Dangote Oil Refinery: What does it mean for Nigeria and the entire African continent?
The expectations of Nigerians cannot be overemphasised, as the project has been on their minds for a long time. As Dangote Refinery and Petrochemical Company finally opened its doors for business, there was a lot to expect from it.
The Dangote oil refinery, appearing to be a “game-changer” in Nigeria’s efforts to stop importing fuel, was launched on May 22, 2023. The Dangote Refinery is an oil refinery built in Lekki, Lagos State, Nigeria, and owned by Alhaji Aliko Dangote, a multi-millionaire African business mogul.
Several West African heads of state were present when the former Nigerian president Muhammadu Buhari officially commissioned the refinery, which has a capacity of 650,000 barrels per day, in the Lekki free trade zone of the economic capital Lagos.
The refinery complex was built on 2,635 hectares of land in the Lekki Free Zone, close to the Lekki Lagoon and along the Atlantic Ocean coast. Lekki Free Zone is a part of Lagos with a projected airport, a start-up community, and commercial and residential sectors in which the refinery is located. The refinery’s location is favourable for quick transhipment of the finished petroleum products to foreign markets.
The $20 billion massive refinery constructed by the Dangote Group is designed to produce up to 53 million liters of gasoline, 4 million liters of diesel, and 2 million liters of jet fuel each day.
The refinery boasts intimidating credentials. It is the largest “single-train refinery in the world, with 650,000 barrels per day of refining capacity and a 900 kilo-tonne per annum (KTPA) polypropylene plant. It is powered by its self-generated 435 megawatts of electricity.” To emphasise how significant the event was, Nigerian former President Muhammadu Buhari led five other African presidents to unveil the project.
Speaking during the inauguration of the refinery, Dangote described “the refinery as the world’s largest single-train refinery.” stating that “We have built a refinery with a capacity to process 650,000 barrels per day in a single train — which is the largest in the world… We decided on a plant designed with state-of-the-art technology and a scale and capacity that will be a game-changer in Africa and the global market.”
“There will be constant availability of high-quality fuels for our transportation sector, and the refinery will also make available to our industries vital raw materials for a wide range of manufacturing,” Dangote noted.
How much was spent?
Dangote’s equity investment provided roughly 50% of the money needed to develop the refinery, with the remaining 50% coming from debt financing provided by banks including Access and Zenith, according to reports. The apex bank, the Central Bank of Nigeria (CBN), was also not left out. According to the Governor of CBN, Godwin Emefiele, there was funding support for Dangote during the construction of the refinery.
Many believe the Dangote Refinery’s completion and commissioning, as well as the financial support it received from the apex bank, showed the CBN Governor’s ability to back up his words with deeds regarding the bank’s support for the real sector in order to further the goals of monetary policy and enhance the lives of Nigerians through the bank’s professed “people-centred” policy.
The CBN Governor claims that the refinery’s initial estimated cost was around $9 billion, of which $3 billion was planned as an equity investment by the Dangote Group and the other $7 billion was financed by commercial loans.
However, a variety of variables led to the project’s eventual completion with $18.5 billion in funding, split equally between 50% equity investment and 50% debt financing.
The refinery “is more than able to meet all of Nigeria’s domestic fuel consumption, given its processing capacity,” the governor said, explaining further that “Nigeria can be self-sufficient in all products that we consume and at the same time export our excess output to the rest of the world.”
He said, “I am proud to state that the commercial loan component of the project was financed primarily by our domestic banks, with the balance sourced from foreign banks.
“The Central Bank of Nigeria also partnered, as always, with the Dangote Group in ensuring the successful completion of the project by providing about N125 billion to cover domestic currency requirements for the venture.” noting that the Dangote Group had started “repaying some of the commercial loans even before the commissioning of this facility.
He said, “I am pleased to inform everyone today that, following extensive repayments, outstanding debt has dropped appreciably from over $9 billion to $3 billion. I must at this juncture appreciate all the participating local Nigerian banks, who did not only partner with the project through effective financing but were keenly aware of the importance of the project for our nation. They provided immense support and exceptional understanding, even when interest payments and principal repayment had fallen due.”
Expectations from the refinery
The expectations of Nigerians cannot be overemphasised, as the project has been on their minds for a long time. As Dangote Refinery and Petrochemical Company finally opened its doors for business, there was a lot to expect from it.
Nigerians have long aspired to resume their status as net exporters of petroleum products. The Dangote Refinery has changed the game for the nation and brought with it benefits. In addition to the country’s savings from the exchange rate, it is anticipated that the strain on our foreign reserve will lessen, which could lead to a reduction in the exchange rate. There will likely be a significant increase in both direct and indirect jobs. As revealed, the process of refining petroleum also produces a wide range of byproducts such as asphalt, paraffin wax, propane, carbon black, petroleum jelly, and glycerin.
It is anticipated that the refinery would contribute to Nigeria’s end of the petrol shortage. The refinery, as per its capacity, can provide fuel to Nigerians at reasonable prices while still exporting internationally at market rates if it works with the Nigerian National Petroleum Company Ltd. It is also expected that Dangote Group might take the lead in carrying out subsidy reduction, as it can be accomplished through a plan in which crude is delivered to the refinery for local consumption at discounted rates.
According to the former director general of the Abuja Chamber of Commerce and Industry (ACCI), he stated that the “positive economic impact of the refinery will be felt in the short and long run. Even before production starts in July, economic activities are already springing up within and around the environment.
“Traction in the estate and property sub-sector and many related businesses” “The contribution of the oil sector to the GDP is expected to rise up to 20 percent from 6.21 percent currently.”
Also, the Managing Director/Chief Executive, SD&D Capital Management Limited, Mr. Idakolo Gbolade, noted that the “refinery has been projected to generate about 20 billion US dollars annually when fully operational, which will in turn end the scarcity of foreign exchange in the country and strengthen the Naira.
“The country will have adequate foreign exchange to fund critical import requests from manufacturing companies, and this will make them more productive, which will boost the economy.”
What the refinery means for Nigeria and the entire African continent
Lagos, the vibrant capital of Nigeria, is undergoing an unparalleled transition as a result of a number of megaprojects that are expected to drastically alter its environment and economy. These projects are spawning a surge of development and opportunity, from industrial endeavours to infrastructure improvements. One of these projects is the recently commissioned Dangote refinery.
The refinery will surely give Nigerian citizens the mastery of modern refining technology, and 900 engineers have been trained for round-the-clock operations. It also presents massive employment opportunities, as between 40,000 and 57,000 workers will be directly employed, while up to 300,000 Nigerians will earn their living doing business with the refinery.
It is an epoch-making achievement that will be a major foreign exchange earner for the country as it is strictly modelled for international business. Estimated to hold 37 billion barrels of proven oil reserves, Nigeria is the second-biggest oil-rich country in Africa after Libya.
Nigeria has always been dependent on imported refined fuel products due to a lack of domestic refining capacity. But with this leap, the Dangote refinery will double Nigeria’s refining capacity and help meet the increasing domestic fuel demand while generating foreign exchange through exports.
During the event, Ghana’s President Nana Akufo-Ado, who was also there, described the Dangote refinery as a “spectacular project” that “makes West Africa better and stronger.”
With a footprint of more than 2000 hectares, the refinery is seven times larger than Victoria Island, part of Lagos State. Some of Nigeria’s petroleum problems are anticipated to be resolved by the refinery. Nigeria lacks the ability to refine its oil, despite being an oil-producing country and one of Africa’s top oil producers.
Nigeria imports a significant portion of the goods it sells from countries like India, Belgium, the United Arab Emirates, and the Netherlands. According to OPEC, a group of major oil producers, between 2015 and 2019, the cost of importing refined petroleum products exceeded the cost of exports by $58.5 billion.
The issues Nigeria faces as a result of its limited capacity for refining include its annual billion-dollar expenditure on imports and its vulnerability to disruptions in the domestic fuel supply.
The Dangote refinery is important because it intends to address these issues by doubling the nation’s capacity for refining, raising internal fuel demand, and earning foreign cash for the nation through exports. The refinery’s significance will also be felt in the hinterlands of Africa upon its operation.
Forecast on Dangote refinery to stop subsidy and latest developments
The operation of the Dangote Refinery will cut importation of petroleum products and the evils of petrol subsidy. This was said during the 7th Triennial National Delegates’ Conference in Abuja by Comrade Festus Osifo, president of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN).
Also, according to the Nigeria Extractive Industries Transparency Initiative (NEITI), the Dangote Refinery will cease the importation of petroleum products and save Nigeria $7.3 billion expected for gasoline subsidies in the first half of 2023.
NEITI Executive Secretary, Dr. Orji Ogbonnaya Orji, described the inauguration of the $18 billion refinery as a huge national relief. “NEITI, as a member of the global Extractive Industries Transparency Initiative with domestic responsibility to enthrone transparency and accountability in the oil, gas, and mining sectors, is delighted that the Dangote Refinery is coming on stream at a time when public debates on the removal of fuel subsidies have taken centre stage in public discourse.”
He furthered in his statement that: “Apart from the huge revenue losses (NEITI’s Independent Extractive Industry Report on Subsidy Payments Between 2005 and 2021 disclosed over N13.7 trillion naira as having been expended on subsidies), capital flight, and other numerous challenges over fuel importation, the take-off of Dangote Refinery with 650,000 barrels of daily refining capacity will largely address Nigeria’s domestic demands for refined petroleum products within the short and medium term”.
However, the newly inaugurated president of Nigeria, Mr. Bola Ahmed Tinubu, declared the subsidy to be “gone” in his inaugural speech on Monday without providing any timeline or other information about the significant policy shift. His decision to end a decades-long subsidy on petroleum products has caused many filling stations to hike the price of gasoline, while others stopped selling altogether.
Despite the president’s clarification that the panic buying was “needless”, and the policy will not take immediate effect, some videos are being circulated online claiming that some petrol stations are raising prices—in some cases by more than 200%.
According to some economic experts, President Tinubu wants to relieve the strain on the government’s budget, but eliminating the subsidy will raise the price of gasoline and have a negative impact on other costs at a time when inflation is already high.
However, this did not stop many from buying in a hurry due to the fact that they were worried about the price of gasoline, which should be supplied at the legal price of 185 naira per litre. As of May 31, 2023, petrol prices are sold above the rate of 500 naira based on the circular released from the Nigerian National Petroleum Company Ltd.
The subsidy significantly depletes public funds. It consumed 4.3 trillion naira last year, and 3.36 trillion naira were planned for it in the first half of this year. President Tinubu declared that the situation was no longer justifiable and that the money would instead be used to build public facilities and enhance people’s quality of life.
However, a lot of Nigerians have long viewed the subsidy as one of the few benefits they get from the government. In response to widespread opposition to the previous removal effort in 2012, former Nigerian President Goodluck Jonathan had to change his position on the matter.
As the Dangote refinery is set to remove subsidies according to analysts and its foresight in boosting domestic production and growth for the benefit of the economy as a whole, the question is left on how the refinery will remove the subsidy upon fully kick-starting its supply.
All eyes are now on when the products of the Dangote refinery will be on the market and its mode of aiding Nigeria’s government to remove subsidies, although Mr. Dangote made known that “our first product will be on the market before the end of July or beginning of August this year.”
He reiterated his commitment that “we will replicate in this sector what we have achieved in the cement and fertiliser markets, where Nigeria transited from being the largest importer of these products to a net exporter.”
Educator, writer and legal researcher at Alafarika for Studies and Consultancy.