By Mohammed Momoh
The completion of Dangote Refinery in 2022 will mark another milestone in the Nigeria’s oil and gas industry as the $19 billion petrochemical firms of African wealthiest investors, will bail out the battered national currency, Naira, which had continued to dip against the dollars despite bail out measures.
The 650,000 barrel per day capacity refinery, biggest in Africa, owned by legend Aliko Dangote, holds the prospect of stopping importation of refined petroleum products by Nigeria whose four state refineries had been in comatose for decades.
Aside witnessing an increase in personnel by 17,000 in addition to its present 40,000 staff when it commences operations in a few months, the refinery, located in Lekki – Lagos would gear Nigeria to include importation of petroleum products among 43 import prohibition list to cut the quest for dollars.
Aside stoppage of importation of petroleum products which cost almost 40 percent of the yearly dollar requirement, the firm would also drastically cut the importation of other derivatives, especially petrochemical products.
According the National Bureau of Statistics (NBS), Nigeria spends an average of about $5.18 billion (N2.59 trillion) to import refined petroleum products yearly.
The exchange rate of the local currency to dollar is now N560 to a dollar against N390 to a dollar in June, 2021. This is due to massive petroleum products importation without a corresponding increase in foreign exchange earnings.
At a period of global oil glut, Nigeria which largely depends on crude oil export, and massive importation of petroleum products is putting pressure on the Naira.
Nigeria had been grossly involved in spending its scare foreign exchange on importation of petroleum products due to the poor state of its refineries. All the four local state owned refineries, have been moribund.
The state-owned Port Harcourt Refinery has capacity to produce 10,500 million mt/y (metric tonnes per year) of refined products, but it is producing at less than 20 per cent of this capacity.
The Kaduna Refinery, built in 1980, has capacity to produce 5.5 million mt/y (110,000 b/d), while Warri Refinery, built in 1978, has capacity to produce 6.2 million mt/y (125,000b/d) of refined products.
However, it is, therefore, good news that Nigeria will now host one of the largest refineries in the world and would no longer have the need to import petroleum products. This has shored-up the confidence that the country would save the foreign exchange it spends in importing refined products.
“It will save Nigeria from the shame of having to import refined petroleum products with the possibility of triggering the floatation of the Naira, Mr Godwin Emefiele, Governor of the Central Bank of Nigeria (CBN) said in Washington on October 15, 2021.
Emiefele, who spoke at the World Bank/IMF meetings, said the refinery is expected to cut Nigeria’s import bill by about 40 per cent when it begins operations.
“By that time, you will see what we would be doing when people talk about floating the naira, and then let’s see how the currency will depreciate.”
Emefiele said the country currently spends about 40 percent of its dollar earnings on the importation of petroleum products, putting pressure on the local currency.
“By the time the Dangote Refinery begins operation, it would be a major foreign exchange saving source for Nigeria,” he said.
“Right now, the overall forex we spend on imported items, the importation of petroleum products consumes close to 30 percent (by the time you add diesel, aviation fuel, petrol and the rest of that).
“The Dangote Refinery has the capacity to produce 650,000 barrels per day. There is a domestic component that is about 455,000 barrels. Even if the 455,000 is what is sold to Dangote in naira alone, it is going to be major forex saving for Nigeria.
“If you look at the cost of freight alone, it is a major saving for Nigeria. That is because if we have to go to Europe or other parts of the world to bring in petroleum products where we pay heavily in freight and in stocking those products in the high sea before we offload them, Nigerians would benefit a lot from the Dangote Refinery.
“That project is one of Nigeria’s backward integration programmes, and we are very proud of it.”
He added that the petrochemical unit of the Refinery would save the about five 5 percent of Nigeria’s current import bill from the polyethene and polypropylene granules that it will be making plus another two percent from fertiliser.
The petrochemical plant will be producing 900,000 tonnes of polyethene and polypropylene granules to meet Nigeria’s annual consumption of less than 200,000 with significant room for export.
The President of Dangote Industries, Mr Aliko Dangote, said on September 5, 2021 in Lagos that the project currently employed 29,000 Nigerians and 11,000 foreigners but the number would increase by 17,000 before 2022 production target.
The business mogul said the refinery project remained the biggest in Africa and one of the biggest in the world, adding that many Nigerians were getting massive training as a way to build in-country capacity.
He added that the construction of the refinery was informed by his desire to help Nigeria, sixth world largest oil and gas producer, to tackle the lingering issue of petroleum products’ importation.
Dangote described the refinery project as an investment that would transform the economies of countries in sub-Saharan Africa.
“It makes me feel terrible to see a country as big and resourceful as Nigeria with high population, importing all its petroleum products, so, we decided it is time to tackle this challenge.
“It is not government’s responsibility alone to address the challenge of petroleum products’ importation in Nigeria. No, we have to collaborate with the government to tackle the issue of petroleum importation.
“We are creating a lot of capacity in the country, which will be of great help for future oil projects in Nigeria, most especially, with the opening up of the oil industry through the new Petroleum Industry Act (PIA).
“It means that the country can boast of human capacity, needed in the oil and gas sector.
“Most of these Nigerians can compete anywhere in the world, in terms of electrical, welding, mechanical erection etc. We have actually created massive capacity,” he added.
Dangote emphasised the need for the country to shift attention from crude oil export and diversify the economy and stressed that Nigeria would not be comfortable with generating revenue from crude oil export alone, because “tomorrow, people may not need crude oil’’.
“If we do not move from crude oil to something else, we will have issues as a country. This is one of the things that I took upon myself to help address,” he said.
The refinery would be able to supply all the gasoline, diesel and aviation fuel used in the West African country and a third of its output will still be available for export, Dangote explained.
Unveiling extent of cost of the refinery, Mr Devakumar Edwin, the Group Executive Director of Dangote Industires, confirmed it would cost $19 billion when completed.
He also explained that the petrochemical unit houses the world’s biggest ammonia plant, which had started producing fertiliser.
He reported that the $2 billion Petrochemical plant unit of the refinery designed to produce 77 different high-performance grades of polypropylene had been completed.
Edwin said the petrochemical project was also the biggest in Africa and reported: “It has been strategically positioned to cater for the demands of the growing plastic processing downstream industries; not only in Africa, but also in other parts of the world.’’
” The Dangote Petrochemical Plant, will drive investment in the downstream industries massively , generating huge value addition, generate employment , increase tax revenues , reduce foreign exchange outflow and increase the Gross Domestic Product (GDP) of the country,” he said.
Expanding its stakes in the oil industry, the state-owned Nigeria National Petroleum Company (NNPC), which was recently inaugurated as a Limited Liability company, has acquired 20 percent state in the refinery.
NNPC, which is the facilitator of exploration and exploitation of oil and gas, would pump $2.7 billion into the refinery.
“NNPC would pay a third of the purchase price in cash, another will be covered by supplying crude to the refinery, and the remainder will be paid from the profit they are going to make from the business, he reported.’’ Edwin reported.
Edwin explained: ” So, it not just the savings of foreign exchange from petrochemical products’ importation, the country’s downstream sector will also benefit hugely from the availability of petrochemicals in the countr.’’
Aside saving Nigeria hard earned foreign exchange, stimulate industrial growth the refinery would also create 235,000 both direct and indirect jobs at a time that unemployment had hit the roof top of about 35 percent, Lagos State Governor, Mr Akinwunmi Ambode, said.
He also reported that the project would boost the economy of Lagos and entire Nigeria through its multiplier effects.
Mr Chinedu Okoronkwo, the National President of Independent Petroleum Marketers of Nigeria (IPMAN), that the refinery would ease operations of marketers and reduce their costs, stressing that the association had long been calling for total deregulation of the sector.
Okoronkwo said that the new refinery would also boost industrialisation in the country.
Mr Abiodun Adesanya, the President of Nigerian Association of Petroleum Explorationists, said the refinery would eliminate problems associated with fuel importation, and create competition.
He said that the success of Dangote Refinery was an indication that the Nigerian private sector could make commercial success of refineries and accelerate economic development.
