces gasoline through mechanical blending) in Malta.
NNPCL has, however, denied the allegation. Curiously, data from Trademap shows that Nigeria did not import refined petroleum products from Malta between 2017 and 2022. But in 2023 alone, it imported refined petroleum products worth $2.08 billion from the small European country.
According to U.S. Energy Information Administration data, Nigeria's OPEC net oil export revenue has averaged $30 billion over the past three years: $27 billion in 2021, $34 billion in 2022, and $29 billion in 2023. However, the petrol import bill has gulped a chunk of this.
Stopping imports and buying from the Dangote refinery means Nigeria would save scarce FX and redirect it to other sectors of the economy, says Alaje, adding that the regulator's allegation of monopoly does not make economic sense because the country needs to save FX; buying from the Dangote refinery will only help the economy and enhance its FX liquidity. "The best case scenario is to support the local (Dangote) refinery and establish more refineries to compete."
Beyond petrol imports, Nigeria's petroleum sector is plagued by low productivity, mainly due to oil theft.
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In March 2022, Tony Elumelu, chairperson of the United Bank for Africa and Heirs Holdings, raised the alarm that Nigeria was losing over 95% of its oil production to thieves. Authorities, including the head of NNPCL, Mele Kyari, have described the scale of theft as massive.
Data shows that between 2019 and 2022, Nigeria has lost over $30 billion to oil theft: $2.1 billion in 2019, $1.9 billion in 2020, $7.2 billion in 2021 and $22.4 billion in 2022. These losses have significantly impacted the country's revenue and FX reserves. In its 2022 annual economic report, the central bank said oil theft caused the country's FX reserves to dip by 9.1%.
Nigeria has yet to meet its OPEC production quota for more than three years. For example, Nigeria had a quota of 1.74 million bpd in 2023. Still, according to data from the Nigerian Upstream Petroleum Regulatory Commission, the country's production never exceeded 1.3 million bpd throughout the year. In 2022, the production output never surpassed 1.3 million; in 2021, it did not surpass 1.4 million.
Dangote refinery is not the only refinery in Nigeria. There are four state-owned decrepit refineries in Port Harcourt, Warri and Kaduna with a combined installed capacity of 445,000 barrels per day. But for years, they have remained moribund after several repairs, the latest being the $1.5 billion upgrade contract awarded to Italy's Tecnimont.
Authorities say one of the refineries will start production this year, but both Oyewale and Pratt think the refineries' best days are over and that they may never perform at even half their capacities.
"We have spent about N12 trillion ($750 million) on this, and not one of them is up and running, despite retaining staff and paying salaries," Pratt says, adding that officials who oversaw the past repair cycles should be prosecuted.
"Those refineries should be sold. The drain is enough."
Alaje said the public spat should not have happened, and the country might pay a heavy price for it in the coming years.
Justice Nwafor is a freelance journalist based in Lagos, Nigeria. His works have been published by the BBC, Reuters, Climate Correspondent, SciDevNet, and many more. He is also an Earth Journalism Network grantee.
