The Political Economy of Fuel Production and Distribution at the Dangote Refinery

Following the discovery of crude oil in what is now Bayelsa State in 1956, Nigerians, particularly their political leaders, thought that the country’s revenue would remain adequate to support basic amenities for its population and propel the economy forward. According to some reports, the discovery was effectively used and handled up until the late 1960s. However, scholars, professionals, and public affairs analysts claim that between the late 1970s and this year, what was the largest source of income for the most populous nation in Africa became a curse.

Despite being the world’s tenth largest crude oil reserve and the thirteenth largest crude oil producer, Nigeria and its people continue to struggle to supply and access basic social amenities. This is based on a variety of social and political issues affecting the administration of oil refineries in Kaduna and Port-Harcourt. Over the years, the failure to gain large amounts of cash from crude oil sales has had a massive impact on the country’s economy, particularly the value of its currency.

However, having played significant roles in the advancement of the country’s economy through various businesses, attention is shifted to Mr. Aliko Dangote. It is obvious that social and political forces causing negative outcomes for the national refineries will remain for a long time. According to several sources, Mr. Dangote is regarded as an entrepreneur who can solve the country’s dysfunctional refineries through private ownership of a refinery.

Mr. Dangote took the risk and established Dangote Petroleum Refinery, covering a land area of approximately 2,635 hectares, and located at Victoria Island, Lagos State.  According to the company, “The Refinery will meet 100% of the Nigerian requirement of all refined products and also have a surplus of each of these products for export. Dangote Petroleum Refinery is a multi-billion dollar project that will create a market for $21 Billion per annum of Nigerian Crude. It is designed to process Nigerian crude with the ability to also process other crudes.”

In May 2023, the refinery was officially inaugurated by former President Muhammadu Buhari, with Nigerians hoping to get a better deal from the company in terms of having a sigh of relief from pricey imports for almost all of its petroleum use. On January 12, 2024, the company announced the commencement of its Automotive Gas Oil and Aviation Fuel, or JetA1, after several months of additional political and economic regulation.

Immediately after the announcement, a number of professional associations, marketers, and other critical stakeholders were associated with the company for the distribution and sales of its products. At the same time, business, and political leaders, as well as citizens, expressed their views on the company’s ability to start production after experiencing a series of bottlenecks.

1. Our analyst notes that Aliko Dangote’s hard work and determination led to the commissioning of the Dangote refinery, inspiring future generations to strive for success and set self-goals goals. In this piece, our analyst examines some of the views expressed by Nigerians and corporate organizations about the emergence of the refinery from a political economy perspective with a view to revealing the interests of the stakeholders.

Eterna PLC, one of the integrated energy providers in the country, announced its official recognition by the Dangote Refinery as domestic sales distributor. By becoming one of the major distributors of Dangote domestic petroleum in the country, Eterna said its commitment to improving product supply had been reinforced. “The appointment is a testament to the company’s long-standing reputation for excellence,” the company’s statement noted. With this comment, our analyst observes that the corporation intends to extract significant value from the new refinery, leveraging its (Eterna) superior market position.

Fellow business leaders, especially Mr. Femi Otedola, also believes that the refinery has potential to promote energy security, independence, and economic transformation for Nigeria.

The refinery is a significant environmental sustainability initiative, aiming to capture 90% of CO2 emissions and reduce well-to-tank carbon emissions from crude oil maritime transportation. It recirculates 100% of its water, producing 50MW of power and replacing Euro 5 with Euro 5, and shipping 65,000 barrels of crude and 650kbpd in refined products daily saves 1.5m-2m tons of CO2 emissions.

Benefits to the host community

Children are training at a refinery site, passing Level 1 and Level 2 exams for Electrical and Mechanical Engineering certification. Chief Shakiru Bello praises Dangote’s scholarship scheme, which has helped parents in communities by increasing beneficiaries annually, despite initial doubts.

The massive infrastructure project will create an ecosystem of demand, with thousands of workers directly and indirectly working there. The project will also require provision of food, uniforms, transportation, security, cleaning services, and housing, resulting in a multiplier effect. Lagos’ economic nodes will expand from Victoria Island and Ikeja to include Epe-Ibeju, ensuring decentralization.

Spur growth in other sectors

The Nigerian government should support Dangote refinery operations and encourage business competition among the business community. The Nigerian National Petroleum Corporation Limited should support modular refineries through partnership injection and ensure operational readiness. Government actions promote competition, prevent monopolistic tendencies, and promote innovation, technical progress, price moderation, and consumer choices. Dangote businesses aim to control industries like cement and sugar, aiming for control over their antecedents.

The refinery should prompt entrepreneurs to consider the spillover benefits of its operations on their businesses. For instance, foreign companies importing refined crude to Nigeria could acquire large shares in transportation, impacting banks, insurance companies, and other service providers.

The Dangote mega refinery’s inauguration has sparked speculation about the iron, steel, forestry, and paper industries. Paper mills with outdated machines and buildings should be sold for profit, and their states should revive trees for rebirth. Rethinking agricultural and industrial policies that promote export of raw materials is necessary.

Meeting local needs and improving foreign earnings

With a 20% stake in the project, the government should persuade Dangote to meet local demand first, easing subsidy payments and ensuring efficient supply. The government should attract more investments to boost production and bridge the supply gap with OPEC falling below its target.

Dangote Refinery will shift the country from a net importer to a net exporter of petroleum products, creating jobs and generating foreign exchange. This move aligns with the Dangote Group’s commitment to greater private sector participation in the economy. The refinery will also foster a booming private sector, boosting the economy and fostering increased productivity.

Toye Eniola, Executive Secretary of the Association of Housing Corporations of Nigeria, suggests reducing refined oil importation to conserve foreign exchange and stabilize the forex market.