Dangote’s Big Bet on Gasoline 

Olusegun Adeniyi

For almost two weeks, we have witnessed the resurgence of fuel queues across the country.  This of course exposes the never-ending mess in the downstream sector of the petroleum industry that has been with us for more than five decades. The main concern now is that the Dangote Refinery, which had been expected to guarantee fuel availability with all the multiplier effects, may not even change the narrative. Although currently producing diesel, jet fuel and polypropylene, the expectation that the world’s largest single-train petroleum refining facility would begin producing gasoline by next month is being hampered by what the company sees as a conspiracy by the International Oil Companies (IOC) operating in the country to “deliberately and willfully” frustrate its efforts.

Two weeks ago, Vice President of Oil and Gas at Dangote Industries Limited, Mr Devakumar Edwin, accused the IOCs of hiking the cost of crude above the market price, thereby forcing their refinery to import crude from countries as far as the United States, with its attendant high costs. “It seems that the IOCs’ objective is to ensure that our petroleum refinery fails. It is either they are deliberately asking for a ridiculous/humongous premium or they simply state that crude is not available,” Edwin alleged. “At some point, we paid $6 over and above the market price. This has forced us to reduce our output as well as import crude from countries as far as the US, increasing our cost of production.”

Putting the blame at the doorstep of the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) which continues “to issue import licences at the expense of our economy and at the cost of the health of the Nigerians who are exposed to carcinogenic products” Edwin added that the IOCs “are keen on exporting the raw materials to their home countries, creating employment and wealth for their countries, adding to their GDP, and dumping the expensive refined products into Nigeria – thus making us to be dependent on imported products.” And in what can easily be described as an emotional argument, Edwin alleged that these licences “are being issued, in large quantities, to traders who are buying the extremely high sulphur diesel from Russia and dumping it in the Nigerian market.”

Before I come to the substance of my intervention, let me state that I am aware of how Alhaji Aliko Dangote’s business model divides opinions in our country. I have heard the argument that Dangote enjoys enormous government patronage and support for his projects. I have heard about allegations of monopolistic tendencies. And not all these charges can be dismissed as sour grapes. When a man amasses the humongous wealth available to Dangote in our kind of environment, there will always be legitimate questions to ask.  Not only by competitors but also by consumers of his products. But in a nation where the easiest route to stupendous wealth is not production but politics and where people with no visible means of livelihood are billionaires, there is also something to say for those who work very hard by investing in production, creating direct and indirect jobs for hundreds of thousands of our people.

In my tribute to Globacom Chairman, Dr Mike Adenuga (Jnr) when he marked his 70th birthday in April last year, I used the Biblical ‘parable of talents’ to illustrate a point about the distribution of certain opportunities in Nigeria. “The Bible makes it clear that the master understood the capacity of each servant, which explains the disparity in the number of talents he gave them. The Nigerian state might have given either five or two ‘talents’ to a few, but there are thousands of other Nigerian businessmen who have been handed a ‘talent’ each,” I wrote while arguing that the issue should not be about the quantum of ‘talents’ anybody was given but rather in the efforts they put into deploying those ‘talents’ for the advancement of society. I also referenced the poignant admonition by the late South African icon, Mr Nelson Mandela to his country’s music star, Yvonne Chaka Chaka: “It is what we make of what we have, not what we are given, that separates one person from another.”

Now to the main issue. Section 109 (4)(b) of the Petroleum Industry Act (PIA) 2021 says that “the supply of crude oil shall be commercially negotiated between the lessee [of upstream petroleum operations] and the crude oil refining licensee, having regard to the prevailing international market price for similar grades of crude oil.” But Dangote Refinery, according to what he told me on Monday, is being asked to negotiate with the marketing arms of lessees which are not domiciled in Nigeria (and at a higher price) for their crude needs. I am not surprised that the IOCs are reluctant to meet whatever may be their domestic obligations to Dangote Refinery. I recall a similar situation, albeit in the power sector, recounted in my book, ‘Power, Politics and Death: A front-row account of Nigeria under President Yar’Adua’. In March 2008, then Shell International CEO, Mr. Jeroen van der Veer, visited Nigeria to outline his company’s apprehensions about the proposed Petroleum Industry Bill (PIB). I was at the meeting where President Yar’Adua “expressed his displeasure with Shell for its reluctance to make gas available for electricity generation in the country,” I wrote on the challenge of the power sector which remains till date. But we should also be fair to the IOCs.

While the Dangote Refinery may be able to count on the Nigeria National Petroleum Company Limited (NNPCL) for some of its crude requirement, they would need to source the remaining from IOCs and other independent producers operating in Nigeria. Given all the ‘forward and backward’ sales agreements that have been entered into by the NNPCL on behalf of the debt-ridden federal government in recent years, I don’t see where they can get the 650,000 barrels per day that Dangote Refinery needs, even if they want to. And for the IOCs, with my little knowledge of the industry, most of their Special Purchase Agreements (SPAs) are long-term deals. That, of course, is not to say that they may not be working for the refinery to fail.  “Unfortunately, they (IOCs) are either unwilling to sell to us or demand predatory prices. Since refining is a low margin business, the additional premium they put on the crude we buy could easily tilt the economics into loss making territory,” according to an official of the company with whom I spoke yesterday. But the bigger challenge for Dangote Refinery is in the diesel market, principally due to the fallout from the war in Ukraine.

In December 2022, G-7 countries, the European Union and Australia imposed a $60-per-barrel cap on seaborne exports of Russian crude. To evade the sanctions, Russia has had to do deals that involve prices above the $60 per barrel cap but far below the market price which, as of yesterday, stood at $86.6 per barrel. Available reports indicate that Nigeria is one of the markets for these Russian diesel middlemen. And it is difficult for Dangote Refinery to compete, after buying crude at the prevailing market price. Even if there are no issues with the quality of the product, going by the World Trade Organisation (WTO) rules, that amounts to dumping.

Apparently in frustration, Dangote has been repeating a conventional wisdom he probably wished had come much earlier. In May last year, at the invitation of its Chief Upstream Operating Officer, Mr Bala Wunti, I was in Lagos to speak at the Annual Value Assurance Review (AVAR) of the NNPC Upstream Investment Management Services (NUIMS). Dangote, who was keynote speaker at the forum, shared some of the challenges he faced while trying to build his refinery. He was compelled to construct his own port at Lekki, had to erect over 200 kilometres of gas pipelines across different projects, built his own power plants, bought his own cranes and mined his own granite etc. But the most interesting aspect of Dangote’s presentation was the anecdote he has rehashed in recent media interviews.

During the 2019 Ramadan, according to Dangote, he was invited to Mecca by the current Saudi Arabia Minister of Investment, Dr Khalid A. Al-Falih, to break fast together. A former CEO of the Saudi Arabian oil company (Saudi Aramco) who later became the chairman of its board of directors before his elevation to cabinet position, Al-Falih was at that period the Minister of Energy, Industry and Mineral Resources in Saudi Arabia. “Aliko, I heard that you’re planning to build a refinery, what capacity?” Al-Falih reportedly asked him. “I said 650,000. He kept quiet for a while and then said, ‘You know, just about 120 kilometres from Mecca, we are building one and I think I would like you to go and have a look. We, in Saudi Aramco, are facing a lot of challenges and, we are proceeding with it, but my advice to you is not to do it because normally, refineries are built by major oil corporations or sovereign countries’.” To this, Dangote said he replied: “Your Excellency, unfortunately, we have already started. So, I am not looking for advice.”

I am sure Dangote would wish he had met Al-Falih while still conceiving the idea of building a mega refinery in Nigeria. He would have weighed his options. Now that he is in the middle of the ocean, the choice before him is either to swim or sink. The pertinent question is, should Dangote Refinery be seeking special dispensation from the federal government? This is quite tricky if we must create a level-playing field but I am also aware that some countries have imposed domestic crude supply obligation to support local refining. In 2008, for instance, Argentina implemented export restrictions on crude oil to ensure sufficient supply for domestic consumption. Indonesia, once a significant exporter of crude oil, similarly imposed export restrictions in 2011 to prioritize domestic supply and support its refining industry.

But the real challenge is whether Nigeria even has the capacity to do that, assuming the authorities want to. With the extraordinary amount in ‘cost recovery’ to cover up for the ‘subsidy is gone’ presidential proclamation, the industrial scale oil theft by sundry criminal cartels that ensures we cannot even meet OPEC quota, and the lack of investment in the sector that has brought oil production down while many IOCs exit, the NNPCL is challenged on several fronts. But with a 20 percent stake in Dangote Refinery, authorities in the sector should sit down with the company to resolve whatever the challenges are.

Last week, Dangote was in the media for what became a famous quote: “Import dependence is equivalent to importing poverty and exporting jobs. No power, no growth, no prosperity. Similarly, no affordable financing, no growth, no prosperity. There is no industrialization without protection. Ignoring these facts is what gives rise to insecurity, banditry, kidnapping and abject poverty.” But when I spoke to him on Monday, he said the area highlighted in the media was the preface to his presentation last Tuesday at the 2024 Nigeria Manufacturers’ Summit in Abuja. He sent me the entire speech, which I consider quite revealing.

In the presentation, Dangote spoke to the challenge of manufacturing and industrialisation in Nigeria. “Post independence and indeed until the late 1980’s we had a thriving and consistently growing and increasingly diversifying manufacturing industry. Our industrialization policies were well thought out and diligently implemented,” Dangote said while reeling out the various industries in the country at the time and the value chains created. “Even in the Petroleum Industry, the policy of value addition to local raw materials was actively pursued during this period. In fact, the main thrust of Nigeria’s Third National Development Plan 1975-80 was the elimination of fuel scarcity. The first crude oil refinery was established in Port Harcourt in 1965, followed by Warri in 1978 and Kaduna in 1980. A second refinery was commissioned in Port Harcourt in 1989. Since then, no further capacity has been added. On the contrary all the three plants were allowed to steadily decline, forcing the country to resort to embarrassing import dependency.”

Apart from a focus on local value addition, “the earlier industrial policies also encouraged and supported local entrepreneurs to go into manufacturing leading to the emergence of our trail blazers in the sector such as the Odutolas, the Adebowales, the Adedoyins, the Aminu Dantatas, the Isyaka Rabius, the Chin Okekes, Razak Okoyas, the Onafowokans of Ladgroup and others,” Dangote argued. The landscape today, of course, is different as Dangote listed Steyr in Bauchi, Leyland in lbadan, Anamco in Enugu, Fiat in Kano, Volkswagen in Lagos, Peugeot in Kaduna, Osogbo, Delta, Jos & Katsina steel mills, Jebba paper mill, etc. as some of the joint venture businesses that have “since joined the graveyard of dead manufacturing concerns.”

Claiming to be aware “that the Bretton Woods Institutions have confused some of our economists about the word ‘protection’ to the extent that some of them think it is a blasphemy word that should not be uttered in good company”, Dangote then posed the question: “But how did China, Korea, India and several other Asian countries emerge as strong economies and a threat to the existing world economic order?”

To Dangote, the way forward is to encourage manufacturing through backward integration, citing his own example. “In 2023, Dangote Cement alone paid more taxes into the coffers of the government than the entire banking industry,” he said before making what appears like a response to his critics. “It is also often suggested that protecting your industries leads to monopoly! Again, this is false. You create the environment for monopoly when new investors are not willing or not allowed to invest in the industry. In asking for protection, I am NOT asking the government to prevent others from investing in the sector or industry. Quite the opposite, I am recommending that government policy should support and protect existing industries so that others will know that their investment will also be protected.”

I am sure that some of his competitors would counter that argument. But whatever anybody may feel about Dangote, the issues surrounding the refinery are beyond his person. These are issues that relate to the fundamentals of our economy with serious national security implications. The sheer magnitude of the facility and the expected trickle-down effect in terms of job creation cannot be downplayed. With an integrated power plant within the refinery which has a capacity of 435mw, exceeding the total power requirement of Ibadan Distribution Company (Disco), the Dangote Refinery remains the single most significant piece of infrastructure development Nigeria has witnessed in recent years. It must not be allowed to fail!

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