All Eyes on Dangote Refinery

With the 650,000 barrels per day Dangote Refinery now set for inauguration on May 22, the seeming uncertainty and scepticism around the removal of the controversial petrol subsidy may likely disappear in the coming months, writes Peter Uzoho.

At last, a definite date for the inauguration of the much-anticipated 650,000 barrels per day Dangote Refinery has been fixed. It is now scheduled for May 22, 2022, to be precise, less than two weeks from today.

As reported by THISDAY, the world’s largest with the facility having been completed with pre-inauguration tests currently ongoing.

Due to the size of the multi-billion dollar refinery, being built by Africa’s richest man and business tycoon, Aliko Dangote, the Nigerian government, players in the downstream sector of the Nigerian oil and gas industry as well as many economic policy experts and analysts have touted the refinery to be a major game changer for the country once it begins operation.

This is because of its capacity to create a market for $21 billion per annum of Nigerian crude oil, huge annual savings in foreign exchange for the nation, availability of sufficient petroleum products for both domestic consumption and export, massive investment inflow into the downstream sector as well as job creation for teeming youths.

The Dangote Refinery complex, which is located in the Lekki Free Zone area of Lagos, covers a land area of approximately 2,635 hectares, which is larger than the size of Victoria Island in Lagos. It is the biggest refinery in Africa and also the biggest single-train refinery in the world.

A single-train refinery uses an integrated distillation unit or one Crude Distillation Unit (CDU) to refine crude oil into various petroleum products, as against the use of multiple distillation units by most big refineries.

Due to the large capacity of the refinery, its pipeline infrastructure is the largest anywhere in the world, with 1,100 kilometres to handle three billion Standard Cubic Feet per day (Scf/d) of gas.

According to a report by the company, the refinery has a 435MW-capacity power plant that is able to meet the total power requirement of Ibadan Electricity Distribution Company (IBEDC).

On completion, the refinery is expected to meet 100 per cent of the Nigerian requirement of all refined products and also have a surplus of each of these products for export. The refinery is designed to process Nigerian crude and can also process other crudes.

 SHAPING SUBSIDY REMOVAL DEBATE

With the date now announced for the inauguration of the Dangote Refinery, it is hoped that the uncertainty and the scepticism around the anticipated total deregulation of the downstream petroleum sector and resultant abolition of the wasteful petrol subsidy regime may be doused in the coming days or weeks.   

The Petroleum Industry Act (PIA) signed into law on August 16, 2021 by President Buhari provides for total deregulation of the downstream sector, which implies the removal of subsidy and enthronement of a free market regime for the sector.

But in January 2022, the federal government kicked that section of the PIA aside and postponed subsidy removal to June 2023. The government cited the pains subsidy removal would bring on the poor and vulnerable masses as reason for its decision even though the rich, the elite and petrol smuggling petroleum marketers are the ones benefitting from the subsidy payments.

Before now, there had been postulations that the Dangote Refinery was the only reason the government was delaying the  deregulation of the downstream sector. The fear of the government has been that deregulating when there is no guarantee of sufficient petrol for local consumption may shoot inflation to the roof and cause severe hardship on the poor and vulnerable members of the Nigerian state, as transport and food prices would definitely rise.

At the moment, none of the four refineries owned by the Nigerian National Petroleum Company Limited (NNPC) is working as they are currently undergoing rehabilitation and may be functional again till the end of the year. Also, none of the existing private modular refineries is producing petrol.

So, for many, Dangote Refinery holds the key to the decision in terms of the removal of subsidy. With the inauguration of the refinery now expected to take place before the exit the current administration, more pronouncements from the government are likely to happen that will point a definitely direction to the subsidy removal policy.

For now, the position of government on subsidy removal is still unclear despite the pronouncements made in recent times about the policy.

POLICY STILL IN LIMBO

Recently, announcements by the Minister of Finance, Budget and National Planning, Zainab Ahmed, regarding the removal of petrol subsidy threw confusion into the policy debate.

Rising from the valedictory session of the National Economic Council (NEC) in Abuja on April 27, Ahmed had disclosed to state house correspondents that NEC had resolved to advise the government to shelve the planned subsidy removal until all preparatory plans with various segment of government, including states and the incoming administration were concluded.

The Buhari government had worked towards the removal of subsidy, culminating in its recent sourcing of an $800 million grant from the World Bank to provide palliatives for vulnerable Nigerians.

The minister was quoted to have explained that despite the suspension, NEC agreed on the need to continue discussion on the matter and the necessary preparatory work in conjunction with states, stakeholders and representatives of the in-coming administration.

She stressed that council agreed that the subsidy regime must be removed eventually as it was not sustainable, affirming NEC’s position that it was better to remove the subsidy now rather than later.

Ahmed had said: “Today I was in the NEC meeting where we discussed the issue of post-subsidy removal. Council agreed that the timing for the removal of subsidy should not be now, but that we should continue with all of the preparation works that needs to be done and that this preparation work has to be done in consultation with the states and other key stakeholders, including representatives of the incoming administration.

“Council agreed that the first subsidy must be removed earlier rather than later because it is not sustainable. We cannot afford it anymore. We have to do it in such a way that the impact of the subsidy is as much as possible, mitigated on the lives of ordinary Nigerians.

“So, this will require looking at alternatives to the post-subsidy that needs to be planned for and subsequently put in place but also what needs to be done to support the people that would be most affected as a result of the removal.“So, we will be working together with representatives of the state, we will have a plan that we will start working on putting the building blocks towards the eventual removal of the fuel subsidy.

“If I may remind the forum, that the budget for 2023 has provision for subsidy only up to June 2023 and also the Petroleum Industry Act (PIA) has a provision that requires that all petroleum products must be deregulated 18 months after the effective date of the subsidy removal and that period is also up to June 2023.”

Answering reporters’ questions on what happens after the June 2023 timeline for the subsidy removal when its funding would have ceased, the minister said the Appropriation Act may have to be revisited or a supplementary budget made.

According to her, the PIA guiding subsidy removal may be tinkered with if the committee set up so decides.

 DETOUR

However, after reports made the rounds about the suspension of the subsidy removal following the NEC’s meeting, Ahmed in a statement on April 28 declared that the federal government had not suspended the planned removal of petrol subsidy from June.

She insisted that the government would instead expand the subsidy removal committee to include teams from the incoming administration and the state governors.

In the statement issued by her Special Adviser on Media and Communications, Yunusa Abdullahi, Ahmed denied reported proclamation of suspension of subsidy.

 “Against the backdrop of the story in some media that the federal government has suspended the removal of petrol subsidy, the government has not suspended the removal, but has rather expanded the subsidy removal committee to include teams from the incoming administration and the state governors.

“That NEC deliberated on the issue extensively and came to the conclusion that subsidy must be removed as it is not sustainable. But there is a need for further consultations, especially the need to involve members of the incoming administration and representatives of the state governments,” she stated.

Also, in March 2023 during her courtesy visit to the Voice of Nigeria (VON) in Abuja, Ahmed had boasted that the federal government would remove the controversial petrol subsidy before the end of President Buhari’s tenure on May 29, 2023.

Ahmed attributed the delay in removal of the subsidy, as provided for in the PIA 2021, to the 2023 general election and the forthcoming national population census.

The minister had stated that almost everyone had now agreed that subsidy was not serving the people it was supposed to serve and its high cost was adding to government’s deficit.

She added that at the time, the subsidy cost per litre of petrol ranged between N350 to N400, maintaining that Nigeria spends about N250 billion monthly on subsidy.

The minister said such amount could be invested in building more hospitals, schools, improving infrastructure and other critical sectors that would have visible positive impacts on Nigerians.

She stated: “You can build more hospitals, more schools, provide more social services, improve infrastructure that will enhance the quality of life of the people, instead of just using it on a consumption item. You put gas in your car and in a couple of days it is gone and then you have to put again.

“So we do hope that this time around, that the whole country will work with the government to get rid of this subsidy to save us from continuously expending limited resources on a consumption item.”