• Wednesday, December 06, 2023
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African megaprojects: What a prematurely commissioned refinery means for post-subsidy Nigeria

African megaprojects: What a prematurely commissioned refinery means for post-subsidy Nigeria

When former Nigerian President Muhammadu Buhari walked into Dangote’s refinery complex that Monday, 22nd May 2023, the world anticipated a new dawn for oil trade in Africa’s largest economy. Even though this would be about the fifth refinery on Nigerian soil, it carried the hopes of over 200 million people for three reasons.

Firstly, it is Africa’s biggest. It will produce 650,000 barrels per day, potentially addressing Nigeria’s decades-long energy supply crisis. In fact, the first product from the refinery was expected to hit the market by the end of July 2023. Secondly, it is not government-owned. Had it not been owned by Africa’s richest man, Aliko Dangote, the general public would have dismissed it as another effort in futility, waiting to be frustrated by Nigeria’s powerful oil cabals. Thirdly, the existing refineries under government control have been hounded by operational inefficiencies, making them incapable of meeting the growing demand for petroleum products.

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Consequently, Nigeria, the oil-rich nation, has imported more than 80% of its refined petroleum products. This makes Nigeria the largest importer of refined petroleum products in Africa, importing primarily from the Netherlands ($3.62 Billion), Belgium $1.78 billion), Norway ($1.2 billion), India ($992 million) and the United Kingdom ($760 million). In 2022, Nigeria spent $23.3 billion on petroleum product imports and consumed an average of 33 million litres of petrol daily. With 650,000 barrels per day, Dangote’s refinery plans to export the surplus petrol and turn Nigeria into an export hub for petroleum products. This complex megaproject is said to be the world’s largest single-train refinery, costing $19 billion to build after nearly 10 years of delay and initial estimates of $12bn to $14bn. Analysts say the refinery’s local production would massively slash the country’s import bill.

Nigerians can be rest assured that Dangote’s pipes will remain dry for the next few months before production begins

Here’s how several analysis in 2017 put it: “Dangote refinery (650,000 bpd) opens its gates mid-2019, operating at 50% utilisation, existing refineries (445,000 bpd) are operating at 15% utilisation and modular refineries (combined capacity of 100,000 bpd) also come onstream early 2019, operating at 90% utilisation. “These ramp up to 70%, 20% and 90%, respectively, by 2030. Net effect: By 2019, Nigeria becomes Africa’s 3rd largest refiner of petroleum products and a net exporter of refined petroleum products. Its exports are estimated to exceed 37,000 bpd (approximately 6 million litres daily). “The modular refineries bridge a supply gap of 53,000 bpd (approximately 8.5 million litres daily) in Nigeria. “Nigeria becomes West Africa’s refining hub by 2019, supplying the region with at least 37,000 bpd (approximately 6 million litres daily). By 2026, Nigeria’s exports to the region exceed 130,000 bpd (approximately 21 million litres daily), reducing the region’s imports from US and Europe by approximately 80%.”

Did this go according to plan?

Writing from the future, the $19 billion refinery was commissioned four years after the proposed 2019 launch. It was expected to churn out its first oil product in July 2023, but hasn’t spilled a drop as of this writing. This shouldn’t bother the average Nigerian if the pump price of Premium Motor Spirit (otherwise called petrol) were still N195/litre. On inauguration day, President Bola Tinubu inadvertently turned the attention of Nigerians to the Dangote Refinery when he declared, “Subsidy is gone!”

With subsidy gone, Nigerians looked to the acclaimed saviour to mitigate the cost of PMS, whose prices rose from N197 to N570 and now N617/litre. In early June, days after President Tinubu’s bold announcement, video footage surfaced online showing construction workers at Dangote’s refinery who revealed that the facility is nowhere near complete. Sharing the video of the uncompleted refinery, the workers said, “Na lie, work never finish, Nigeria na scam.” This visually corroborated feelers I had received long before Buhari walked in to commission it, days before leaving office. Findings revealed that the refinery still required much work to bring it to full functioning capacity. While some equipment was still expected to be imported, those already fitted hadn’t passed the ongoing integrity test at commissioning.

The President of the Trade Union Congress of Nigeria, Comrade Osifo, speaking on Channels Television’s Politics Today on 2nd August stated that it would “take some time for Dangote’s refinery to get to that optimal point of full production dependency.” Osifo said, “As of now, they may have their own mechanism because it is 80 percent privately owned that we may not know. But from our external view, we don’t think it will come into even up to 50 percent production before the end of the year.” The Energy Times gave some specificity to Osifo’s “some time” when it reported that works on production lines, including electrical works, are largely behind schedule. It quoted a source saying, “With equipment still being expected and an integrity test yet to be conducted, I don’t see the refinery coming on stream until March 2024, the main reason why Dangote was granted a permit to import fuel pending the completion of work on the refinery.” The importation license remains a much-argued topic. Therefore, I would not stir it in this article.

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What’s not in doubt here is that Nigerians can be rest assured that Dangote’s pipes will remain dry for the next few months before production begins. This sounds like a huge disappointment until viewed in the context of the megaproject space in Africa. Plagued by long running socio-political influences and macroeconomic factors, most megaprojects are anything but certain. Nonetheless, they should not be painted as complete when, in fact, they are not.

Ajia is a project consultant and strategy advisor, currently researching the delivery of megaprojects at the School of Management, Cranfield University, UK.