Good News from Dangote

Dangote Refinery


By Simbo Olorunfemi

Last week, Dangote Petroleum Refinery and Petrochemicals plant took delivery of its maiden cargo of crude oil— 1 million barrels of Agbami crude grade from Shell International Trading and Shipping Company Limited (STASCO), said to be one of the largest trading companies in the world, trading over 8 million barrels of crude oil per day.

That is a significant milestone, which should make every Nigerian happy. Well, except those who have publicly sworn on the strength of information exclusively available to them that, at best, the refinery ‘might’ only take off at all, or at worst, never come on stream.

Dangote Refinery is expecting additional 5 million barrels of crude oil over the next 3 weeks from a range of suppliers with the next 4 cargoes coming from NNPC and the final one from ExxonMobil.

The 6 million barrels is expected to sustain the initial 350,000 barrels per day to be processed by the refinery, kick-starting the production of diesel, aviation fuel, and LPG before subsequently progressing to the production of Premium Motor Spirit (PMS).

Months back, Aliko Dangote had assured that the refinery will commence production in December, but some expressed doubt, which is not totally out of place, given the long history of delays that had plagued the $19 billion project.

But a large part of the cynicism that surrounds the project is founded on shaky grounds and questionable motive, fuelled by misinformation. That I addressed on September 15th, 2022 in the piece below:

“Between Dangote Refinery and NNPC

By Simbo Olorunfemi

It is difficult to tell which part of the untoward and relentless narrative about the Dangote Refinery project comes from a place of genuine ignorance of what this giant, groundbreaking initiative is all about and that which comes from the mindless, bigoted or ethnocentric assumptions, steeped in our fault lines, often employed to drive these strange conversations.

It is a strange one really, as anyone with as much as a pretence to ‘love’ for country should not find it difficult to appreciate this project for what it is – the most important and singular private investment in Nigeria with the most significant implication, not just for energy security, but national security itself.

To think that for the many years Nigeria yearned for alternative to the publicly-owned refineries, not one of the many licences issued gave us a private refinery. So, what is this grudge that some have for the one who not only took the bold step, but decided to do it at such a grand scale.

Unfortunately, even if it is not unexpected, the acquisition of shares in the venture by NNPC has been caught in the same toxic mix, with the narrative being pushed at variance with the facts readily available in the public space.

I have read here of how the government forked out 2.7 Billion dollars from its reserves to bail out a distressed Dangote. A picture of cronyism conjured and graphically painted.

Yet, what transpired between Dangote and NNPC was not as much of a cash transaction as being touted. Of the $2.7 billion agreed upon, one-third of the money will be paid with crude oil, another third from the profit that will accrue from the investment, leaving only a third as cash component.

Apart from the compelling argument for NNPC’s investment on account of the strategic interest of the country and energy security, the business of the business is not only to do with refining but Petrochemicals.

Also, this deal offers a ready outlet for the 455,000 barrels of crude NNPC received for domestic refining, which the company currently trades three-quarters of through the window of the DSDP, but can now be channeled to Dangote in exchange for refined products.

It is difficult to see how anyone can dispassionately interrogate the facts, not assumptions, and not see this as a win-win that it is.”

The Good News…

As we have now seen, NNPC, in line with the agreement with Dangote, which saw it taking 20% shares in the project is delivering, at least, 4 million barrels of crude oil to the refinery in this first phase.

The MD of NNPC had premised the decision to invest in the refinery on the grounds of “energy security and fiscal security,” anchoring that on the directive from government requiring the Corporation (as it then was) to be involved in any privately owned refinery with capacity surpassing 50,000 barrels per day.

That, for me, makes sense, as I don’t see how a refinery with capacity to meet and surpass the national need will not be of interest to the government, for reasons of nationality security.

It is good that Dangote is receiving crude locally, a gesture one expects should be extended to the modular refineries already completed.

One hopes that the crude being delivered, especially by NNPC is not priced at the international market rate. As Chief Olu False canvassed last night, it only makes sense for the crude being sold locally to only come with a reasonable profit margin above production cost, which inevitably will not only make for cheaper crude, but cheaper pricing of refined petroleum products in the country.

I agree with Chief. I see no reason why that should not be so, with sizeable savings from transporting crude to foreign markets and the additional insurance costs amounting to savings that should impact cost of crude being supplied to local refineries.

With additional savings accruing from us not having to transport refined products from abroad, that should also kick in to make the cost of locally refined products cheaper than what is imported. That should lead to a reduction in the cost of refined petroleum products from what it is at the moment.

In other news, indications are strong that the Port Harcourt refinery is finally set to come on stream later this month, following a comprehensive rehabilitation programme awarded to Maire Tecnimont SpA in April, 2021 at the cost of $1.5 billion by the Buhari adminstration in 2021.

The first phase of the project was initially scheduled for completion in September, but that is now expected to be later this month. We have also been told that “…Warri will come on stream by the end of the first quarter of next year, and Kaduna will also come on board towards the end of next year.”

There are strong indications that the work put in by the Buhari adminstration in getting the government-owned refineries back on stream and the Dangote refinery to commence operations is finally crystallising in a positive turnaround for Nigeria, such that in another year or two, the country should have put behind it the embarrassing and forex-draining regime of importing refined petroleum products. I can only hope that will also positively impact the price of the products, especially diesel, which the modular refineries, among others, have focused on.

S&P Global suggests that with Dangote Refinery running, Nigerian gasoline production will exceed imports until the 2040s. Good news is that other refineries are being set up in other parts of the country, which should suggest that the era should last longer.

Good news.