In addition to being partners, Dangote and NNPCL will soon become bitter business rivals competing for clients in the downstream sector.
Though NNPCL is not a saint, the conflict between the national oil company and Dangote Refinery is a typical Aliko Dangote strategy for muscling out competition.
Aliko Dangote, Africa's richest man until August, and Nigerian National Petroleum Corporation Limited (NNPCL), Nigeria's state oil company, have many things in common. Both are business partners; both are avid monopolists; both leverage on government patronage to muscle out competition; and both are passionately Nigerian, among other shared characteristics.
Dangote is Nigeria's top business icon. From an initial seed money of a N500,000 loan from his uncle, which he started business with in 1977, Dangote bullied his way to a net worth of $13.4 billion in August, down from $13.9 billion in April. He dominates any field of business endeavour he is into or quits. Today, the Dangote Group has international operations in Benin, Ghana, Zambia, and Togo. He scaled up from a trading company to the largest industrial group in Nigeria, spanning Dangote Sugar Refinery, Dangote Cement, Dangote Flour, salt factories, and flour mills. He is a major importer of rice, fish, pasta, and fertiliser. His group also exports cotton, cashew nuts, cocoa, sesame seeds, ginger, and has major investments in real estate, banking, transport, textiles, and now oil and gas.
Dangote Sugar controls 70 per cent of the sugar market in Nigeria, with an average production of 800,000 metric tonnes per annum, while he controls 65 per cent of the cement market, with a production capacity of 52 million tonnes per year across ten countries. Put together, Dangote Group employs over 11,000 workers in West Africa. So, Dangote is a Nigerian success story.
Having made a success of most businesses he had gone into, Dangote decided to take advantage of the supply gaps in the lower stream of the Nigerian oil sector by building an oil refinery. He is a big player, so he started building the Dangote Refinery, said to be the largest single-train refinery in the world, at the cost of $19 billion, in 2017. It took him seven years to complete it in 2024. The former president, Muhammadu Buhari commissioned the refinery ahead of its completion on 23 May, 2023. It was to take another year plus for the company to refine its first litre of fuel.
Dangote is characteristically a very calculating and cautious investor. Located in the South-East of the Lekki Free Trade Zone (FTZ) in Ibeju-Lekki, Lagos, and covering a land area of about 2,635 hectares, you would have expected Lagos State to have an equity participation in the venture to give the host state a sense of belonging and a prime investment. However, Dangote managed to make an outright purchase of the land at the cost of $100 million.
Dangote financed the refinery through funds from the Dangote Group, loans and an investment by NNPCL. On 4 August, 2021, Nigeria's Federal Executive Council approved the request by NNPC to acquire a 20 per cent stake in the refinery for $2.76 billion. However, on 15 July, Dangote announced that "NNPC no longer owns 20 per cent stake in the Dangote Refinery. They were to pay their balance in June but (are) yet to fulfill their obligations. Now they only own a 7.2 per cent stake in the refinery." It then means that Dangote owns 92.8 per cent of the Dangote Petroleum Refinery and NNPC is a minority shareholder with a 7.2 per cent equity.
The first and most important mission statement of the Dangote company is, "To deliver strong returns to our shareholders by selling high-quality products at affordable prices, backed by excellent customer service." Others are: "To help Nigeria and other African countries towards self-reliance and self-sufficiency in the production of the world's most basic commodity, by establishing efficient production facilities in strategic locations close to key growth markets. To provide economic benefits to local communities, by establishing efficient production facilities in strategic locations close to key growth markets. To provide economic benefits to local communities by way of direct and indirect employment in all countries in which we operate. To lead the way in areas such as governance, sustainability and environmental conservation and to set a good example for other companies to follow."
Among its stated three core values is "leadership: We thrive on being leaders in our business, markets and communities. To drive this, we focus on continuous improvement, partnership and professionalism." The oil industry is a multi-stakeholder industry, as such, achieving the leadership goal will not be without conflicts. This quest for 'leadership' in every business he does leads to obsession for power and control by Dangote. This is marked by carcasses of companies he trampled upon on the way to achieving his idea of 'leadership.'
Followers of the Dangote business model had predicted that his entry into the downstream sector of the oil industry will not lead to lower but higher prices. This happened in the cement sector, where Dangote's 65 per cent dominance has not led to lower costs. As soon as the company muscled out other competitors, prices escalated and it continues to increase at will, because the company is focused on profit for its shareholders, not public sentiments.
True to this, the pump price of petrol rose swiftly on Dangote's entry into the market. By the business arrangement, Dangote Refinery can sell diesel and other products directly to marketers, while petrol will be sold only to NNPCL for distribution to marketers. According Olufemi Soneye, spokesperson of NNPCL, Dangote sold the first delivery to company at the cost of N898 per litre.
Anthony Chiejina, the chief branding and communication officer of Dangote Refinery, denied this in an official statement thus: "Our attention has been drawn to a statement attributed to NNPCL spokesperson, Mr Olufemi Soneye, that we sell our PMS at N898 per litre to the NNPCL. This statement is both misleading and mischievous, deliberately aimed at undermining the milestone achievement recorded today, September 15, 2024, towards addressing energy insufficiency and insecurity, which has bedeviled the economy in the past 50 years.
"We urge Nigerians to disregard this malicious statement and await a formal announcement on the pricing, by the Technical Sub-Committee on Naira-based crude sales to local refineries, appointed by His Excellency, President Bola Ahmed Tinubu GCFR, which will commence on October 1, 2024, bearing in mind that our current stock of crude was procured in dollars.
"It should be noted that we sold the products to NNPC in dollars with lots of savings against what they are already importing. With this action, there will be petrol in every local government area of the country regardless of their remote nature. We assure Nigerians of availability of quality petroleum products and putting an end to the endemic fuel scarcity in the country."
In his rebuttal, Chiejina was being economical with the truth. He denied that his organisation sold fuel to NNPCL at N898 per litre but could not disclose how much the company sold its product, which amounted to 'lots of savings.' However, Soneye reaffirmed the purchase price of N898 per litre and Dangote has kept quiet since.
In addition to the landing costs from refineries, NNPCL explains that suppliers pay statutory and regulatory charges for each litre of petrol as follows: NMDPRA fee is N8.99; inspection fee is N0.97; distribution cost (Lagos) is N15.00; and the profit margin is N26.48. After adding freighting and other statutory costs, the product's pump price jumps to N950.22 per litre in Lagos, N980.22 in Rivers, N992.22 in Abuja and N1, 019 in Maiduguri.
Shortfall in Dangote Supply
Apart from the price conflict, Dangote failed to deliver on its supply obligations. By the agreement between both parties, Dangote Refinery is supposed to deliver 25 million litres daily to NNPCL for the month of September. From October, this would go up to 35 million litres daily. In the first three days, it recorded a 65 million litres supply gap. It means that instead of supplying 75 million litres in three days, Dangote supplied only 10.3 million litres through its gantry loading system, with a massive shortfall of nearly 65 million litres.
This is why there is fuel shortage in the country, despite the deregulated price, allowing black marketers to step into the supply gap and sell for as much as N1,500 a litre in Abuja. In expectation of the Dangote deliveries, the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) did not clear NNPC Trading Limited to import petrol for October and onwards, revealed an official under anonymity. This has created a serious supply gap from Dangote Refinery, as insiders revealed there is not enough product from there to go round the country.
According to NMDPRA, the truckout of petrol from depots across the country averaged 51.10 million litres daily between 1 January and 18 September. Dangote Refinery has an installed capacity of 650,000 barrels daily, while NNPCL's four refineries have a joint capacity of 450,000 b/d. Nigeria has a 500,000 b/d allocation for domestic use.
On 15 September, the first day of loading, the Dangote Refinery supplied NNPC Retail Ltd 2.48 million litres of petrol in 56 trucks. On 16 September, NNPC Retail Ltd and AYM Shafa's 74 trucks loaded 3.3 million litres, while on 17 September, 4.5 million was loaded, making a total of 10.3 million litres in three days, instead of 75 million litres.
However, Chiejina, claimed in an interview with Vanguard newspaper, without evidence, that Dangote Refinery had supplied 111 million litres within those three days. "We have already loaded 111 million litres of petrol, and the exercise is ongoing. We are refining and have no reason not to load. So, loading is ongoing and we will continue to provide the product to the market," Vanguard quoted him as saying.
Here again, Chiejina appears to have been economical with the truth as official Dangote Refinery documents for the period showed that the facility only refined 24,700 metric tonnes of petrol, about 33 million litres, at 1,322.76 litres per ton. This is 42 million litres short of the 75 million that the refinery committed to supplying for three days, at 25 million per day. The refinery, according marketers, must load at least 500 trucks daily, with each vehicle carrying at least 50,000 litres of petrol to meet this volume. This appears difficult, but with the facility's 177 loading points, they feel it can be done.
It was gathered that NNPCL asked the refinery for vessel loading but were told that the operation facilities needed to be prepared. Consequently, the vessel MT Binta Saleh, which was already on standby to proceed for loading, was withdrawn, one official said.
Dangote's Trail of Monopoly
There are claims that Dangote's paved road of business success is littered with the skeletons of competitors he hounded out of business through government patronage. He is said not to be comfortable with a level playing field. In United States and other western democracies, he would have been charged with the violation of antitrust laws on fair competition in business, which attract heavy sanctions and fines. In cement and sugar businesses, many competitors without his level of government leverage have been destroyed and their territories annexed. Ibeto Cement is said to have a bitter story to tell. Ibeto was alleged to be an obstacle to Dangote in the Eastern market, with its bulking plant in Port Harcourt and having acquired the legendary Nigercem Nkalagu for a backward integration project. Its cement was preferred to that of Dangote in the East. When it collapsed, Dangote's trailers triumphantly rolled into the lucrative South-East market.
An industry analyst says that in the past 20 years of Dangote's business imperialism, within which he became the richest man in Africa and the 158th in the world, Obasanjo, Jonathan and Buhari gave him leeway to do quite a whole lot of things to the disadvantage of competition.
In Kura, near Kaduna, a very large rice growing area, a very large portion of land was acquired by Dangote from the villagers for a purported tomato business. Today, there are claims that no compensation has still been paid to those people. "There's no rice growing there and there's no tomato farm or factory," lamented a villager.
The same story obtains in the sugar industry. When Dangote went into the industry, virtually every other importer was priced out of the market and he bestrode the market like a colossus. So, he has always been a monopolistic businessman who dominates and neutralises fair competition.
In cement, only BUA matched up and refused to be muscled out of business. It also pitched a battle with him in sugar. Dangote embarked on the noodles manufacturing warfare but the Indomie group and spaghetti by the Flour Mills gave him a good chase. According to industry sources, anything Dangote does, he wants to be on top of and the only operator there.
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Coming into the downstream sector, Dangote has brought the same strategy of 'leadership', not minding there were other players there before his arrival. And petrol is a commodity that affects every Nigerian, just like salt, sugar and rice. This mentality makes a conflict inevitable in the downstream oil sector, because NNPC is no longer a lame government parastatal. It is now a limited liability company primed for business success under standard corporate governance. Dangote has built a 650,000 b/d refinery and NNPCL has 450,000 b/d capacity refineries.
Dangote tells the whole country his refinery can meet Nigeria's daily consumption and export the balance. The question being asked is, "how come that with the first sale Dangote couldn't deliver the 25 metric tons it signed off on?" The agreement is simple and NNPCL has been clear on what it wants; they give Dangote fuel, it refines it and gives back to NNPCL, so that they can subsidise and distribute this. NNPCL says it is not fixing the price for Dangote. Dangote can fix his own price but NNPCL has a share price it can always collect from Dangote. They are partners. They put up resources together to set up the refinery. The refinery has a percentage of NNPCL interest.
"This is not the old NNPC; this is the new NNPC Limited. It's a limited liability company; it's not like the old NNPC where anybody could do anything and get away with it. This time we are under public scrutiny. And being under public scrutiny, it becomes absolutely necessary to comply with the laws of the land," explains an insider not authorised to speak for the company.
According to him, "The new NNPCL is the first one that has taken the step of upgrading the refineries. Port Harcourt is on stream; it's almost ready." This means in addition to being partners, Dangote and NNPCL will soon be bitter business rivals competing for clients in the downstream sector.
The Political Disconnection
Dangote is a smart businessman. He knows he can leverage on politics to feather his business cap but he also knows that a turn in political fortune can spell doom for his business empire. Because of this wisdom, he stays away from party politics. He is not member of any political party but is said to donate generously to the campaign funds of leading presidential candidates and gubernatorial candidates of states where he has investments. This way, head or tail, he wins. It is said that what he does is to support the two frontrunners from leading parties, so that anyone that eventually wins will favour him. It was strongly alleged that Obasanjo attempted to pressure him into politics and make him run for the top job, but Dangote wisely declined so he could continue building his business empire.
However, in 2023, it is whispered that Dangote did not support Tinubu but rather supported Atiku Abubakar of PDP. Some people are wondering if the conflict is a fall out of political brinkmanship one way or the other.
All said, for Dangote's dream to work in Nigeria's downstream oil sector, it must be a shared solution. It must go beyond domination and control to embracing all industry stakeholders, ensuring a fair pricing for product users, and bringing peace and stability to Nigeria.
Moses Adewole writes from Lagos.
