Dangote Refinery and the NNPC appear to be making headway in their three-week-long negotiations on local fuel supply.
On Thursday, reports surfaced that the Nigerian National Petroleum Company Limited (NNPC) and the leadership of Dangote Refinery are progressing in their discussions about supplying fuel within Nigeria. As part of the negotiations, the NNPC has requested the deployment of a permanent monitoring team at the refinery.
Additionally, it has been revealed that Aliko Dangote, President of Dangote Group, has agreed to sell petrol refined at his 650,000 barrels-per-day refinery in Nigeria using the local currency, the Naira, as part of the deal with the NNPC.
Petroleumprice.ng followed an X Space session hosted by ‘Nairametrics,’ where Devakumar Edwin, Vice President of Oil and Gas at Dangote Industries Limited, provided updates on the refinery’s operations.
During the session, Edwin highlighted the progress made by the refinery in producing Premium Motor Spirit (PMS), commonly known as petrol. He emphasized that the NNPC had informed Dangote Group of its intention to station a team of six to ten people permanently at the $20 billion refinery.
“NNPC has informed us that they intend to station a team of six to ten people permanently at our refinery. They’ve asked us to provide office space for them since they will be supplying the crude, overseeing the production, and buying back the products in Naira. This request aligns with the NNPC’s aim to closely monitor the entire process, ensuring that crude is supplied and processed efficiently while securing a steady flow of PMS for the country,” Edwin stated.
Edwin further explained that the discussions with the NNPC revolved around a new model where the refinery will buy crude from the government in Naira and sell PMS in the same currency, rather than in dollars. However, key issues such as crude pricing and the Naira exchange rate remain unresolved.
“We are still in talks with the government about receiving crude in Naira. The discussions are ongoing, and nothing has been finalised yet. Some unresolved issues include the pricing of crude, the pricing mechanism, and determining the appropriate exchange rate for the Naira,” Edwin said.
Despite the likelihood of financial losses, Edwin revealed that Aliko Dangote had agreed to the federal government’s proposal to sell products to the government in Naira. Dangote cited the critical need for foreign exchange and the deteriorating value of the Naira as key factors in his decision.
“Dangote intervened and said: ‘We are going to accept this because the country desperately needs foreign exchange, and the value of the Naira is deteriorating every day. I understand that I am going to take a loss – because, by the time we sell the product and convert it to dollars, the exchange rate may have worsened.’”
Edwin also expressed frustration over the apparent boycott of Dangote Refinery’s products by local marketers. Despite the refinery’s efforts to supply affordable petroleum products, many traders in Nigeria have refused to purchase from the facility, opting instead to continue importing refined products from abroad.
He said: “The whole purpose of doing this refinery in Nigeria was to utilise our local crude instead of exporting raw materials and importing finished products. We should be able to refine and use the finished products within Nigeria and produce more to export the surplus.”
However, Edwin noted that despite the refinery’s large production capacity, local marketers were only purchasing about 3 percent of the output. As a result, the remaining 97 percent of the refinery’s production, including diesel and jet fuel, was being exported due to the boycott by local traders.
“I’m selling 2 to 3 percent to small traders who are willing to buy, while the rest 95 to 97 percent I’m forced to export,” he said, suggesting that some marketers prefer to import for reasons he did not state.
In a surprising twist, Edwin disclosed that oil marketers wrote to President Bola Tinubu, complaining about the refinery’s pricing strategies, particularly regarding the reduction of diesel prices.
“They wrote to His Excellency, the president, claiming that we are disturbing the market by dropping our prices,” Edwin explained, expressing concern over the continued resistance by the marketers.
Edwin also mentioned that despite the refinery’s capacity to produce up to 54 million liters of refined petroleum products per day, local crude supplies have been inconsistent. This has forced the refinery to rely on imported crude from countries like the US and Brazil.
Edwin added that the situation was further complicated by International Oil Companies (IOCs) that prefer to prioritise foreign markets and sell crude oil at prices above the market rate.
He disclosed that just 44 percent production of the refinery was enough to meet Nigeria’s petroleum needs, while the rest could be exported.
“We have invested a lot in training and capacity with the refinery. As I said, 44 percent of the refinery production can meet 100 percent of the requirement of the country. So the balance 56 percent of the refinery’s production will have to be exported, whether it is jet fuel, diesel, or PMS. We have to export 56 percent of our production because 44 percent will meet all the requirements of the country.
“So we are not only going to save a lot of foreign exchange by import substitution, but we are also going to generate a lot of foreign exchange by exports. Now, you talked about the transparent mechanism of the pricing. So as I said, NNPC is giving us the crude and they are going to have people sit here to monitor all the production processes, the stocks which are coming out, everything.
“And they are going to agree on the price at which they will sell the crude in Naira and then they are going to collect all the products. So they are going to work through to see how the prices will be. So it is not something where we are trying to exploit somebody,” he maintained.
According to him, while 2,900 tankers can load every day, the refinery is currently not even loading 29 tankers per day.
“So, it is very strange that after putting the refinery to supply the products locally, every diesel I am producing, I have to export. Every jet fuel I am producing, I have to export because they do not want to buy from us. So, we are in a very strange situation,” Edwin stressed.
With an investment of about $3 billion in fertilizer and $20 billion in the refinery, Edwin explained that unless the business generates revenue, it will not be able to invest in upstream operations.
He disclosed that he has been an employee of Aliko Dangote for as long as 33 years, noting that all the money Africa’s richest man earns goes back into further investments to ensure the employment of Nigeria’s large population.
“He has not built any other palace or any other house. He is living in the same 35-year-old house. The only thing he can sit in is an aluminum sheet shed. Nothing else he has built. And 33 years ago when I joined, he had a house in Atlanta. He was a neighbor to Ted Turner, the then owner of CNN.
“He sold it. He had a house in London. He has sold it. When we were doing the sugar refinery in 1997 to 1999, he sold all those houses and put the money in the sugar refinery.
“All the money we made from our textiles and salt he put it in sugar refining, flour milling, pasta, and noodles. Then all the money which we made from that, he started investing in cement.
“Now the money which he has made in cement, he has been investing in oil and gas, fertilizer, and refinery. All our businesses are listed companies. So how much profit we are making as a company, how much dividend he is getting, are all published figures. So you can see all the money where it is going,” Edwin added.
