Dangote Refinery under construction

…as petrol price skyrockets


With the recent jump in the price of premium motor spirit (PMS), from N143 to N161 and the prediction that it may likely increase further, Nigerians are more than ever before hoping that the hardship may be minimized when the Dangote Refinery commences operations.

Although the hike in pump price of fuel was not unexpected after the federal government proceeded with the full deregulation of the downstream petroleum sector on June 4, 2020, with the removal of existing cap on fuel prices, they expressed shock at the percentage of increase.

By total deregulation, the price of petrol will now be determined by the price of crude in the international market, which implies that it will be dictated by market forces unlike what obtained under the subsidy regime.

While total deregulation is a burden to the masses, who now have to pay more at least in the short-run, it is a relief to the government as it will enable it save huge subsidies. This was acknowledged last week by the Minister of State for Petroleum Resources, Timipre Sylva, when he estimated money spent on subsidy at trillions of naira since the beginning of the new regime.

The fact that crude price at $46 per barrel just pushed petrol price to N162 implies that as crude price rises in the international market, petrol price in Nigeria will go up, perhaps far beyond the current level.

Although experts, at the moment, cannot say how high price could go, they are of the opinion that the situation is made worse by the fact that Nigeria does not refine crude locally, and so to depends on importation of petrol, thereby adding more cost to the price in terms of export, refining and shipping back.

They say where crude to be refined in Nigeria, the shipping cost would have been eliminated thus lowering price. This, perhaps, is the gap Nigerians expect the Dangote Refinery to fill as their only hope in the nearest future.

Even the Independent Petroleum Marketers Association of Nigeria (IPMAN), shares the optimism that the $18 billion Dangote refinery will boost the country’s foreign investment and crash the price of petrol and other fuels when it finally comes on stream.

The Western zonal chairman, Alhaji Debo Ahmed, had in an interview in Lagos in 2017, expressed the optimism against the backdrop of arrears of N800 billion government owed marketers on subsidy at the time.

Ahmed said the multi-billion dollar project, when completed, would finally address the challenges facing the downstream sector of the oil and gas industry and also aid the nation’s economy.

He said, “The refinery, when completed, would save the country billions of dollars foreign exchange on petroleum product importation and also create foreign exchange earning to Nigeria from the savings.

“The refinery would also complement the existing refineries in the country to boost refined products and would crash the price of Premium Motor Spirit (PMS) because the product is refined in the country.

“Therefore, it will save some costs incurred in the import market and crash price of petrol in the market.’’

Ahmed, however, appealed to the National Assembly to expedite action on the passage of the Petroleum Industry Bill (PIB) that would reshape the oil and gas industry.

How soon is the rescue?

In July 2017, major structural construction began at the project site, and Dangote Group estimated that the refinery would be “mechanically complete” in late 2019 and commissioned in early 2020.

The refinery deadline was postponed to the end of 2019, after a change of location and Nigeria’s inefficient ports in Lagos where most of the equipment needed for the construction work would come through. Estimated to cost about $18billion, the refinery will produce Euro-V quality gasoline and diesel, as well as jet fuel and polypropylene.

BusinessHallmark learnt that the Dangote Refinery, which was 75 percent near completion as of March, 2020, had its completion date moved to 4th quarter of 2020 because of coronavirus pandemic.

Upon completion, the Dangote Refinery, which is situated on 6,180 acres (2,500 hectares) of land at the Lekki Free Zone in Lagos is expected to be Africa’s biggest oil refinery and the world’s biggest single-train petroleum facility.

The refinery will be able to process 650,000 barrels of crude oil per day into refined petroleum products, thereby placing Nigeria on the list of oil refining country, not just an oil exporter. Local fuel consumption is 54 million litres per day or over 600 bpd. Nigeria currently imports most of its refined petroleum due to lack of domestic refining capacity in the country.

However, experts say with the Dangote facility, Nigeria’s refining capacity will double and help in meeting the increasing demand for fuel while providing cost savings.

The Petroleum Products Pricing Regulatory Agency (PPPRA) recently stated that Nigeria imported 19.2 billion litres of petroleum products in 2019, while the country’s refineries produced only 166.33 million litres of Premium Motor Spirit (PMS) also known as petrol, in 2019.

Consequently, the Nigerian National Petroleum Corporation (NNPC) noted that the federal government paid N752bn as petrol subsidy in 2019, equivalent to 62 percent of the amount spent on capital expenditure in the year (N1.2trn).

The executive director of Dangote Group, Devakumar Edwin, has confirmed that the oil and gas refinery remains on track and would be operational in early 2021 despite the disruption caused by the COVID-19 pandemic. Speaking to ‘the African Report,’ he said: “The impact of the delay will be ’45 days max’ as complete closure, which would have meant a delay of up to 90 days was avoided.

“There have been some reductions in staffing because of the need for social distancing, but work has been continuing. Almost everything needed to complete the project has already been procured,” he said.

According to him, “My focus is to sell it in any part of the world. I am ready for all the markets. The volume is so large obviously I can meet the requirements of all the products of Nigeria and I will still have surplus to export.”

Located at Lekki Free Trade Zone along the coast of the Atlantic Ocean, The Dangote Refinery will allow for smooth transshipment of refined petroleum products to international markets, and ultimately eliminate the overreliance of fuel import from other regions into Nigeria.

Commenting on the full deregulation, founder of Stanbic IBTC Bank Plc, Dr. Atedo Peterside, advised the federal government to stop making pronouncements on the price of petrol.

Peterside, who took to his Twitter page, said, “If you want to make a phone call it is the telecoms operator that will tell you the tariff. It is the petrol station attendant that should tell you the price of petrol,” he said.

On his part, former chief executive officer (CEO) of Asset Management Corporation of Nigeria (AMCON), Mustapha Chike-Obi, on his verified Twitter handle, said: “It was unsustainable and this policy adjustment though late in coming is the proper economic decision. We must not oppose good policies in the name of political opposition.”

Although it is a private venture being spearheaded by Africa’s richest man, Alhaji Aliko Dangote, the Dangote Refinery is expected to provide a lasting solution to Nigeria’s heavy dependence on importation of petroleum products for domestic consumption.

All Nigeria’s refineries are comatose and the country relies heavily on importation despite its strategic position as Africa’s largest oil producer, pumping about 1.78 million barrels per day in March.

Oil sales contribute about 90% of the country’s foreign exchange earnings, 60% of the revenue, and 8% of GDP, according the National Bureau of Statistics. Experts believe that the world’s leading oil-producing countries appear to be the hardest hit by the COVID-19 because of the near collapse oil prices.

But the situation is worse for countries like Nigeria that have to deplete its foreign earnings to import refined petroleum products in order to meet local demands. Those with the knowledge of the oil sector said the situation would have been different if the Dangote refinery had come on board before the coronavirus.


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