Since its inception, the Dangote Refinery has been hailed as a transformative project poised to reshape Nigeria’s energy sector. Yet, beneath the optimism surrounding the facility lies a series of challenges that have tested the resilience of the multi-billion-dollar venture.
While the refinery finally began fuel production in September 2024, its path has been far from smooth, navigating pricing disputes, and an unfriendly policy environment, all while carrying the burden of immense expectations from a nation long dependent on imported fuel.
Aliko Dangote, the billionaire behind the project, has been open about the obstacles his refinery has faced. Built at a staggering cost of $20 billion, the Dangote Refinery was expected to alleviate Nigeria’s reliance on imports and stabilize its currency. However, the refinery began operations shortly after Nigeria removed fuel subsidy – which became a key hurdle for its product pricing.
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President Bola Tinubu took office in May 2023 with a bold move to remove the longstanding fuel subsidy, a policy shift that has since caused gasoline prices to skyrocket and inflation to soar. The subsidy had long been a point of contention, draining government resources to the tune of trillions of naira. While Dangote supported its removal, he recognized that this transition was not without complications, particularly for his refinery.
However, the subsidy has not been totally removed. The government has been paying to keep the cost of fuel at around N600 per liter. But with the refinery in place, Dangote thinks it’s time the subsidy is totally removed, which will help among other things, to know the actual volume of fuel being consumed in Nigeria.
“Subsidy is a very sensitive issue. Once you are subsidizing something, then people will bloat the price, and the government will end up paying what they are not supposed to be paying. It is the right time to get rid of subsidies,” Dangote explained in a Bloomberg Television interview on Monday, but this was only part of the equation.
“But this refinery will resolve a lot of issues out there, you know, it will show the real consumption of Nigeria, because, you know, nobody can tell you. Some people say 60 million liters of gasoline per day,” he added.
As fuel prices increased dramatically, rising to N950 per liter in Lagos and even surpassing N1,500 per liter in other parts of Nigeria, Dangote’s refinery became central to the discourse on affordability. The refinery had just started lifting petrol when the price hikes came into effect, drawing widespread attention and setting off a series of controversies about pricing structures.
A major struggle came with the pricing disagreement between the Dangote Refinery and the Nigerian National Petroleum Company Limited (NNPCL). While initial reports suggested a dispute, Dangote clarified that the issue stemmed from the NNPC’s pricing strategy, which applied a uniform price for fuel, even though the refinery’s product was reportedly cheaper than imported alternatives.
“There wasn’t really a disagreement, per se. NNPC bought from us on the 15th of September at the international price, which they also bought, about 800,000 metric tons of gasoline imported. So the one that they bought from us is actually cheaper than the one they are importing,” Dangote revealed.
He said, however, that the NNPC announced a price that did not reflect the lower cost of Dangote’s locally produced fuel.
“And so when they announced our price, the guy, I don’t know whether he was authorized. It wasn’t really the real price. What they have announced is most likely that is what it cost them, including profit and other expenses.
“And then the other one is one that they imported. But the people don’t know how much they spend in terms of imports, but their importation is almost, maybe about 15 percent more expensive than ours, you know.
“So what they are supposed to do is to sell at a basket price, or if they want to remove subsidy, they can announce that they will remove subsidy, which is okay, everybody you know will adjust it.
“What they have announced is most likely what it cost them, including profit and other expenses,” Dangote said.
This he said, led to confusion in the market, with consumers unaware that the price announced by NNPC was not reflective of the true cost difference between imported and locally produced fuel.
While negotiations with the NNPC are still ongoing, Dangote said he remains optimistic that a final agreement will balance the interests of both parties, providing the government with an affordable supply while allowing the refinery to operate profitably.
“Well, you see, we have a choice of either one. We produce, we export, and when we produce, we sell locally. But we are a big private company. And yes, it’s true, we have to make a profit. We build something worth $20bn so definitely we have to make money.
“The removal of subsidies is totally dependent on the government, not on us. We cannot change the price, but I think the government will have to give up something for something. So I think at the end of the day, this subsidy will have to go,” he said.
Beyond pricing issues, the refinery is grappling with broader market dynamics. The removal of the fuel subsidy has unleashed inflationary pressures, pushing the inflation rate to 34% before moderating slightly to 32.15% in August 2024. The naira, meanwhile, has lost nearly 70% of its value against the U.S. dollar since currency restrictions were lifted, creating additional difficulties for businesses like Dangote’s that operate on the global stage but sell domestically.
Dangote has also noted the profound impact of fuel importation on Nigeria’s foreign exchange reserves, explaining that “petroleum products consume about 40 percent of our foreign exchange.” He expressed confidence that his refinery could help stabilize the naira by reducing the country’s need for imports.
“What that will do is that it’s going to remove 40 per cent pressure on the naira. So because, see, the petroleum products consume about 40 percent of foreign exchange, so you know, and then, you know, it’s like you have 40 percent of demand been taken out so that can actually stabilize the naira and even if they subsidize, they would know what they are paying for,” he said.
Despite these challenges, Dangote said he is committed to the project’s long-term vision. In addition to its refinery operations, the Dangote Group also owns two oil blocks in the upstream sector, with production expected to begin next month. This diversification is part of a broader strategy to cushion the refinery against market volatility.
Dangote speaks optimistically about crude oil sales expected to commence in October — deals he hopes will be conducted in naira to further ease pressure on the currency.
“We will sell the crude in naira after we have bought in naira. So now we are currently working out with the committee how the exchange rate is going to be priced. It is going to be normal pricing, you know, if crude is at $80, we will pay that price at an agreed exchange rate.
“The deal is to give the government something that they want. It’s also a win-win situation for all and it would benefit the country.
“Currently, discussions are still ongoing to determine the details of the agreement. They are working out something that I think would be a win-win between us and the NNPCL.
“The agreement is very robust. Well, first of all, we would have energy security where they will give us crude. For example, in October, they’re going to give us 12 million barrels, which is on average, about 390,000 barrels a day, which will sell both gasoline, diesel, and aviation fuel,” he said.
The ongoing negotiations and expected crude sales are crucial steps in the refinery’s journey, but they also highlight the intricacies that the refinery has been mired in since it started operation.
Dangote’s interview has revealed that besides delivering energy security to Nigeria, the refinery is expected to help in addressing fiscal and currency challenges, a monumental task for any private enterprise.