Visiting Dangote’s multi- billion dollar oil refinery investment: The need to support African entrepreneurs [ARTICLE]

‘‘I knew there will be a fight but I didn’t know the mafia in the oil industry was stronger than the mafia in the drug industry’’- Aliko Dangote

Introduction

After investing 20 billion dollars into a 650,000-bpd refinery project, Dangote has faced one battle after the other. The richest man in Africa has virtually had to banter everyone in the downstream petroleum sector in his quest to get his refinery running. From the sector’s regulator’s refusal to revoke the import licensing of international oil marketers to allegations that petroleum products from Dangote Refinery are substandard, Dangote’s woes and the dust around the same are yet to settle. Questions have also been raised about the refinery’s ability to meet peak market demands, among a host of other controversies that sap the very energy of such an enterprise. In a widely publicised documentary, Dangote could not hold back from expressing his frustration with these issues. Truly, this situation brings to the fore and into question the willingness of Africans to support a fellow African, especially those who are industriously providing jobs and opportunities to their fellow countrymen.

Deregulation and Pricing of Downstream Petroleum Sector

 Nigeria took the step to fully de-regulate its downstream petroleum sector at the beginning of 2024. This was, as has always been reasoned in many markets, to wean the Nigerian government from using non-existing foreign currencies to subsidise the petroleum product. In efforts to fully deregulate the downstream sector, the federal government had commenced the new direct purchase model on petrol lifting. Truly, the public agitations and the economic implications that followed this decision have been self-evident and arguably one of the toughest of the Tinubu-led administration. Indeed, on September 1, 2024, the Nigerian National Petroleum Commission admitted to owing the sum of $6 billion to suppliers of petrol, also known as premium motor spirit (PMS). By deregulations, prices of petroleum products are to be determined by the exigencies of the market, with limited government control or involvement. Indeed, with Dangote’s refinery, a deregulated regime would have meant that the many market forces, including the insatiable desire for profits by oil marketing companies, foreign exchange, transportation costs, and others that could lead to hikes in the price of petroleum products, would be substantially reduced, hence leading to a reduction in pump prices. It appears, however, that the issue about pricing is far from over, as the regulator maintains a strong hold on determining prices for the players. With Dangote’s 650,000 pbd coming on stream, one would have expected that the market would support this rather bold investment that potentially could reduce the foreign exchange variable that shoots up the price of petroleum products. However, it appears the contrary is the case.

Ghana’s Case

Ghana reportedly spends a whopping $400 million monthly importing refined petroleum products. Despite being a net exporter of crude oil, Ghana has been unable to keep the Tema Oil Refinery operational. This has left us with no option other than to import the product. While Ghana has removed petrol subsidies, it provides foreign exchange subsidies to Bulk Oil Distribution Companies (BDCs) importing refined petroleum products into the country. No matter how you look at this, this recurrent outlay of importing petroleum products has taken a huge toll on our ability to tame the depreciation of the cedi against the major foreign trading currencies. Currently, a dollar is exchanging for GHC 17, a development that is taking a huge toll on the viability of the dollar and other critical sectors of the economy. The case of the pound and other major trading currencies has seen the same sharp levels of depreciation.

If Ghana were to have a working and efficiently managed refinery, there cannot be any doubt that the huge pressure that comes with having to dollar out such a colossal amount for petroleum products will be curtailed. It is refreshing to note that at the OTL Africa Downstream Oil Conference in Lagos, Ghana’s National Petroleum Authority expressed its willingness to source petroleum product from Dangote’s refinery when the facility begins to operate at full capacity by the end of the year.

Conclusion

The vested and entrenched interests in the petroleum sector are identical and everywhere in Africa. They have weaponised their currency and insist they must be allowed to import the products, even when it is evident that Dangote’s refinery is sufficient for the Nigerian market. Maybe it is time for other African countries to pass a vote of confidence in these huge and bold investments by a giant African. We need to support the ingenuity of the African, especially when it serves to root out the relics of imperialist impact on our flickering economy. The only way we can provide African solutions to African problems is to encourage our African entrepreneurs, especially the ones who dare to enter high-risk terrain like the oil and gas and mining sectors. This is the advocacy I expect most of our journalists and CSOs to be advancing. I trust they won’t be reduced to stooges in the hands of vested foreign interests.

By:  Samuel Arthur

Media and Communications Consultant