Dangote: The untold story

By Sunday Michael Ogwu
The name Aliko Dangote does not require a key, either smart or analogue, to open the doors to most of the 54 African countries.

The industrialist, who has been Africa’s richest man for years, has ventured into various sectors over the past three decades before finally taking the challenge of building an oil refinery.

Nigeria, despite being a major exporter of crude oil in Africa, does not have a functional refinery to hone its crude. This has caused the country to continue to spend billions of dollars on importation of refined petroleum products.

Aliko Dangote has before now, been into the manufacturing of cement, sugar, noodles, and fertilisers, among other valuable products.

Allegations of monopoly most unfair – Dangote
Over time, he has been accused of exhibiting monopolistic tendencies. He is seen to be taking advantage of his closeness to “his friends in power” to corner various privileges like waivers to enhance profits for his various businesses. However, the recent controversy over the operations of the Dangote Refinery has opened a new vista. A lot of Nigerians believe that though he is human and therefore imperfect, the aggressive tactic of the regulators in the oil and gas industry in handling some issues of disagreement between the government and the Dangote Industries Limited (DIL), reeks of subtle push to promote some “vested interests”.

This development happened at a time when a video of the current British Prime Minister, Keir Starmer, went viral. In the video, Mr Starmer is seen expressing regrets at the way corruption, as well as certain actions and inactions of some vested interests have stymied the growth and development of Nigeria, a country he said, has the greatest potential to not only be the leader in Africa, but also one of the leading nations in the world.

The story of Nigeria’s many battles to sustain local refining is all too known by the average Nigerian. Successive governments have pumped in billions of Naira with no tangible results to show for those expenditures.

The absence of a fitting refinery has seen the country also fritter resources under the guise of fuel importation, fuel subsidy and crude swap.

Absence of petroleum refinery and attendant costs to Nigeria
Nearly 70 years after the discovery of crude oil in commercial quantities, Nigeria’s oil and gas downstream sector is yet to develop to expected levels.

The federal government spent N12.05 trillion on maintenance and rehabilitation of refineries, as well as fuel subsidy under the President Muhammadu Buhari administration, more than enough to build a brand new 650,000 barrels per stream day (bpsd) refinery, the like that Aliko Dangote has built.

Such a new refinery would have been bigger than the three moribund refineries built many years ago by the Nigerian government. Over time, the refineries had guzzled billions of naira in the name of “upkeep”, yet cannot produce enough refined oil to meet the country’s domestic consumption needs.

The four refineries have a combined 445,000bpsd capacity. Port Harcourt refinery complex (old and new site) has 210,000bpsd, Warri has 125,000bpsd and Kaduna has 110,000bpsd capacity.

The collective failure of the refineries has forced the oil-rich Nigeria to depend on importation of refined petroleum products after exporting the crude.

Sadly, a large chunk of dollars accruing to Nigeria is being used to import the refined oil for domestic use, obstructing channelling of the funds to social and economic development of the country, the largest on the continent in terms of population. Nigeria is projected to have over 220 million people.

According to the 2023 full-year foreign trade data, Nigeria incurred about N7.5 trillion in fuel import costs throughout 2023, compared to N7.7 trillion in the previous year. Using the 2023 exchange rate, the country spent approximately $7.7 billion on fuel importation in that year.

The importation of motor spirit, also known as petrol, has cost Nigeria a staggering N23.5 trillion over the last five years. Fuel importation proved particularly costly for Nigeria in 2022 and 2023, with a combined expenditure of N15.2 trillion—more than half of the total cost incurred in the last five years.

Shining examples from far and near
There are 18 oil-producing countries in Africa, based on March 2022 data by Trading Economics, a global market website. Nigeria is the largest of them with 1,238 million bpsd oil production, overtaking Libya (1,220mbpsd). Angola is the third, Algeria is fourth and Egypt is fifth (562mbpsd).

The rest, comprising Congo DR, Gabon, Ghana, Equatorial Guinea, Sudan, Chad, Cameroon, Ivory Coast, Tunisia, Congo Brazzaville and Niger Republic, have less than 500,000bpsd oil production each.

According to a McKinsey Refinery Capacity Database Report of 2020, there were over 600 operating refineries around the world as at the beginning of 2017. As of 2020, 20 African countries had refineries, with some having more than one.

The McKinsey data revealed that Antwerp city in Belgium hosts the three refineries with 767,000bpsd that Nigeria patronises. These Belgian based refineries are owned by ExxonMobil (307,000bpsd), Total (350,000bpsd) and Gunvor (110,000bpsd), and both Mobil and Total are International Oil Companies (IOCs) operating in Nigeria in a joint venture with the Nigerian National Petroleum Company (NNPC Ltd).

In Africa, Morocco does not produce oil, but has a 200,000bpsd refinery; same with Zambia with no oil, but has a 12,000bpsd refinery.

Although Egypt is the fifth oil producer, it has nine refineries with 800,000bpsd, being the largest refining capacity on the continent. Algeria, the fourth largest African oil producer has five refineries, refining 671,000bpsd. Libya, the second producer also has five refineries with 380,000bpsd. Angola, the third largest African oil producer has one with refinery capacity of 65,000bpsd.

Niger Republic, Cameroon, Ivory Coast, Ghana and Liberia’s combined oil-producing capacity is less than half of Nigeria’s oil-producing capacity, yet they each have at least an operational refinery.

Dangote’s ‘monopoly’
The accusation often touted by some Nigerians and government officials about Dangote’s monopoly in all his areas of business is not supported by data. In the cement industry, for instance, before the coming on stream of the Dangote Cement, there was Lafarge Holcim.

Lafarge was incorporated on 24th February, 1959, and listed as a publicly quoted company on the Nigerian Stock Exchange on the 17th of February, 1979.

There were also Sokoto Cement, Benue Cement Company (BCC) and Ashaka Cement in Gombe State. All three became moribound at some point and were acquired by BUA, Dangote and Lafarge respectively.

The cement manufacturing sub-sector today has three major players: Dangote Cement, which started manufacturing in 2007, has three fully integrated cement plants of 32.3 metric tonnes per annum (mtpa) located in Obajana, Ibese and Gboko.

BUA Cement is Nigeria’s second-largest cement producer with a current installed capacity of 11 million mtpa.
With plants in Ewekoro and Sagamu in the South-west, Mfamosing in the South-south and Ashaka in the North-east of Nigeria, Lafarge Africa Plc currently has an installed cement production capacity of 10.5mtpa.

Sugar
The data available in the Sugar space also show that there are three major players namely the Flour Mills of Nigeria Plc, owners of Sunti Golden Sugar, BUA Sugar Company, Lafiagi, Kwara State and the Dangote Industries Limited, owners of the Savannah Sugar Company, Numan, Adamawa State.

The Dangote refinery conundrum
The commissioning of the Dangote Refinery by the Buhari administration was greeted with a sigh of relief for most Nigerians, especially given that the government-owned refineries have refused to rise from the dead. The wait for the completion has been “forever” for many Nigerians, in view of the desperate desire to have a solution to the punishing fuel queues that often suffocate the economy, causing untold hardship to citizens, as well as the frequent increases in petrol pump price. The refinery project was first announced in 2013 at an estimated cost of $9 billion. By the time major structural construction began in 2017, the cost had ballooned to about $19.5 billion.

The anxiety shown by Nigerians towards the completion of the refinery was understandable. Analysis by experts suggested that the refinery was more than able to meet all of Nigeria’s domestic fuel consumption, which is about 450,000 barrels per day, while the excess production would be available for export.

Reports indicate that the Dangote refinery could earn Nigeria foreign exchange savings of between $25 billion to $30 billion yearly. The impact of such savings would be directly reflected in Nigeria’s foreign exchange reserves by reducing the pressure on the country’s balance of payments.

According to former Central Bank of Nigeria (CBN) governor, Godwin Emefiele, under the current Bola Tinubu administration, Nigeria will cease importation of petroleum products, fertiliser and petrochemicals that drained the country of over $26 billion in 2022, once the Dangote refinery fully comes on stream. He opined further that the refinery will have an enormous impact on job creation by generating thousands of direct jobs, and millions of indirect ones, with over 135,000 permanent jobs for Nigerians. He also stated that the project will generate up to 12,000MW of electricity.

Thus, Nigeria is on the verge of once again being described as a net exporter of refined petroleum products, courtesy of one individual.

Enters the twist
Ahead of the commencement of refining, on December 8, 2023, Aliko Dangote announced receipt of its inaugural one million barrels of Agbami crude grade from the Shell International Trading and Shipping Company Limited (STASCO). The refinery also received four shipments of one million barrels of bonny light crude supplied by the NNPCL.

Not long after, news broke that Dangote had resorted to importing crude from as far as Brazil and the United States, and is also looking to other African countries to source for more feedstock.

The Dangote refinery, according to one of its senior executives, was in talks with Libya to secure crude for the 650,000 barrels per day plant, and was also seeking Angolan oil, to overcome problems with domestic supplies.

That clearly hinted of a major impediment to the operations of the refinery, part of which is largely attributed to suspected sabotage by certain vested interests within the regulatory arm of the Nigerian oil and gas industry.

Since Dangote began operations in January, Weekend Trust gathered that it has been unable to get adequate crude supplies in Nigeria.

In May, the company put out a tender for two million barrels of West Texas Intermediate (WTI) Midland crude every month for a year starting in July.

Speaking at the Africa CEO Forum 2024, Dangote outlined his strategy, saying the refinery would purchase 24 million barrels of West Texas Intermediate (WTI) crude, despite ongoing domestic supply. “Twenty-four million barrels is nothing,” Dangote said in an interview with The Africa Report. “It’s roughly about two cargoes [deliveries] in a month, which is about 10% of our demand at full capacity”, he added.

The reliance on imported oil, particularly WTI, is economically prudent for the refinery at present, Dangote explained. “It also makes economic sense for us to tender for crude. If [we could source] 100% Nigerian crude, then fine, but we can’t wait.”

But trouble started when Dangote publicly alleged a conspiracy by the IOCs to deliberately frustrate the refinery’s ability to buy local crude oil by manipulating and increasing the premium price above the market price.

Feelers from behind the scenes
A senior management source from the refinery who prefers to be anonymous said the major impediment is around crude supply, pricing of the crude and lack of institutional support from the regulatory body to compel the IOCs to meet its obligation as required by law. The source also raised concern about the conspiracy theories about who Aliko Dangote supported or did not support during the 2023 presidential elections. “You all reported how operatives of the Economic and Financial Crimes Commission (EFCC) stormed the headquarters of Dangote Industries Limited in Ikoyi, Lagos, earlier in the year in relations to the ongoing investigation into the alleged abuse of the foreign exchange allocations by the immediate past governor of the Central Bank of Nigeria.

How do you explain the ‘gestapo’ invasion and the disruption of the business operations of the company where there was no prior resistance?”, the source queried.

The source also said the refinery has substantially met all globally accepted standards and has commenced exportation to highly regulated regions of the world. “So, how can the Nigeria Upstream Petroleum Regulatory Commission (NUPRC) say we are not ready?

“The accusation that we are trying to create a monopoly was the most laughable. What has happened to the existence of Warri, Port Harcourt, and Kaduna refineries, and the array of modular refineries?,” he asked.

How NMDPRA contemplated ban on diesel
Another senior management source at the Nigeria Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) said the agency’s chief executive’s remark that the Dangote refinery was not ready was not out of place. The source said: “Remember that the commissioning was done in May, 2023. There are different levels of completion. Some things were at 90 per cent, others were at 50 or even 30 per cent.

“So, the commissioning was rushed because of the push by the immediate past administration. We had to backdate some of the approvals because some of the fabrications were done without approvals. But we have been walking back to do what is expected of us as a regulator because we know what is at stake for the country.

“But we have been receiving attacks from the refinery with unsubstantiated claims. We have been going to the joint committee of the National Assembly on account of the various accusations in the past weeks”, the source said.

Commenting on the allegations about monopoly, the source said: “We have come under intense pressure to ban importation by marketing companies. We have also received threats from the major marketers that they cannot at this stage completely rely on the (Dangote) refinery for supply.

“Let me shock you; we had already written the circular for the ban of diesel importation. We had to revert after listening to the Major Marketers’ argument, and the need to leave all channels open for now”, the source said.

Crude swap agreement impedes NNPCL’s feedstock supply to Dangote refinery
Senior sources at the NNPCL said they have shown absolute faith in the refinery in the interest of the nation and more importantly because Dangote has shown considerable faith in Nigeria, and as such must be supported despite all challenges.

On the inability to supply crude to the refinery, the source said: “The truth, which every major player in this space is aware of, is that these Joint Venture agreements reached years before the coming on stream of the (Dangote) refinery, is constraining on our part to meet Dangote’s request.

“On the failure of the IOCs to also meet their demand, we are not in control of whatever the IOCs will do with their own share of crude in the JV”, the source added.

The NNPCL swapped nine million barrels of oil, valued at $755.74 million under its direct sale, direct purchase arrangement (DSDP) in November 2023.

The way out
Investment Banker, Joseph Edgar, in his intervention said: “Dangote refinery is our only real ‘agbado’ on the fire. It is the only investment of its size that we as a nation have attracted ever and in the foreseeable future. As such, all stakeholders must come together to make it come on stream.

“My suggestions to Dangote are to immediately, as he has said, list a certain percentage of its shares on the (stock) market to ensure that Nigerians would also participate. This will push back harsh regulators who, from their utterances, see a personality instead of a bigger picture in all of these.

“It should also seek to sell its shares to a major IOC whose home government will now be pulled into the fray and whose involvement would weaken its supply issues.

“The Dangote Group is one of Nigeria’s largest employers of labour, its biggest private taxpayer, a major player in infrastructural development, and a powerful forex revenue earner among others, and this is why all hands must be put on deck to ensure that these ‘teething’ problems are resolved in a transparent and professional manner”, he added.

A chief executive officer of a leading company in Nigeria, who prefers anonymity said: “We have elevated public officials who lack the spine, industry and perhaps intellect to create sustainable businesses but slither from one government position to another, freeloading and amassing stupendous wealth, to become too important to the extent that their actions and utterances cripple those who spend their lives taking risks, employing people and creating value.

“The refinery is a mere refinery to many. But in truth, it is a national reference point that proves massive projects can indeed be executed in Nigeria. Killing it simply kills the dreams, aspirations and investment opportunities for countless Nigerians.

“$20 billion (N36 trillion) is the amount we spend on total inflow of refined products coming into the country. This is what the government spends, paying foreign companies, to purchase refined goods. So, the loss of that potential revenue to Dangote is what is fuelling this crisis”, the CEO said.

Warts and all, most Nigerians would stick with Aliko Dangote, for what they see as his patriotism, and would wish, if President Tinubu is not backing those behind the perceived frustration of the business mogul, that the current heads of the NNPCL, the NUPRC and the NMDPRA are sacked swiftly, for their perceived roles in trying to undermine the Dangote refinery.