Proposed NNPC Partnership with Dangote Oil Refinery as a Masterstroke
When I read in the news recently, of the proposed plan of the Nigerian National Petroleum Corporation (NNPC) to acquire a twenty percent minority stake in Dangote Oil Refinery, I felt as if someone in the top management of the Corporation caught my trail of thoughts.
In the last few days, while having a discourse analysis with my friends on how Nigeria could solve the problem of perennial petrol crisis and its attendant huge financial burden of subsidy, especially in the immediate, I instinctively proposed a strategic collaboration between the NNPC and Dangote Oil Refinery to break the iceberg and pull the nation out of the woods petrol crisis.
When my suggestion was offered on the table, one of the discussants opined that Dangote Oil Refinery was a privately-owned business, and there was no way the government could rely on it to solve national problems, instead, we should fix government-owned refineries. The contestation of ideas continued until I was able to convince him otherwise.
So, when the NNPC announced recently during a petroleum conference that it was engaging Dangote Group to acquire a twenty percent minority stake in the emerging refinery, it dawned as if someone secretly recorded my debate with my friends and sent it to the Corporation as a proposal. I felt vindicated. I had to forward the link of the news report to my friends on WhatsApp.
NNPC is not the first national oil company to buy equity in others’ refineries. In 2017, Rosneft—a Russian government-owned oil company, acquired a 49% stake in India’s Essar Refinery, with a refining capacity of 400,000. In 2019, Saudi Arabia’s Aramco was at the verge of concluding a deal to acquire a 20 percent stake in Reliance Refinery—owned by Mukesh Ambani group, until the wave of Covid-19 pandemic stalled it.
Saudi Aramco has been buying up stakes in refineries outside its shores as part of its plan to boost its refining capacity up to 10 million barrels per day; from its current 5 million. The Company currently owns and has stakes in four refineries abroad with a total refining capacity above 2 million barrels per day. It is a positive development that our own NNPC is following this noble path.
There have been agitations to unbundle and diversify NNPC and make it more economically viable. The worthy proposal by the NNPC to acquire a twenty percent minority stake in Dangote Oil Refinery, also fits into this informed thinking of diversification. It is not only Dangote Refinery that the Corporation wants to partner with, it is also in talks with CNCEC—the Chinese group that wants to build two refineries in Nigeria.
I think this new business model recently adopted by the NNPC to acquire equity stakes in Dangote Oil Refinery and other private-sector driving refineries, should be sustained. It should become the new normal, henceforth. With due respect, the four government-owned refineries under the supervision of the NNPC can make a perfect PhD thesis on how-not-run-refineries.
It has been one story of failure after another. In the last few years, the Federal Government has spent billions of dollars on opaque Turn Around Maintenance (TAM) without commensurate results. NNPC not too long ago signed a $1.5 billion dollars contract to revamp Port Harcourt Refinery. This time, it was not called TAM—acronym for Turn Around Maintenance—but “rehabilitation—the same vicious cycle.
I will advise NNPC to sell off those refineries and maintain a 20-30 percent minority equity stake in them—as it wants to do with Dangote Oil Refinery. And allow the private sector to drive those refineries. We have done it before via the NLNG model; it is working and can be replicated.
NNPC has 49 percent equity in NLNG, followed by Shell with 25.6 percent, Total—15 percent and Eni with 10.4 percent. This is one of the best and lucrative business models that has worked for the Federal Government. Since October 1999, when NLNG lifted its first cargo off the shores of the country, the natural liquefied gas company has made over $114 billion dollars and remitted $18 billion dollars to the Federal Government.
At the inception of President Muhammadu Buhari’s administration in 2015, when oil prices nosedived, states and federal governments, respectively, were nearly bankrupted—struggling to pay salaries, it was taxes cum remittances that came into the federation account via NLNG that rescued the nation.
Just imagine that NLNG was being run solely like government-owned refineries—by extension—the NNPC? It would not be that viable to provide such humongous resources and bailout to the national purse. NNPC’s proposed deal with Dangote Oil Refinery will reproduce another NLNG model in the downstream sector.
Assuming that International Oil Companies (IOCs) had built refineries in the past, and NNPC acquired equity stakes as it did with NLNG and about to do with Dangote Oil Refinery—instead of running government-owned refineries, the story of Nigeria’s downstream sector would have been totally different, today.
Back to my discussion with my friends. It was prompted by the El-Rufai Committee of Governors Forum, which recommended full deregulation of petrol products. This recommendation, If carried out to the latter, will see the price of Premium Motor Spirit (PMS) skyrocket to N400 per liter. The big question is: will already economically pressured masses be able to absorb its fallouts—I mean impacts of full deregulation?
The governors hinged their proposal on a few factors: N210 billion naira spent on subsidy monthly to keep petrol at N162 per a litre, dwindling revenue to the federation account, smuggling of already subsidized petrol products to neighboring countries, corruption associated subsidy scheme, etcetera.
Payment of N210 billion naira monthly on subsidy, is like a knee on the neck of Nigeria’s hemorrhaging economy. It is highly unsustainable—and has to go. But the challenge is when and how it should go—the timing and modalities.
The dilemma is: removing subsidy outrightly by way of full deregulation now, without a strong buffer to cushion its adverse effects, will create another hydra-headed monster of excruciating hardship cum social unrest in a country plagued by exacerbating insecurity and regional strife.
As I explained to my friends in that discourse, Dangote Group’s oil refinery is at the verge of completion—to come on stream very soon—in a few months time. Getting this much-awaited oil refinery on stream, is the major buffer cum shock absorber Nigeria needs now, before the talk of full deregulation, especially when government-owned refineries are in a state of comatose. It does not make sense to fully deregulate when you have zero refining capacity.
This is why the NNPC intention to acquire a minority equity stake in Dangote Oil Refinery, is a masterstroke at this point in time. It will cement the bond of much-needed business collaboration that will close ugly chapter of the petrol crisis in the country. Dangote Refinery, 650,000 barrels-per-day largest single train facility, has installed capacity to produce fifty million liters of Premium Motor Spirit (PMS) a day, fifteen million liters of diesel daily, four million tonnes of jet fuel per year, etcetera.
This collaboration is like the proverbial silver bullet that solves and resolves the national dilemmas in the downstream industry. When this largest refinery in Africa gets operational, the challenge of importing refined petroleum products automatically disappears in Nigeria. There are also local and regional markets for it.
Subsidy payment dies with it. The pressure on foreign reserves reduces. Naira gains value. More money goes to the Federation Account. Other critical sectors hitherto starved of funds get a breath of fresh air and resuscitated. Thousands of jobs are created. Smuggling of petrol products to neighboring countries drops. And periodic petrol scarcity becomes history.
NNPC/Dangote Oil Refinery collaboration will herald a new era in the downstream industry. It will be a win-win for the country.
Chidiebere Nwobodo writes from Abuja via firstname.lastname@example.org