Likely impact of Dangote Refinery coming into operations
Likely impact of Dangote Refinery coming into operations
By Dr. Boniface Chizea
Just listened to the Governor of the Central Bank as a member of the Nigerian team sent to clear doubts from the minds of International investors on the question of the sustainability of Nigeria debt speak eloquently about the likely impact and what a game changer the coming into operations the Dangote Refinery will represent.
He explained that today more than 30% of our foreign exchange is taken up due to the need to guarantee the availability of refined products. An immediate impact of the Refinery coming on stream to say the obvious is that this demand pressure will be automatically removed which should impact the exchange rate. The Governor promised that at that time the circumstances will be right to float the Naira!
But some commentators are still of the view that subsidy will only be transferred to the cost at which Nigeria will sell crude in Naira to the Refinery! May be to understand the full impact of the coming on stream of the Refinery we need to have this conversation.
In the first place I suppose the crude we sell to Dangote Refinery will not be included in the export quota given to Nigeria by the Organization of Petroleum Exporting Countries (OPEC). Therefore, barring any other constraints, Nigeria will be in a position to sell higher volumes of crude. On the other hand Nigeria should sell the crude to Dangote Refinery pegged on OPEC price. The only area of conversation will be the exchange rate for the conversion to determine the Naira equivalent; which in my view should be the current rate at E&I window or the prevailing market rate at the time.
Dangote Refinery will sell direct to the public. And therefore the role which fiscal authorities play today as sole importers of refined products which really is the driver for the subsidy payments will no longer be necessary. It should be obvious that the price Dangote Refinery will sell its products across the borders will be at a premium relative to local price for the obvious reasons that it will per force have to recover at least add on logistics costs.
Therefore subsidy payments as we know it today will most surely be a thing of the past and all that humongous amount currently spent in excess of 800 billion Naira a year in a wasteful manner would be a thing of the past. And then it will be time to take drastic decisions regarding the existing moribund refineries in Nigeria which have constituted themselves into veritable drainpipes on the treasury.
I just listened to Ben Akagbueze, the Director General of the Budget Office of the Federation explain that in the Petroleum Industry Act dispensation that all subsidy will disappear latest by the middle of next year. But as we analysed 2022 Appropriation Bill we did not find any provisions for subsidy payments. Honestly, we cannot wait to see the end of the existing nightmare in Nigeria.
Dr. Boniface Chizea
