FG must come up with regulation to checkmate Dangote refinery business plan- Odetola

In the light of the $997million technical support grant received by Dangote Group from the United States Trade and Development Agency, USTDA, for the company’s $9billion refinery there has been an array of reactions.  Mr. Seyi Odetola, a public affairs commentator, based in United Kingdom, UK, in his own chat with OREDOLA ADEOLA, flayed the idea of near monopoly which the development signifies; he also spoke on other issues. Excerpts
What is your view on the proposed Dangote Refinery?

As much as the private efforts of Dangote Group of companies is a welcome development, Nigerians and the government must begin to think ahead of what this new development would mean to the country’s energy industry. If the country’s daily consumption is put at 420,000 barrels, by implication the proposed greenfield refinery by Dangote Group, will deliver all the country’s local needs consumption and possibly export the remnant to foreign countries which is good omen for Nigeria and Nigerians.

Do you doubt the core benefits of the projects to the country’s economy?

The coming on board of daily 690,000 barrels refined locally in Nigeria will surely come with many benefits. This was identified when the MOU was signed by the USTDA and Dangote Group of Companies. Ms. Dehab Ghebreab, the Acting Consul General, US Consulate in her remarks during the signing of the MoU, identified that the refinery could make Nigeria a haven of miraculous economic growth within the next five years. If properly managed will surely change the face of the country’s economic outlook. It is opined that the refinery project which will not only produce PMS but will produce all forms of crude oil derivatives like jet fuel, kerosene, diesel and many other by-products of crude oil. It would also produce fertilisers and petro-chemical products like plastics etc which we need for industrialisation. The project is a-win project with many benefits.

It will help to conserve $120billion in the aggregate Nigeria uses to import PMS, diesel, kerosene, Jet fuel, fertilizers and other petro-chemical products.  It will generate a compound employment close to about 2million year-in-year out over 10-year period, creating 20million direct and indirect employment. It will fetch the economy in the average $10billion in taxes which would be generated from Dangote directly and other affiliate companies. The export of the remnant between the refinery capacity which is 690,000bpd and our local consumption which is 420,000bpd would generate in the average $12billion per year in inward forex thus making our naira to be stable.  The coming on stream of locally manufactured fertilisers would boost of agro-allied sub-sector and enhance our agriculture sector thus conserving our forex and firming our Naira. In fact, the more I look at the project, the more I saw many of the benefits that are enormous thus helping to change Nigeria for good hence, a Nigeria of brighter future is visible and realisable to us all NOW.

How would Nigerians fair under the project?

With the present arrangement, there is still doubt whether the impact would not have some underlining challenges. The concern is, why an agency of the United States would grant free $997million to a near ‘monopolistic’ project without advising our government to critically look at the negative implications of this monopoly? This is very suspicious.

Across European Union and the US, the governments have phobia for monopoly powers and they do anything and everything within the legal power against any company wanting to assume that monopoly position.

In fact, it is a written law across the Atlantic that no one company must have more than 30% share dominance of the market in the sector of domicile. Recall that when AT&T, an America telecommunication giant wanted to takeover MCI in the late 90s, the US and EU regulators objected despite the fact that the merger of the two companies would not even amount to 30% of the US and EU market. But the share dominance and spread of the companies raised serious eyebrow. The governments across the US and the EU fought against the T-mobile and Voda fone merging because such merger should had give the merged company 45% of the UK mobile market. There are catalogue of mergers across EU and the US that our regulators objected to and for the US to champion monopoly in Nigeria must be looked at with the highest level of suspicions.

What are your views on the United States’ interest in Nigeria?

Ordinarily, the US that is committing a free grant worth $997million or N224billion to a monopoly should be wearisome to us. We thought the US government would at best be advising our government, who doesn’t seems to understand the implications or at best indicate it does, about the security and the socio-economic implications of the downstream sector in the hand of a single individual monopoly. But because the US had seen a government that does not care and understands the implications of monopoly, it decides to step in and take advantage of the shortcomings and fill the gap promptly.

Our government is without policy on the negative side and evil of monopoly, hence, the US could only but support murders which she will never allow in her backyard. In order to fill the gap which exists, as a result of lack of clear-cut policy by our government, the US quickly ditched her life-long policy of standing on the side of reasonableness in order to prevent and out-play China from filling the gap and partnering with Dangote. The struggle for and partition of our economy was why the US jettisoned her long term principle of fighting against monopoly and the belief that if she didn’t step in and support this project which ordinarily isn’t bad but for the monopolistic tall order, China would usurp her, the US influence on the project, hence the urge to kick in and support the project before China comes in.

What is your assessment of the funding pattern of the refinery by Mr. Dangote?

As Aliyu Dangote always say: “…no 419 can defraud me because I have no money of my own, all our projects are presented to the local and international banks for financing and after due diligence, our projects more often than not passed stringent tests and financing are secured.”

So, when this Greenfield refinery project was mooted in the course of the 2011-12 subsidy removal debate and the extension of award licences to indigenous firms to build refineries, we thought the monopoly of NNPC will soon be in our past but we were wrong. Little did we hear about the capital outlay needed to build these modular refineries and the lack of capacity from the licenced firms to raise funds did we come to the conclusion that we celebrated so soon.

When we later heard about Dangote shopping for funding where other failed and that he secured $9billion to build 690,000bpd, every right thinking Nigerian began to think, not again. Dangote succeeded to line up local and international bankers to finance the refinery project to the tune of $9billion.  He asserted that the local banks could not come up with the total value, or put it this way, the local banks could only fund $3billion hence the need to get $6billion. The US banking sectors considered all the ramifications and saw huge investment-returns opportunities and quickly dangles the balance before the company and the rest is history. Having provided Dangote the difference, the US is thus working contrary to her principle, hence the need to ring-fence the investment at this period and the US government kicked in to protect her investment banks funding and financing. The grant of new near $1billion was a showcase of the US support for the project which would thus make the US government to influence the position of the Federal Government only to see to the need not to re-visit the mistakes so made:  Not having a position against the monopoly power the refinery will create. This paying our government to be blind to the near monopoly powers if we are to put mildly.

Could the FG act otherwise about the project amidst the failed licences given to other thirteen refineries?

The refinery sub-sector and its importance to the Nigeria corporate futuristic existence should have informed the former President Goodluck Jonathan, on the need to have gone beyond awarding of licences to the thirteen firms. These firms so licenced, told the world of their inability to raise funds to finance the modular refineries they were supposed to build, yet, the FG who had the leverage, refused to come to their aid but rather continued spending similar amount of monies to subsidise 1 per cent of the downstream sector, PMS importations and the fraudulent subsidy. The fraud that became public in 2012 which the PMS subsidy gulped was close to the monies needed to build a whole lot of the refinery capacity which Dangote thus sourced from the local and international banks, yet, our presidency didn’t see the security need to leverage these monies and fund modular refineries through structured financing. It was posited that the presidency ought to have leveraged the $9billion and supported the licenced firms to deliver the modular refineries that we need which would had produced a bigger and better benefits than what Dangote Greenfield refinery is producing.

What would be the impact of this project on the setting up of modular refineries?

The government should have allowed modular refineries to fly to mitigate against possible impact of saboteurs. Encouraging this dispersed refineries to come on board, would have saved the country from the cost of moving products across land, thus saving man-hours, reinforcing health and safety issues that revolve around petroleum tankers accidents and likely ability to withstand the impact of sabotage which may be targeted against the mega refinery facilities. If for instance, the Greenfield refinery with the capacity of 690,000 was attacked and sabotaged today, impact would affect the refined capacity.

Diverse and modular refineries would be able to withstand the shock of sabotage and still cover parts of our refined needs, even if some of the refineries were attacked. Modular refineries would produce more local and regional employment thus helping in championing regional developments. Modular refineries will surely create more skilled and unskilled jobs than a standalone mega refinery such as we have in the case of greenfield.  It would had be reasonable, wise and economically prudent for the government of GEJ to have gone out with all zeal to leverage the $9billion needed to produce 700,000bpd refined capacity which at least the thirteen licenced firms should had benefited from it. We are thus left at the mercy of Aliyu Dangote who will hold this country perpetually down in the years to come through his mega refinery.

Is it too late for the FG to coordinate activities in the downstream sector?

I don’t think it is too late for the government to engage the industry, Dangote on regulation. The FG must come up with regulations to check-mate Dangote refinery business plans so that our national and security interests would be preserved. The FG could not resist the siting of the Dangote mega refinery now but it could come up with regulations that will rein in the powers of monopolies that Dangote will assume and enjoy when the construction of the site finishes in 2018. The government should possibly get the refinery to be listed and Mr. Dangote, to imbibe private investors through shares sales. The share ownership should be tilted in a way that the ownership mix should be Dangote- Creditors-Share holders(30-20-50) respectively. It should also get the refinery to set out the distribution plans which must include pipeline investment.

The investment in pipeline would reduce the pressures on our road network and curb accident across the country which is brought about by the petrol tankers. It should also get the refinery to be transparent in the pricing…and prevent any price-fixture common in duopoly situation like what the NNPC and Dangote refineries will deliver. The FG must activate the NNPC refineries and get them to produce at least on 70% refining production capacity…a precursor to privatising the refineries. The government must leverage the remaining twelve licenced refinery firms to establish modular refineries across the regions.

The FG must as a matter of policy get other operators besides the mega refinery capacity of Dangote to produce a total of 700,000bpd which will equate Dangote refinery capacity. The benefit of this is to negative the monopoly powers of Dangote refinery in case the refinery decided to hold us to ransom which Aliyu Dangote does occasionally with his existing companies like the cement factory and flour mills.

What is the way out?

I believe if the presidency could follow this pathway of suggestions so proffered, our dependency on Dangote refinery capacity will be neutralised and the national interests would be preserved hence, helping us enhanced our security exposure to the variance, whims and caprices of Aliyu Dangote in the future time. The presidency cannot allow this Dangote refinery to go on without challenging it. The presidency must realise that the Dangote refinery should not be celebrated but be seen as a challenge and a big one for that matter. Yes, based on the benefits of the refinery, the nation would be in an advantageous position but to juxtaposed the benefits on the larger picture, I believe the totality of the frame would not augur well for us as a people and a country. We cannot dismantle the monopoly as a government and people, we cannot stop the construction of the mega refinery now because it is a plus to our economy but we must situate our efforts to enable other refineries to come in with at least 50% of the market capacity of Dangote refinery so as to tilt the powers away from Dangote and balance the supplies of our energy needs. No nation should rejoice in placing her energy security in the hands of a singular individual. The US, the UK, Europe etc know and understand that. Nigerians must understand that as well.