The expectation is that when DANGOTE Refinery in Lekki, Lagos starts producing petroleum products, Nigeria will no longer have to import 92% of its daily products consumption to augment the 8% production by NNPC’s four refineries.
Now, some are already touting the foreign exchange savings of $16.8bn that this will bring in addition to huge savings in the logistics of importing petroleum products which NNPC says cost $11.2bn yearly.
But this only tells half the story as some pertinent questions remain to be asked and answers provided to enable us fully grasp what lies ahead in a post DANGOTE Refinery era from where at least 92% of Nigeria’s petroleum products needs will be met.
The first question is this, since DANGOTE Refinery is privately owned and will require 600,000 barrels of crude oil a day to refine into petroleum products, at what rate and in what currency will this crude oil be supplied to the refinery?
NNPC receives a daily allocation of 445,000 barrels of crude oil a day supposedly for refining to meet Nigeria’s petroleum products need but since its refineries can only meet 8% of this, the remaining 92% is currently imported.
What NNPC then does is to swap the un utilized portion of the 445,000 crude oil it is allocated but unable to refine locally, for petroleum products which are imported and dispensed at petrol station at N145 a liter for petrol and N50 a liter for kerosene.
Now this is the crux of the matter, NNPC has never been able to pay the full value of the 445,000 daily allocation of crude oil to the Federation Account, whether in Naira or USD, claiming that the petroleum products it imports are dispensed at subsidized prices.
NNPC also claims that the financing of the logistics of importation of this petroleum products for which it is swapping the bulk of its daily allocated 445,000 barrels, comes to $11.2bn annually.
If the 445,000 barrels of oil daily allocation to NNPC supposedly for local refining by its four refineries, was sold even at the conservative rate of $45 a barrel, that money would go into the Federation Account.
So, when DANGOTE is finally able to begin production and meet Nigeria’s petroleum products needs, its important to know whether it will be paying Naira or USD for the 600,000 barrels of crude oil it needs daily to produce petroleum products.
Secondly, since DANGOTE Refinery is not government owned but set up to make profit for its shareholders, at what rate and in what currency will it supply petroleum products to meet at the very least the 92% daily consumption in Nigeria?
Nigerians will have to accept that DANGOTE Refinery is a privately owned entity and that even if it eventually is quoted on the stock market, it still has to pay dividends to its shareholders who have invested over $9bn in its construction.
So, clearly, talk of DANGOTE Refinery selling petroleum products to oil marketing companies at subsidized prices to ensure that Nigerians continue to buy petrol at N145 a liter and kerosene at N50 a liter, are out of the question.
Bottom line, DANGOTE Refinery will sell petroleum products to buyers, whether local or foreign at international market rates, although it is yet to be made clear whether the local buyers in Nigeria will be paying in Naira or USD.
When you consider that DANGOTE Refinery was paid for in USD and is situate in the Lekki Free Zone, which legally frees it from local taxes while allowing it to export its products into Nigeria, buyers are likely to pay for its products in USD.
At the end of the day, getting petroleum products from DANGOTE Refinery will be no different from getting products from say a refinery in Europe, the only difference being the elimination of financing required for the logistics of importation.
The third question then is, at what prices will petroleum products sourced from DANGOTE Refinery be sold at the petrol stations to end users, as Nigerians currently pay subsidized prices for petrol and kerosene.
Rightly, the 600,000 barrels of crude oil required by DANGOTE Refinery to produce petroleum products should be sold to it at international market price with slight discounts to factor in consistency of supply required by a refinery.
This will be good news for Nigeria because it means that unlike the situation were it is being short changed by NNPC in making payments over the daily allocated 445,000 barrels of oil, DANGOTE Refinery will pay fully for its 600,000 barrels a day of oil.
Also, DANGOTE Refinery cost is over $9bn and with the bulk of this sum borrowed at interest, it will be foolhardy to expect the owners of the refinery to sell the end products to Nigerians at subsidized prices.
This means that it is either petroleum products are bought from DANGOTE Refinery at market prices and sold to Nigerians at subsidized prices, or Nigerians will have to prepare themselves for increases in petroleum prices post 2019.
Which brings me back to this troubling issue, why is NNPC not already treating its four refineries in Kaduna, Warri and Port Harcourt (2) the same way it is going to treat the DANGOTE Refinery when it comes on-stream?
Each of these refineries on their own are business entities, why not allow them buy the crude oil they need at international market prices, get loans to fund their operations, and then sell their petroleum products to buyers at international market prices?
Unlike DANGOTE Refinery, these four refineries are not in any free zone, meaning they will be subject to local taxes, they’re already staffed and managed by Nigerians, and are already in production albeit at minimal capacity.
Why not allow these refineries develop their business models and approach lenders for funding the same way DANGOTE Refinery has done, and and so domesticate the subsidies that are going to foreign importation or that will go to DANGOTE Refinery?
More importantly, giving these four local refineries the opportunities to operate maximally, will provide competition for DANGOTE Refinery, otherwise Nigerians may be subject to a petroleum products monopoly post 2019.
But come to think of it, to allow these local refineries thrive will mean an end to the lucrative business of swapping NNPC’s 445,000 barrels of daily allocated crude oil for petroleum products that has become the new oil well.
Worse, it may just dampen ALIKO DANGOTE’s dream of being Nigeria’s dominant player in the petroleum downstream sector, just like he had done with sugar and salt, but then again Nigeria has always been about monopolists, whether government or private.