The $20-billion Dangote refinery investment with a 650,000 barrel capacity per day will undoubtedly boost Nigeria’s foreign exchange. Equally, the project is expected to reduce the pressure on foreign exchange drastically if sales of crude oil to Dangote are dominated by local currency.
By Yunus Yusuf
Industry observers are of the notion that the project will meet 100 per cent of Nigeria’s demand for refined petroleum products with a surplus for export.
In addition, the refinery will also create employment, boost fuel supply across Africa, and generate foreign exchange earnings for Nigeria through the export of 40 per cent of its products.
Viewed as a game-changer for the revitalisation of Nigeria’s economy and the downstream petroleum products market in the entire African continent, the multi-dollar project is billed to elevate the status of the Naira that has been struggling for survival against the dollar.
With its first-rated management, and support from the government and other stakeholders, the project, regarded as a huge achievement for the Nigerian government, will without mincing words, reduce the nation’s dependence on fuel imports and save foreign exchange.
The world’s largest single-train refinery was inaugurated by former President Muhammadu Buhari on May 22, 2023, in Lagos, a few days before the change of baton with President Bola Tinubu, his successor.
However, some oil and gas experts in an exclusive interview, on Sunday, expressed optimism about the world-class project sited in Lekki, a Lagos State riverine community.
Speaking at the Federal Executive Council meeting recently, Mr Zacch Adedeji, the Executive Chairman of the Federal Internal Revenue Service (FIRS), highlighted some of the benefits of the project to Nigeria.
Adedeji said that the pressure on foreign exchange would drastically reduce if sales of crude oil to Dangote were dominated by local currency.
According to the FIRS boss, Nigeria spends about 30 per cent to 40 per cent of its foreign exchange on the importation of petrol, thereby putting much demand on the country’s foreign reserve.
Adedeji said that the proposed transaction would be a game-changer for the foreign exchange market by saving what he termed hard-earned greenback instead of spending it on importation.
“What does this mean to our economy? The pressure on foreign exchange rates, today, will be reduced.
“We spend roughly 30 per cent to 40 per cent of our foreign exchange on the importation of PMS that we consume. That will be drastically reduced,” he said.
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The FIRS boss noted that Nigeria would save $7.32 billion annually if all transactions of crude to local refineries were done in local currency as approved by the FEC.
He explained that Nigeria currently spends $600 million on importation of petrol per month, amounting to about $9.72 billion annually.
According to him, selling crude oil and buying refined products from Dangote Refinery at local currency will save the country a total sum of $7.32 billion annually, a 94 per cent decline from actual spending.
“With the new approval, this will reduce to a maximum of $50 million per month. When annualised, that is only $600 million which is a total reduction of 94 per cent. In monetary terms, that is savings of about $7.32 billion,” Adedeji added.
Supporting Adedeji, an oil and gas consultant, Mr Demola Adigun, described the project as a national treasure that must be supported to perform efficiently.
To derive expected value, Adigun listed advantages of the project to include job creation and value addition in the downstream as well as energy security.
He said that the Dangote refinery would significantly create other developments in the manufacturing economy.
The expert said that the government could support the refinery to create a healthy environment for Dangote refinery and other domestic refiners.
“Government can find ways to ensure that his products are purchased when available; government can support the refinery through improved and adequate regulations,” he said.
The expert advised that Dangote must also focus on supporting the extended development of the host community through providing ancillary services and infrastructure.
He added that the government can promote more independence of the regulator and only intervene when necessary, following the laws.
Mr Rabiu Bello, a Senior Independent Non-Executive Director, Board of Seplat Energy Plc., described the successful startup of Dangote refinery as a game-changer in the development of Nigeria’s Midstream and Downstream Petroleum sectors that require transparent collaboration and stakeholder engagements for the realisation of the potential benefits.
To him, it is a great opportunity for Nigeria to be a refining hub and net exporter of petroleum and petrochemical products this decade.
Describing the Dangote refinery as a typical manufacturing plant that relies on a sustainable supply of raw materials to deliver value to its shareholders, Bello revealed that the survival instinct required by the refinery to survive is crude oil and natural gas, which is government-owned.
“Thus, the government can support the refinery-guaranteed crude oil and gas supplies to ensure sustainable operations of the refinery and petrochemical facilities.
“This should be implemented through strategic commercial cooperation and partnership that can create value for both the Dangote refinery and the government but more importantly, for the domestic Nigerian economy.
“A 20-billion-dollar investment in a refinery that is over 10 years is a huge value proposition that must be protected. But, a year supply of 650,000 barrels daily to the refinery at 90 dollars per barrel is worth more than 21 billion dollars.
“This is a significant percentage of federation revenue that must be protected sustainably through efficient operation of the refinery.
“Dangote Refinery is sufficient to pay for the crude and deliver adequate returns to refinery shareholders and the government,’ he explained.
Bello said that all domestic refineries including the NNPCL refineries should be treated equally and be supported with guaranteed crude supplies depending on their efficiency and operational capacity.
He added that the Midstream and Downstream regulator has sufficient legal authority to do the needful in ensuring that products satisfy quality.
He advised that the regulator should also develop proper regulatory frameworks to create a level-playing field for all players such that Nigerian consumers were not short-changed at any point in the supply chain.
He said that with complex refineries like Dangote and the new NNPCL refinery in Port Harcourt operating efficiently, Nigeria would start exporting lots of excess products such as Diesel and Kerosene by the time they start processing 500,000 per day.
The expert noted that the full benefits of Nigeria’s oil and gas sector could only be realised when the country develops the midstream and downstream segments of the value chain, which essentially means the development of oil and gas processing facilities.
He said that these critical infrastructures were required to convert crude oil and natural gas into petroleum products and petrochemicals such as petrol, diesel, kerosene for household and aviation, cooking gas, methanol, fertilizers, clean natural gas for power generation and other products used by industries.
“Without processing our oil and gas domestically, all these products must be imported from those countries who can buy our crude oil and gas and process it for their own use and export excess to those in need, like Nigeria.
“In summary, some of the benefits of having a critical midstream facility like Dangote Refinery in Nigeria include the guaranteed supply of products at a lower cost than import.
“Others include employment generation, import substitution, export earnings from sales of excess products to an international market and enhanced economic growth.
NANFeatures
