What is NNPC buying at Dangote Refinery?

Efforts by the Federal Government to intervene in the nation’s energy and petroleum sector are again in the public space for reasons of scrutiny and engagement. Nigerians would not but interrogate such policies that directly touch on their day-to-day living and productivity. 

From the rising subsidy payments and nightmarish products supplies from import-induced sources, only drastic measures were needed to pull back from total dependence on foreign refining of petroleum products needed daily to drive the economy and at least, domesticate production to save scarce foreign earnings.

This understanding has brought to the fore, the smart move by the Nigerian National Petroleum Corporation, NNPC, to buy into the budding Dangote Refinery, an integrated energy project, following an approval to that effect by the Federal Executive Council. This approval came in the wake of NNPC’s plans to invest in some upcoming private refineries in the country and the move is in line with the corporation’s commitment to guarantee national energy security. 

The NNPC’s proposal to take a 20 percent stake in the refinery is in line with a government directive stipulating mandatory participation of the corporation in any privately owned refinery that exceeds 50,000 barrels per day capacity and the corporate objective of the corporation is designed in such a way to grow the domestic refining capacity and improve petroleum products supply from local sources. 

Therefore, there is a sound justification for the corporation to invest in a private sector-driven project; more so a resource-dependent country like Nigeria cannot but show interest and have a stake in a business that potentially impacts on energy security and fiscal security for the economy.

Although a private business with the largest single train petroleum refinery in the world, the prospect of a Dangote Refinery which will soon become fully operational, promises to meet Nigeria’s products needs and have excesses for export. Indeed, the refinery can meet 100 per cent of the Nigeria’s requirement of all refined products which are daily supply of 57 million litres of petrol, 27 million litres of diesel, 11 million litres of kerosene and nine million litres on aviation fuel with  a surplus of each of these products for export.  

Plans by the NNPC to invest in some upcoming private refineries in the country is not however limited to Dangote Refineries alone as the corporation is engaging with five other upcoming private local refineries on that same template.

The NNPC and Dangote refinery deal has caused some outrage in the social media where Nigerians compared it with Hollyfrontier’s business agreement with Sinclair. How can Hollyfrontier buy the 678,000 barrels per day facility for $2.6 billion only for NNPC to pay $2.76 billion for just 20 per cent of Dangote refinery?  

That 20 per cent stake by the NNPC of course will translate to Nigeria enjoying 130,000 barrels per day (bpd) from the brand new 650,000 bpd Dangote Refinery for $2.76 billion, Hollyfrontier is acquiring 97-year-old 115,000 bpd refinery from Sinclair Oil for $2.6 billion. 

Of the 115,000 bpd capacity, the first refinery, with a capacity of 85,000 bpd, was built in 1924, 97 years ago while the second refinery with a capacity of 30,000 bpd, was built in 1992. Fact is only two refineries are being purchased. It is therefore unwise and needless to compare a facility built 97 years ago with the modern, technology-driven Dangote Refinery. 

Again, the NNPC has clarified that a new refinery with 95 per cent availability is way more valuable than an old refinery with say, 85 per cent availability and this is simply because the new refinery will be making more money in more days in a year. The Corporation also added that every manufacturing plant has fixed cost and that a small refinery will have higher fixed costs per barrel and therefore lower profitability due to its size. 

Listening to a conversation few days ago on how Nigeria could solve the problem of perennial petrol crisis and its attendant huge financial burden of subsidy especially in the immediate, one of the discussant suggested a collaboration between the NNPC and Dangote oil refinery to break the iceberg and pull the nation out of the woods petrol crisis. 

Some Nigerians have argued that Dangote oil refinery is a privately-owned business and rather than rely for national supplies, government should instead fix its own refineries. But of course this is not plausible in all sense and ramifications particularly at a point when businesses are globally getting divested either solely to the private sector or when public infrastructures are globally being run in collaboration with the private sector. Here in Nigeria, we have seen the humongous resources ‘wasted’ on Turn -Around-Maintenance of our aging government-owned refineries. 

Frankly, NNPC is not the first national or public oil company to buy an equity in  a private refinery. In 2017, Rosneft a Russian government-owned oil company acquired a 49 per cent stake in India’s Essar refinery with a capacity of 400,000 and safe for the unexpected outbreak of COVID-19 pandemic, Saudi Arabia’s Aramco in 2019 was at the verge of concluding a deal to acquire a 20 per cent stake in privately-owned Reliance Refinery-owned by Mukesh Ambani group. 

The new business model recently adopted by the NNPC to acquire stakes in Dangote Oil Refinery and other private-owned refineries should not only be embraced but also be sustained and imbibed by government to deliver on critical public sectors and infrastructures. This collaboration is one of the best ways to solve and all of the national issues in the downstream industry and in meeting deficiencies in the oil and gas sector.  

No doubt, when this largest refinery in Africa becomes operational, the challenge of importing refined petroleum products will automatically disappear in Nigeria; subsidy payment dies with it; the pressure on foreign reserves will abate; Naira automatically will gain value; more money will accrue into the Federation account; thousands of jobs will be created; smuggling of petrol products to neighbouring countries will surely drop and most importantly, periodic petrol scarcity will be over with this collaboration which indeed is a win-win for the entire nation.   

  • Adebayo is an Abuja-based journalist & public interest commentator.