Wanted: Competition for Dangote Refinery

AFTER 10 years in the works, the launch of the Dangote Refinery and Petrochemicals was almost dreamlike. The refinery is a breath of fresh air in Nigeria’s petroleum sector blighted by decades of comatose public refineries, financially crippling fuel importation, a controversial subsidy regime, scarcity of petroleum products, and the attendant agony of the populace and businesses.

The main goal is that the refinery will address these uncomfortable realities and put Nigerians out of their misery. So far, the plant has shown great promise. In January when it came on stream, it crashed the price of diesel by 38 per cent, from N1,600 to N1,200.

In its first six months, the refinery has delivered diesel, jet fuel, fuel oil, and other products to domestic and international markets. It has now added petrol. All this happened with the plant running at only 400,000 bpd capacity, a long way from its full strength of 650,000 bpd. This is a good start.

The global energy market has noticed that something big has come out of Nigeria. The European market which usually received crude from Nigeria has turned to other supply sources. The Organisation of Oil Exporting Countries has identified the Dangote Refinery as a key new player among global suppliers with the potential increased production “expected to challenge Europe’s reliance on established sources.” Standard and Poor said the $20 billion plant “would shake up international crude flow when it reaches full capacity.”
For that to happen, certain challenges must be overcome. The expansive Lagos-based refinery is still struggling with sourcing crude as the NNPC Ltd, a 7.2 per cent shareholder in the refinery, had failed to supply 300,000 bpd initially agreed. This has forced the plant to source crude from America and elsewhere.

Thankfully, the situation is being addressed but there needs to be sustenance of supply.

There are lingering issues with the NNPC over how much the refiner would sell its products, and to whom. Even with the arrival of the refinery, a litre of petrol sells between N855 and N899, in some places exceeding N1,200. This puts an enormous strain on the people.
Consequently, big, and small businesses are folding up because of steep energy costs. All this has left Nigerians scratching their heads, wondering when the bottlenecks will be resolved.
The answer lies in not allowing the Dangote Refinery become a monopoly. It needs competition. Monopolies are antithetical to a free market economy. A monopoly has a stronghold on pricing.

It is a welcome development that BUA is building a 200,000-bpd refinery in Akwa Ibom State. More domestic refiners should be incentivised to come into the field, including modular refineries lamenting their inability to source crude feedstock from the NNPC. With over 230 million people and industries consuming petroleum products, the field is wide enough for more players.

There are six major and one minor refineries in the United Kingdom. As of 2019 January, the United States was serviced by 135 refineries.

Indeed, there is a lot to learn from the evolution of the telecoms sector in Nigeria. When NITEL was the sole provider of services, Nigerians suffered greatly. Nigeria had only 720,000 phone lines pre-liberalisation in 2001. Mobile phone lines in Nigeria hit 301.5 million in 2022.

NITEL collapsed under the weight of its monopolistic contradictions. Its undertakers, MTN and ECONET, opened the space for subscribers. It took Glo’s appearance on the scene with its pay-per-second billing to deepen competition, investment, and competitive pricing.

It is time to privatise Nigeria’s four redundant refineries. They have gulped $20 billion in dubious maintenance in the past two decades without producing refined products, subjecting Nigeria to fuel importation at crippling costs.
Therefore, the Bola Tinubu administration should sell the NNPC refineries to entrench competition in the downstream sector.