The New Dangote Refinery and the Road to Nationalization

By Chuks Emele

Outgone President Muhammadu Buhari was in a celebratory mood when he declared open the 650,000 barrels per day Dangote Refinery and Petrochemicals plant in Lagos on Monday. Yet, he should’ve been sad and sombre.

Aliko Dangote, Africa’s richest man, had just opened up another business opportunity built on the failings of successive governments, including Buhari’s administration. The first time a refinery opened in Nigeria was in 1966, and the last time was in 1985. Its importance was underscored by the presence of Buhari and members of his government as well as the presidents of Ghana, Senegal and Chad.

As the output of crude, which Shell first began pumping in 1956, gathered pace, Shell built the first refinery in Port Harcourt in 1966. This was later taken over by the government in the wave of nationalization that followed the end of the 1967-70 civil war as it sought control of the commanding heights of the economy.

Other refineries followed in Warri and Kaduna, with a second plant added at the Port Harcourt site in 1985, while Buhari was Nigeria’s military ruler. Altogether they had a combined capacity for 445,000 barrels of oil daily, enough to met the country’s daily fuel consumption.

From left to right: Dangote, Buhari, President Akufo-Addo of Ghana, President Sall of Senegal, President Bazoum of Niger and President Gnassingbe of Togo at the refinery launch.
Over the years, as corruption and inefficiency bit deep into the fibre of the state oil company, the performance of the refineries deteriorated leading to shortfalls in output that were covered by imports. The result was that since the early 1990s, imported fuel accounted more for domestic fuel use than local refining. Throughout Buhari’s two terms in office, Nigeria depended almost entirely on imported fuel.

When Dangote first mooted the idea of the plant in 2013, it was in the face of frequent shortages, a fuel-imports system riddled with corruption run by the Nigerian National Petroleum Company, and existing refineries, perhaps, deliberately rendered moribund. There was evidence that a cartel was using the pretext of fuel imports to rip off the country through fraudulent fuel-subsidy payments.

Now the Dangote refinery is seen as a lifeline by a government weighed down by a self-inflicted but unsustainable subsidy regime largely powered by corruption.

With a capacity to meet all of Nigeria’s needs and spare for export, Dangote’s new refinery should be able to deliver fuel to the pumps without the shipping and other logistic costs related to imports.

The plant will also be taking up a sizable amount of the country’s crude output at a time demand is cooling among traditional buyers in Europe, North America and Asia as fossil-fuel use declines and renewables surge. This aligns with a new strategy by the NNPC to play more in the refined-products market in order to put its oil to better use.

Yet, it would seem that as old problems are being solved, new ones are being brewed. The refinery won’t necessarily bring down fuel prices since its founded on the principle that fuel subsidy must be scrapped and prices liberalized in order to turn some profit.

Ultimately, the Dangote Refinery, the biggest single-train refinery in the world, will be a company too powerful for any government’s comfort, giving the vital role of energy in driving any economy. It’s a discomfiture that even the Buhari regime has shown through NNPC insisting on acquiring a 20 percent stake, while being shy to build its own refining facilities all these decades past.

As Nigeria’s traditional buyers increasingly walk away from its crude in the coming years amid the energy transition and competing suppliers, the strategic importance of the refinery will grow as a key taker of the country’s crude. With the coming on stream of more local refiners, Nigeria will be in a strong position to dominate the African and nearby markets for refined products for the foreseeable future.

The Dangote Refinery, in the circumstances, will be too powerful that whenever it sneezed the whole political-economy would shudder. It also requires that Dangote be friendly with any and every government in power. Any falling out with a future government could easily put the refinery on the road to nationalization.

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