PREVIEW
Production and pricing questions haunt launch of Dangote's $20 billion refinery complex
Plagued by logistical obstacles, the pandemic and doubts about the future of Nigeria's fossil fuel industry, Aliko Dangote's mega fertiliser, petrochemical and oil refinery complex is still a gamechanger for the country's – and the region's – economy. On 22 May, outgoing President Muhammadu Buhari along with several regional leaders and top business figures formally commissioned the project.
It was the most political of opening ceremonies squeezed into the last days of Buhari's presidency before he hands over to Bola Ahmed Tinubu (also in attendance) on 29 May. Dangote's project, although most of it was financed commercially, fits neatly into Buhari's declared strategy of oil-fired industrialisation.
Eventually, Nigeria's state-owned oil company took a 20% stake in the project and guaranteed supplies of crude oil to the refinery and gas to the fertiliser and petrochemicals processing plants. Perhaps warned off by the history of Nigeria's state-owned refineries in Port Harcourt and Kaduna, Dangote has been careful to maintain managerial and financial control of the project throughout.
Despite Dangote's business acumen, demonstrated by his cement manufacturing empire and fast-rising agriculture and food processing operations, the refinery project is at least seven years behind schedule. And sceptics say that it will not reach commercial production levels for another year.
Some of that is down to logistics and testing the engineering. Then there is the question of securing guaranteed feedstock to operate the 650,000 barrels a day plant, one of the biggest in the world.
The commercial and fiscal status of the refinery is double-edged: on one hand it will save Nigeria importing over 400,000 barrels a day of refined petroleum products. But given the current oil production constraints, the national treasury will lose the revenue from exporting that oil for hard currency.
Should Nigeria win the investment to push oil production towards its target of 2.5 million barrels a day, the country would be a net winner from the refinery. That could take at least another five years.
Another threat to the project are the vested interests who make millions of dollars a day from importing refined fuel and who stand to lose their core income. Alongside those operations are the giant commodity companies such as Glencore and Trafigura who publicly claim they welcome the Dangote refinery and are adjusting their business models accordingly.
From the start, it seems the Dangote refinery will focus on production, leaving the more lucrative and less risky marketing and sales to the big commodity traders.
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