CORAN: Dangote wooing back govt agencies after spat
Sopuruchi Onwuka
After overriding government’s bureaucratic bottlenecks to secure executive fiat on supply of crude oil feedstock to his newbuild refinery, dismantle offtake monopoly of the national oil company, and free up market supply opportunities for his refinery; Alhaji Aliko Dangote is now indirectly wooing back bruised government agencies to normal business relationship.
Reconciliation becomes important due to indispensability of national oil company, regulators and sundry agencies in the Ministry of Petroleum Resources to sustainable operations as the 650,000 barrels per day Dangote Refinery scales towards optimum operations.
After a barrage of heated altercations which is widely interpreted as successful hamstringing of government agencies standing in his way to capturing Nigeria’s huge domestic fuel market, Aliko Dangote and a small crowd of fringe operators in the domestic refining business held a summit last week to engage the regulators and crude oil producers who were earlier excoriated as enemies of the local refiners.
The 14 member Crude Oil Refinery-Owners Association of Nigeria also called CORAN convened a one day summit in Lagos Tuesday with a theme on “Making Nigeria a Net Exporter of Petroleum Products;” but the real agenda appear to be a gap closing event after a deep rift developed between the players and the regulators that should oversee and certify their activities.
The summit followed sharp divisions among investor groups in the upstream and downstream segments of the industry over misgivings associated with trade of allegations between local refiners and government agencies in the industry.
Issues revolved around inability for the Dangote Refinery to get adequate volumes of crude oil feedstock to ramp up operations at the $20 billion loan backed refinery after it was commissioned at the end of very prolonged project stages and massive covid-inflicted cost overruns.
The Oracle Today reports that the springing of successful private refining projects had exposed acute shortfall in the volume of oil available for sale by the country. It became clear that the government of former President Muhammadu Buhari had during his last days in office staked the country’s crude oil for foreign loans.
The commitment of the nation’s crude oil supplies to lenders had weakened the ability of the upstream petroleum industry to respond to sudden rise in domestic demand for feedstock at a time the long anticipated private refining projects started coming online.
The situation which left smaller players in the industry like the OPAC Refinery in hushed gasps had spurred a brazen spat between the promoters of Dangote Refinery on the one hand and the officials of the Nigerian National Petroleum Company (NNPC) Limited, the Nigeria Upstream Petroleum Regulatory Commission (NUPRC), the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), indigenous traders and marketing groups patronized in the massive import programmes on the other hand.
Surging with influence and power, Alhaji Dangote had galvanized political, investment and media stakeholders in launching a spate of national uproar that moved the hands of the president in authorizing activation of domestic crude oil supply obligation to the nation’s local refineries, a replica of the gas supply obligation to generating companies in the power sector.
The first line of battle was the clash between the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and Dangote over crude oil supply from the nation’s oil export terminals. The inability of the commission and the NNPC Limited to influence supply of feedstock to the new refinery angered the Fulani businessman.
Alhaji Dangote did not just demand crude oil feedstock from local sources; he also demanded to buy them in Naira and not the dollar which is the traditional transaction currency for the global oil industry business. His demand for the commodity and currency of purchase was initially rejected by the upstream petroleum industry in a coordinated response.
The shrewd businessman also wrestled the national oil company over public sector supply monopoly and associated price manipulations that threatened liberalized offtake from the refinery. He also battled the NNPC Limited over the latter’s reciprocal demand to buy products from the refinery in Naira.
Another issue that featured in the prolonged altercation is the quality certification which pitched Alhaji Dangote against the Authority Chief Executive of the NMDPRA, Engr Farouk Ahmed.
ACE, NMDPRA Engr Farouk Ahmed
Whereas the ACE of NMDPRA accused Dangote of scheming for private supply monopoly in the country’s fuel market with substandard petroleum products from his uncompleted refinery, Dangote fired back and accused the national oil company and its cohort of traders of shipping substandard products from blending facilities in Malta to the domestic market.
He also alleged that some of the traders working for the NNPC in the highly flawed crude for product swap arrangement actually owned offshore refineries in Malta from where, according to him, they pumped in inferior diesel into the country.
Despite the spate of huge public altercations between Dangote and government agencies in the industry, the biggest issue that has defied management remains the acute shortfall in the volume of crude oil available for supply to refineries that are not integrated to upstream exploration and production operations.
Thus, investors in refining companies like OPAC, DuPort, Edo and other upcoming ones are desperate to hit the ground running: but they are in severe anxiety over the commercial viability of their operations with the tight crude oil supply situation in the country.
The massive trade of weighty allegations between Dangote and government agencies threw the domestic fuel market into anxiety, sparked off public commentary on the issues, prompted the intervention of the National Assembly and exposed the underlining crises rocking the country as veteran analysts weighed in.
Industry professional leader and investor, Mr Austin Avuru, maintained before and during the CORAN summit that the entire altercation need not have happened if the regulators of the industry had stepped-in in time to lead in finding resolution to the issues.
Chairmn of AA Holdings, Mr Austin Avuru
He argues that sinking about $20 billion investment in resolving the country’s paradox of massive importation of fuel for over 40 years should ordinarily earn Dangote privileges and incentives from the government.
Mr Avuru who is currently the Chairman of AA Holdings Limited noted that many countries in the world would have rolled out red carpet to receive any investor with a briefcase that holds $20 billion. He pointed out that even the United States of America would grant citizenship for an investor with such a portfolio.
He reasoned that it would have been very logical for the NNPC to transfer its Direct Supply Direct Purchase (DSDP) arrangement with foreign refiners to the Dangote Refinery since, according to him, the overall essence was to meet supply obligation to the domestic fuel market.
The Oracle Today reports that the NNPC Limited has, since its refineries went moribund decades ago, resorted to trading some 445,000 barrels per day of crude supply meant for the plants for equivalent value in petrol less refining margins. And a lot of local and foreign traders have made fortunes sailing the DSDP crude from Nigeria’s oil export terminals and discharging petrol for NNPC at import jetties.
The DSDP deals are shrouded in secrecy and hardly audited by any agency in the country despite the jumping fuel prices, persistent scarcity and disruptions in the domestic economy.
Mr Avuru who is also the founding Managing Director of Seplat Petroleum Development Company Limited pointed out that by migrating all the DSDP contracts from oil traders to Dangote Refinery, the NNPC would not only resolve the issue of transparency in the veiled crude for petrol swap deals; it would also resolve the feedstock supply crisis that currently overhead the industry, and allow the upstream petroleum industry run smoothly without any disruption from upheavals impinging from the local fuel market.
On the Naira medium of transaction, Mr Avuru pointed out that a swap arrangement would have resolved the matter at negotiation table. He also stated that even in the event that the NNPC Limited revamps its own refineries, the value of transaction could always be determined by converting at the prevailing foreign exchange rate.
“Some of these things are non issues if the regulators of the industry had approached the CBN to work out an arrangement for the transactions,” he pointed out, noting that both the NNPC and Dangote Refinery still needed the Naira to run their local operations.
Mr Avuru who is also a prominent member of the Independent Petroleum Producers’ Group (IPPG) decried the crisis that threaten revival of the Nigerian refining industry as avoidable and unfortunate, warning that it would defeat gross national economic objective if the local refineries were pushed into importation of feedstock at a time NNPC Limited was giving away its own crude allocation to foreign refineries in a swap for a fraction of the commodity value.
President of the Trade Union Congress (TUC), Comrade Festus Osifo, stated in a separate event that the timing and urgency of Dangote’s request for feedstock contributed to the misunderstandings that led to disputes, saying that NNPC Limited hardly has enough crude for local refining supply.
President of PENGASSAN, Comrade Festus Osifo
“Nigeria’s crude oil is sold in futures contracts. So you do not just walk in and demand crude oil cargoes that are already tied to delivery schedules,” he said, wondering why Dangote Refinery failed to capture crude supply contracts ahead of commissioning its plants.
Comrade Osifo who is also the President of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) made it clear that the past Buhari administration of the federal government had staked future crude oil export of the country in mindless borrowing of dollar denominated loans ahead of leaving office. He noted that Buhari’s mindless borrowings by plunged Nigeria into deep fiscal crises that caused acute shortages in available crude oil for export and compelled hasty deregulation of the fuel market.
He also explained that fallouts from the bad loans have led to the devaluation of the Naira, surging inflation and consequent jumps in fuel prices.
Although the private refinery space in the industry is still sprouting, early formation of the pressure groups like CORAN is perceived to generate critical mass in pushing back schemes and regulatory impediments that had stalled very credible attempts for private entry into the refining business dominated for ages by inefficient public sector monopoly.
Big Elephant in the room is the full composite 650,000 barrels per day Dangote Refinery. The rest 13 members of CORAN operate collective 52,000 barrels per day capacity in five separate suboptimal refineries currently being developed in small incremental modules. Some of the modular plants are actually emergency process units developed onsite oilfields to address crude evacuation challenges.
So, apart from being large-scale refinery located far from any producing oilfield, Dangote Refinery remains the only refinery in the country churning full range of petroleum products. The outputs fro the refinery includes the highly demanded premium motor spirit which is at the center of import boom that has drained Nigeria’s petroleum income for more than 30 years.
With the executive fiat of President Bola Tinubu resolving all issues at dispute, it appears that the Africa’s richest man has realized that efficient implementation and sustainability of the presidential directives still remain in the hands of the government agencies he crushed at battlefield.
With ego on both sides of the dispute still puffing up, the CORAN summit appears to have been designed to dress the table for the arties to resolve differences, rebuild relationship, strengthen partnerships and enhance cooperation among the refiners, the regulators, the national oil company and crude oil producers.
The five-hour summit features some 28 speakers on seven items in the programme; with “candid conversation” listed as the second. About six speakers selected from government agencies had been in direct confrontation with Alhaji Aliko Dangote.
But cold heavy feet still made physical meeting difficult as the ministers, regulators and the head of the national oil company all attended by representation. Alhaji Dangote also participated by representation.
In the presentation delivered on his behalf, Alhaji Dangote hinted dissatisfaction at the level of implementation of the crude oil supply obligation handed down on the national oil company by the president.
“We will also need to prioritize implementation of the domestic crude supply obligations,” he pointed out in his presentation.
In showing greater understanding of issues in the industry, he condemned staking Nigeria’s crude oil production on foreign loans and described it as “spending oil proceeds from the future.”
Dangote who dispatched high level delegation to the conference also charged the NUPRC to fast track asset divestments by International Oil Companies (IOC s) to indigenous, as well as other initiatives to grow crude oil production and meet growing demand from local refineries.
“We will need to expand our crude oil production capacity to support demand from new refining capacity,” he said, adding that “as a vibrant exporter of refined products, Nigeria will witness an improvement in its balance of trade and generate much needed foreign currency.”
On the government side, the ministry and its agencies reiterated their commitment to realization of industry objectives through existing policies and implementation guidelines already published by both the NUPRC and NMPRA.
In a retraction of directive on NNPC Limited inserted in a paper delivered on his behalf, Minister of State for Petroleum Resources, Senator Heineken Lokpobiri, declared that the national oil company is now free to operate on commercial basis without interference from the ministry.
At the end of the entire ego and power tussle, the CORAN summit appears to be the first attempt at reconciliation after a public spat between Dangote and agencies of the petroleum ministry. And approach to the table is still fraught with caution and lack of trust. Yet it is seen as necessary step towards close collaboration required for smooth and sustainable refinery industry operations in the petroleum sector.
