INTRICATE intrigues are playing out in Nigeria’s oil industry. These are bound to derail expectations of a reprieve in the form of lower petrol prices with the commencement of the Dangote Refinery and Petrochemicals plant.
Part of the criticism against President Bola Tinubu’s “subsidy is gone” proclamation on Inauguration Day was that he should have waited for the refinery and others to commence operations with the use of local crude before cancelling the subsidies.
However, signals emerging from industry players indicate that Nigeria’s oil industry remains a vicious turf populated by vested interests. Dangote Refinery’s top officials have accused the IOCs of colluding to frustrate the local refining industry through underhand tactics. The refinery is importing crude from the United States to feed its plant because the IOCs operating in Nigeria insist on charging it a $6/barrel premium over prevailing prices or refuse to sell to it.
Dangote alleges that the Nigerian Midstream and Downstream Regulatory Authority has been granting import licences indiscriminately and “dirty” high-sulphur diesel is being imported into the country with grave health implications. This has been denied by the regulator and oil marketers.
The Independent Petroleum Marketers Association which represents about 80 per cent of retail outlets complained that Dangote has refused to enter supply contracts with it and prefers to deal with the majors.
Fuel importers under the aegis of the Depot and Petroleum Products Marketers Association of Nigeria claimed that Dangote was trying to surreptitiously introduce a monopoly to the sector with its claims of “dirty fuel” imports even though the prices of its own refined products prices are uncompetitive.
The unfolding scenario points to the fact that Nigerian consumers will continue to bear the brunt of the mismanagement inefficiencies, capacity deficit, insecurity, governance, and regulatory gaps. Greed continues to define the industry.
The Nigerian National Petroleum Company Limited, which has a 20 per cent stake in Dangote, does not have extra crude to sell due to futures contracts and its $3.3 billion oil-for-cash deal with Afreximbank. Even the 445,000 barrels per day usually reserved for local consumption is no longer available to bridge the supply gap due to the bickering among industry players.
This sends wrong signals to investors on whether Nigeria is a workable business clime. It questions Nigeria’s fixation on crude exports rather than refining. Singapore refines about 1.5 million barrels per day even though it produces just about 20,000 bpd. The US has 132 active refineries as of January. Saudi Arabia has a refining capacity of 3.3 million bpd. Nigeria can be a major refining hub in Africa, if Dangote, NNPC, BUA, and other refiners get it right.
The Presidency has a responsibility to intervene robustly to resolve all the issues surrounding sales and supply contracts between the refiners, marketers, and IOCs. The IOCs can choose to deny the local market of local products in preference for Swiss-based oil traders because of institutional weaknesses and corruption in Nigeria.
The Nigerian Upstream Petroleum Regulatory Commission must enforce the Domestic Crude Oil Supply Obligation template developed in compliance with the provisions of Section 109(2) of the Petroleum Industry Act 2021 to ensure that crude oil is supplied to domestic refiners. There should be planning for other refineries in the pipeline to forestall crude shortages.
The government must intensify efforts to tackle oil theft to address the scarcity of domestic crude.
High fuel and energy costs have contributed largely to the misery of Nigerians and companies over the past year. Lower fuel prices will have a deflationary effect across the board. The Dangote Refinery crashed diesel prices from N1,700/litre to N1,200 in recent weeks. The same is expected when locally refined petrol enters the market. Commercial interests must not be allowed to truncate this, and Nigerians should benefit from local refining.
(Punch Editorial)
