Dangote, Downstream and Deregulation: Getting It Right this Last Time

By Boonyamin Giwa

There is no gainsaying that if left unattended to, the recent friction between Dangote Refinery and oil marketers, International Oil Companies, IOCs and regulators in the country can lead to a major crisis in the downstream sector and oil industry at large.

The Federal Government, being the regulator (through NMDPRA, NUPRC and other agencies) owes it to the industry and to Nigerians that the downstream sector and indeed the oil industry at large is up and running in such a way to guarantee energy security for the nation.

Top on the list of what Government must do is ensuring transparency and accountability in the allocation of crude oil to local refineries. In this regard, experts call on government to put in place a policy that will enable all, and not just, the Dangote Refinery, to access local crude oil without complications. They argue that such policy must make it possible for even the modular refineries to access crude oil effortlessly and without logistics complications.

To bring this about, they argue further, the federal government must put in place a number of incentives to encourage oil production companies to ramp up crude oil production to achieve the 2 million barrels a day target within the next six to eight months.

“The current situation where production has dipped to as low as between 1.2 million and 1.4 million a day cannot be healthy for the industry and the nation, especially given the fact that the government is already committed to some creditors and oil traders by large percentage of the current daily production. For the government to be able to make crude oil available to all the refineries in the country, production must be ramped up and the government must continue the aggressive tackling of oil thefts to ensure that all crude oil production is optimised for national economic growth.”

These experts also argue that the country’s four refineries must be brought back to life. According to them, it is only when this is done that Nigerians can enjoy energy security. Anything short of these multiple refineries functioning fully, experts warn, will leave our energy security endangered. Most importantly, the 210,000-barrel-per-day Port-Harcourt refinery which has been undergoing months of turn around maintenance must commence operations by the end of July as promised by the Minister of State for Petroleum, Heineken Lokpobiri after years of postponements.

It is the submission of the experts that the Dangote Refinery, the four State owned Refineries and other modular refineries should be made to operate unhindered and without overt favour to any of them to ensure a level playing field and healthy competition within the sector.

“It is when such level playing field is put in place that the industry will be able to abide by the letters and spirits of the FCCPC Law which stipulates that no business entity should dominate a particular business by more than 35 percent,” said an Industry expert.

“What we should be looking at in the next one and half years in Nigeria is a downstream sector that is vibrant, competitive and investor friendly and not a sector that is monopolised by either the State or a business entity, ” he noted further.
With regards to the allegation of sabotage by some oil mafia by Dangote Refinery, oil industry experts maintain that NNPC Ltd has been the only importer of fuel into the country in the last five years or more and that even when local fuel marketers import fuel, they do so on behalf of NNPCL. So, who then would sabotage the Dangote Refinery?

They however averred that the Dangote Refinery will be a game changer when it is fully operational and therefore should be protected from any form of sabotage.

Other industry players also alleged that Dangote Refinery is foistering on the system an unsustainable logistical process of accessing its products. According to them, Dangote Refinery only sells to marketers via trucks instead of marines. They opined that oil players should be able to buy from the company according to their purchasing capacity. Those who can buy through marine should be sold to and those who chose to buy with trucks should be attended to as well.

The consensus is that although Dangote Refinery is said to have capacity for 3,200 trucks a day, while Nigerian consumption is under 2,000 trucks a day, it is however, contended that it will be an infrastructure and logistics nightmare to emplace a system where fuel distribution will be solely or almost totally by road in the country.

“First, the wear and tear on the nation’s road infrastructure, second, the danger to lives and property through fatal and costly road accidents and, third costly logistics components of distribution by trucks alone. “

“It is for this reason that we call on the Dangote Refinery and the government to enable oil marketers and major distributors with the necessary infrastructure and facilities – vessels, depots etc, to receive supplies through the marine option. “

“We also call on government to rehabilitate and revamp the fuel distribution pipelines that criss-cross the country to achieve a seamless distribution of product.”

Industry stakeholders noted that specifically, management of the Dangote Refinery must look into issues raised by DAPPMAN including that of the refinery’s current practice of cheaper bulk sales prices to international buyers at the detriment of Nigerian buyers as this calls to question the company’s business motive and objectives in the context of the nation’s energy security.

The assertion by DAPPMAN that several Nigerian marketers had in recent past been offered Dangote Refinery cargoes by international trading firms at rates that were very much lower than what they were directly offered by the refinery makes the Dangote business model even more troubling in the context of national interest.

The consensus of industry watchers is that to ensure energy security which is key to the nation’s economic resuscitation and growth, the government must take bold and decisive steps to put in place a downstream sector that is highly competitive, transparent and vibrant. The government, they say, must get it right this last time. * Boonyamin Giwa writes from Lagos