Farouk Ahmed, Chief Executive of the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), has cautioned against over-reliance on products from the Dangote Refinery, highlighting significant issues that are stymieing the operation of the multi-billion dollar oil plant.
Despite high expectations, the refinery has struggled to operate at full capacity, repeatedly delaying its market debut, with the latest postponement pushing the launch to August. This situation suggests that the facility faces considerable challenges in providing the stable, high-quality output that many had anticipated.
Elaborating on his warning, Ahmed noted several critical concerns regarding the Dangote Refinery’s current status. He said the refinery remains in the pre-commissioning stage and has not yet received its operating license.
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“We haven’t been licensed yet,” Ahmed stated, adding that the refinery is still in its preliminary stage.
“I think we have about 45% completion,” he said.
Farouk further noted that the refinery’s current Automotive Gas Oil (AGO) production falls short of West Africa’s sulfur content requirement of 50 parts per million (PPM).
“Dangote Refinery, along with other major refineries, produces between six hundred and fifty to one thousand two hundred PPM. Therefore, in terms of quality, their products are inferior to imported ones,” he said.
One of the significant issues raised by Ahmed is the potential monopoly that Dangote Refinery could create in the Nigerian market. He pointed out that Dangote had requested a suspension or cessation of imports of AGO and Dual Purpose Kerosene (DPK), demanding that all marketers rely solely on his refinery.
“That is not good for the nation in terms of energy security, and it is not good for the market because of the monopoly,” Ahmed warned.
This request to monopolize petroleum products alludes to the belief that Dangote’s industries thrive primarily on state-backed monopolies, and wouldn’t compete in a free market.
Clashes with Other Oil Sector Stakeholders
Meanwhile, Dangote Industries Limited (DIL) has been involved in disputes with other stakeholders in the oil sector, accusing them of sabotaging its efforts to operate at full capacity. For instance, DIL has criticized the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) for claiming that International Oil Companies (IOCs) are willing to sell crude oil to domestic refiners.
This comes after Dangote alleged that IOCs are not willing to sell to local refiners, compounding his refinery’s struggle to source crude oil.
Devakumar Edwin, Vice-President at DIL, directly contradicted NUPRC CEO Gbenga Komolafe’s statement, asserting that the Petroleum Industry Act (PIA) ensures a “willing buyer-willing seller relationship” for crude.
Edwin explained that while only one local producer, Sapetro, sells directly to DIL, others rely on non-Nigerian trading arms that add unnecessary costs.
“These international trading arms are non-value adding middlemen who sit abroad and earn margin from crude being produced and consumed in Nigeria. They are not bound by Nigerian laws and do not pay tax in Nigeria on the unjustifiable margin they earn,” Edwin said.
Edwin recounted instances where IOCs’ trading arms refused direct sales, insisting on involving middlemen, which led to protracted negotiations until NUPRC intervention. He noted that these trading arms prioritize foreign buyers, leaving Nigerian refiners waiting.
“The trading arm of one of the IOCs refused to sell to us directly and asked us to find a middleman who will buy from them and then sell to us at a margin. We dialogued with them for nine months and in the end, we had to escalate to NUPRC who helped resolve the situation,” he added.
Edwin also highlighted that IOCs consistently hinder DIL’s access to local crude, often offering it at a premium of $2-$4 per barrel above the official price set by NUPRC. In April, DIL paid $96.23 per barrel for Bonga crude, including a $5.08 NNPC premium and a $1 trader premium. In contrast, they bought West Texas Intermediate (WTI) crude at a significantly lower premium of $0.93 per barrel.
Speaking of solutions, Edwin stressed the need for the NUPRC to re-evaluate pricing policies to prevent price gouging and ensure a transparent and efficient crude supply system. He urged the NUPRC to address these pricing issues to prevent monopolistic practices and ensure fair competition in the market.
The repeated delays in Dangote Refinery’s market debut and the ongoing quality and supply chain issues, have raised concerns about its ability to meet Nigeria’s energy needs reliably. Also, its struggle to secure a sufficient crude supply at competitive prices further complicates its operational challenges.
These backdrops have put the refinery’s ability to sustain operations and deliver high-quality products independently in question.