Dangote Refinery, NNPC Ltd.: Who Wins the Petrol War?

Nigeria’s fuel wahala has been making Aliko Dangote a very worried man. He was so worried he decided to put in about $20 billion of his cash where his worries were and established one of the largest modern petroleum refineries in the world.

This came after an initial attempt by Dangote and his friend, Femi Otedola to take over Nigeria’s moribund refineries was scuttled by President Umaru Yar ‘Adua after they were sold by president Olusegun Obasanjo.

With the completion of the Dangote Refinery, one would have thought that Dangote’s worries should have been over but alas!, a shocking series of ‘tribulations’ and and mudslinging have been coming in torrents from different quarters. His greatest worry is however, coming from those he has tagged the ‘fuel mafia’. Can Dangote survive the greatest battle of his corporate life…?

Dangote Refinery not selling PMS at N898 per litre – Official

Background

The Nigerian oil and gas sector, long seen as the heartbeat of the nation’s economy, is witnessing a crucial battle over control, pricing, and the future of fuel supply. At the center of this conflict is the newly established Dangote Refinery, a $20 billion megaproject owned by Africa’s richest man, Aliko Dangote, and the Nigerian National Petroleum Corporation (NNPC) Limited, which has struggled for decades to keep the country’s refineries operational. As fuel import dependency continues to plague the Nigerian economy, the question looms large: Is NNPC setting up Dangote Refinery for failure, and who ultimately wins the “petrol war”?

NNPC’s 28-Year Refinery Struggle

For nearly three decades, NNPC has repeatedly failed to deliver on its mandate of refinining petroleum products locally. Despite owning four refineries (in Port Harcourt, Warri, and Kaduna), Nigeria has consistently remained dependent on imported Premium Motor Spirit (PMS), commonly known as petrol. The combined output of NNPC’s refineries has been dismal, operating at far below installed capacities and often at zero production.

The failure to produce locally refined PMS, Aviation fuel and Diesel is rooted in various issues: lack of consistent maintenance (turnaround maintenance failures), corruption, outdated infrastructure, and political interference.

With this history, many skeptics question whether the NNPC, now a corporate entity following its transition under the Petroleum Industry Act (PIA), may undermine the success of Dangote Refinery. Although NNPC is a minority shareholder with initially a 20% stake (now reduced to 7. 2%) in Dangote Refinery.

There are concerns that the corporation could sabotage the project through bureaucratic hurdles, fuel import policies, or market manipulation. Given NNPC’s track record of poor performance in the refining space, could Dangote’s Refinery face a similar fate? Or will NNPC use its significant influence to challenge the refinery’s dominance by continuing to import fuel?

Aliko Dangote’s arduous Journey: Navigating Financing, Expertise, and Government Cooperation

Aliko Dangote’s path to building the Dangote Refinery has been nothing short of arduous. The refinery, set to be the largest single-train refinery in the world, was plagued by financing challenges, access to skilled expertise, logistical bottlenecks, and fluctuating government support.

Financing was a major hurdle—initially projected to cost $9 billion, the project ballooned to nearly $19 billion due to inflation, currency fluctuations, and rising equipment costs. Dangote had to secure loans from a consortium of international and local lenders, navigate complex international financial markets, and invest heavily in acquiring the technical expertise necessary to build a refinery of this scale.

The refinery’s dependence on imported materials, including equipment and technology, delayed timelines and increased costs. The challenge of sourcing reliable feedstock -crude oil- is also a concern, despite its prime location close to oil fields. Dangote’s refinery is expected to process about 650,000 barrels of crude oil per day, but securing a consistent supply at competitive rates is another key issue, especially given the shifting dynamics of global oil markets and the uncertainty with the local supplies due to capacity and policy issues.

While Dangote initially benefited from government support as has been in most of his previous projects, particularly under previous administrations eager to reduce fuel importation, the relationship between the Tinubu government and the billionaire has seemingly become strained over time.

Changing regulations, inconsistent policy frameworks, and the influence of vested interests in Nigeria’s oil sector have led to speculation that elements within the government may not be as cooperative as initially expected. Dangote has faced hostility, particularly as the refinery neared completion, with allegations of underhanded efforts by powerful fuel import cartels and state actors to de-market his project.

The Fuel Import Cartel’s Campaign: Attacking Dangote Refinery’s Pricing and Quality

One of the major threats to Dangote Refinery’s success comes from the entrenched fuel import cartel in Nigeria. For decades, these importers and their cohort have profited from the nation’s reliance on imported petrol, benefiting from opaque subsidy regimes and currency differentials that favor large-scale importation. Dangote’s refinery threatens to disrupt this lucrative status quo by reducing the nation’s dependence on imports and potentially stabilizing fuel prices over the long term.

The cartel’s response has been twofold: First, they have questioned the quality of products that will be produced by the Dangote Refinery, raising concerns about potential inconsistencies or shortcomings in the production of refined PMS. However, Dangotes has since debunked this a blatant lie! On the other hand Dangote has proven that the quality of his products meet premium international standards while it is indeed the importers who have over the years been supplying dirty fuels to Nigerians and damaging our vehicles and generators.

Second, pricing has been a contentious issue. The cartel argues that Dangote’s refinery, being the sole major player in local refining, could establish monopolistic pricing structures. They claim that Dangote could artificially inflate prices, making fuel more expensive for Nigerians despite the promise of local production. This is already playing out as Dangote Refinery’s products are being cast by NNPC and importers as being more expensive than imported fuel. Those who have taken this position however have failed to explain that imported fuel has always been subsidised (even when government have publicly denied doing so) while the fuel from Dangote is not subsidised.

NNPC, though a shareholder in Dangote Refinery, also has stakes in the continued importation of fuel, as it remains one of the major importers of petrol in the country. It has notoriously failed to meet its own deadlines to resume production of refined produscts after countless deadlines and billions of dollars down the drain.  This has led to speculation about a conflict of interest and whether NNPC will truly embrace local refining or continue to prop up the import cartel. There are concerns that NNPC’s dual role as both a shareholder in Dangote Refinery and a key player in fuel importation could lead to policy contradictions and an unstable fuel market.

Making Nigerians the Winners: Ensuring Fair Pricing and Seamless Supply

For Nigerians, the ultimate question is how to ensure that they emerge as the winners of this fuel war. The country’s fuel pricing has always been a sensitive topic, with the government’s subsidy regime being a double-edged sword. On one hand, subsidies have kept petrol prices artificially low for consumers; on the other, they have drained government revenues, fueled corruption, and kept the nation in a cycle of import dependency and energy insufficiency.

To make Nigerians the true beneficiaries of local refining, several steps must be taken. First, there must be a transparent pricing mechanism that reflects market realities while considering the nation’s GDP and minimum wage. Critics have long queried the opaque and alleged clandestine operations of the NNPC as it concerns fuel imports and the subsidy regime. This could involve introducing a regulated pricing framework that allows for fluctuations in crude oil prices but caps excessive profiteering by either Dangote, the government or any other local refinery. This would ensure that Nigerians are not subjected to exploitative prices due to monopolistic tendencies or supply chain inefficiencies.

Second, the government must prioritize stable and consistent fuel supplies by incentivizing local production. This includes creating policies that support not just Dangote’s refinery but other potential local refiners, fostering healthy competition and ensuring that no single entity holds too much power over fuel pricing and supply.

Third, a phased withdrawal of sbsidies need to be introduced as the current practice of astronomical increase is killing the economy, stifling growth, impoverishing the citizenry and greatly increasing suffering. It is critical at this point to work out a well thought out marshall plan to save the country from the brink of collapse.

Finally, the government and stakeholders must ensure that fuel distribution networks are modernized and efficient. The current infrastructure for fuel distribution in Nigeria is fraught with bottlenecks, from pipeline vandalism to poor logistics. A seamless supply chain, bolstered by local refining capacity, will be critical to avoiding the perennial fuel shortages and long queues Nigerians have endured for years.