NUPRC: Dangote Refinery’s Accusation of Weak Domestic Oil Supply Obligation Enforcement Untenable

. Says commission facilitated 29m barrels of crude to $19bn refining facility in H1

. Explains why arbitrary withdrawal of IOCs’ licenses is not strategic

Emmanuel Addeh in Abuja

The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) on Friday rejected insinuations by the management of the Dangote Refinery that it was failing in its duty as the upstream regulator to effectively enforce the Domestic Crude Supply Obligation (DCSO).

Essentially, the Petroleum Industry Act (PIA) 2021, empowers the NUPRC to impose the local supply obligation on upstream operators, licensees and lessees with the power to mandate the allocation of a specified percentage of their produced crude oil and condensate for sale in the domestic market.

In a statement in Abuja, the NUPRC said that in the first six months of 2024, it facilitated the supply of 29 million barrels of crude oil to the Dangote Petroleum Refinery and Petrochemicals despite claims by the Dangote team that the regulator was complacent in enforcing crude supply to the firm.

“Consequently, the commission rejects insinuations that it has poorly enforced the domestic crude supply obligation,” the Gbenga Komolafe-led organisation stated.

The commission said that as part of its commitment to ensure the enforcement of section 109 of the Petroleum Industry Act, 2021 which provides among others, the domestic supply of crude to local refineries on a ‘willing buyer, willing seller’ basis, it ensured that nine refineries were supplied crude despite low oil production.

Dangote Refinery had on Thursday raised concerns over the inability of the industry regulator to fully enforce the domestic crude supply obligation.

“Our concern has always been NUPRC’s reluctance to enforce the domestic crude supply obligation, and ensuring that we receive our full crude requirement from the Nigerian National Petroleum Company Limited (NNPC) and the International Oil Companies (IOCs),” the firm stated in a widely-circulated statement.

But the NUPRC stated that despite its efforts to enforce the crude oil obligations through the development of the DCSO framework, the Dangote Refinery was still accusing of weak enforcement.

The NUPRC stated that in an earlier letter issued by the Dangote Refinery to the commission’s chief executive, dated July 24, 2024, it had commended the regulator for its enforcement of the DCSO.

“Let me once again commend you and your team for the successful development of the domestic crude supply obligation framework. This framework will lay the foundation for ensuring a stable and reliable supply of crude oil to local refineries,” the statement quoted the Chairman of the Dangote Refinery, Aliko Dangote, as saying in the letter.

In all, the NUPRC said it has facilitated over 32 million barrels of crude oil supply to domestic refineries in the country.

“The NUPRC in its effort to enforce section 109 of the PIA, 2021 has proactively done the following: Developed and gazetted Regulation of the Production Curtailment and Domestic Crude Oil Supply Obligation (DSO) Regulation 2023.

“The NUPRC took an additional step to ensure that crude producers furnish the commission with copies of all crude oil sales and purchase agreements entered or any security interest entered, that is tied to crude oil production.

“The commission on several occasions has also engaged Dangote and local refiners to ensure their supply quota is met in line with the provisions of the PIA.

“For effective implementation of the DCSO, the NUPRC established a working committee comprising NUPRC, Oil Producers Trade Section (OPTS), the Independent Petroleum Producers Group (IPPG), Crude Oil Refinery Owners Association of Nigeria (CORAN) and NNPC Upstream Investment Management Services (NUIMS).

“The NUPRC has facilitated domestic supply of crude oil to Dangote Refinery and other refiners using the monthly production curtailment platform.

“These strategic commitments to Nigeria’s energy security have led to the facilitation of the supply of 32 million barrels of crude to Dangote Refinery and other local producers in the first half of 2024,” the it disclosed.

A breakdown, according to the NUPRC, shows that nine refineries have benefitted from the 32,088,122 barrels of crude, with Dangote alone enjoying 29,047,098 barrels out of the total supply between January to June 2024.

“The Warri Refinery received 949,670 barrels; NDPR-NDPR Refinery got 823,395 barrels of crude; the Port Harcourt Refinery received 471,123 barrels; Seplat-WPSOL Refinery was allocated 419,541 barrels while Waltersmith-WSPOL Refinery got 296,353 barrels.

“Other beneficiaries were Edo Refinery that got 58,504 barrels of crude and Du-port Refinery that was supplied 22,438 barrels of crude,” the NUPRC added.

A further breakdown of refining requirements in Nigeria indicated that Aradel Refineries Ltd in Ogbele, Rivers State, has 11,000 bpd; OPAC Refineries, Kwale, Delta State, has a capacity of 10,000 bpd, while Waltersmith Refinery in Ohaji-Egbema, Imo State, is 50, 000 bpd.

In addition, Edo Refinery & Petrochemical Company Ltd, has a capacity of 1,000 bpd; Dangote Refinery Ibeju-Lekki, Lagos State, has 650,000 bpd capacity; (Old) Port-Harcourt Refinery, Rivers State has a capacity of 54,000 bpd while that of Warri Refinery, Delta State is 75,000 bpd.

“Much as the NUPRC has tried to ensure the enforcement of the provisions of Section 109 of PIA, 2021, the producers have equally responded to the regulator saying that conventionally oil production is funded through pre-export financing.

“This means that crude has been pledged for funding and the whole transaction is guided by the ‘Doctrine of the Sanctity of Contracts’. The parties already agreed that the licensees would pay the cost of the development and they explained to the commission that most of the funding was provided by traders at a mutually agreed price.

“Aside that, producers equally reported some operational challenges on the part of refiners which the NUPRC has consistently defended local refiners.

“In fulfilment of the NUPRC mandate to enforce section 109 of the PIA, the NUPRC has ensured that international standard practices are followed in a manner that will not scare investors and further worsen the already weak revenues from crude oil,” the commission said.

However, in the pursuit of its mandate, the NUPRC noted that if it becomes necessary for the NUPRC to withdraw licenses, the commission will do so but it will not resort to the ‘presumptuous and arbitrary’ withdrawal of licenses because of sanctity of contracts.

The regulator pointed out that as a subject matter expert, it was of the opinion that arbitrary revocation of licenses was not in the best interest of the country, particularly in the era of low investment arising from the onslaught in energy transition.

“While our dear President, Bola Ahmed Tinubu, has been vacating entry barriers to investment in oil and gas sector and introducing incentives to attract investments, it is now left for Nigerians to decide whether it is strategic for the NUPRC to apply ‘extreme penal regulatory measures’ in the enforcement of domestic supply obligations.

“This is especially in the era of low investment, low production, low oil revenues and onslaught of energy transition with the defunding of fossil fuel,” the commission added.