With the latest developments in the local and international oil and gas sector, Nigerians should forthwith bury the hope of relief that is expected to come with the commissioning of the multi-billion Naira Dangote Refinery and Petrochemical Company. Officially unveiled on May 22, 2023 by former President Muhammadu Buhari, Nigerians and their neighbours in other regional countries should have had every reason to heave a sigh of relief, even before the production takes off at the $19 billion single oil refining facility, with 650,000 barrels capacity per day, located in the Lekki Free Zone area of Lagos State and covering a land area of approximately 2,635 hectares. What more? The production capacity of the refinery, the biggest in Africa, as well as the biggest single-train oil refining amenity in the world, surpasses 450,000 barrels per day, the capacity of three out of the four public-owned refineries in Nigeria.
These statistics and outlay look so good and very promising too. Still, the realities today have cut them short!
The first disruption and trigger to the current challenge, although not deliberate, we must establish, was the removal of fuel subsidy by President Bola Tinubu in his inaugural speech on May 29, this year. After the subsidy removal, many realities emerged. The peak of the troubles faced by the marketers who import petroleum products, in particular the Premium Motor Spirit, simply called petrol, is difficulty in accessing adequate foreign exchange at a competitive market rate. This challenge necessitated the second hike in the pump price of the product around July, less than two months after President Tinubu’s swearing-in.
In search of solutions – for importers to access FOREX, the Nigerian National Petroleum Corporation Limited in August brokered a $3 billion (N2.3 trillion) loans for oil deal with the African Export-Import Bank. This approach has however led to some shocking and strange fallouts.
The first mystery is that, as we speak, Dangote Refinery is going to import crude oil and should have received its first consignment. While the firm’s Executive Director, Devakumar Edwin, kept mute on other entities receiving the NNPCL crude, the oil giant itself confirmed that it was in a crude for loans deal with AFREXIM. Giving the reason for its outside shopping, NNPCL linked the development to its inability to meet Dangote’s Refinery “earlier” needs to the rather ambiguous deal! However, both Edwin and NNPCL gave their words that the present situation is temporary as the earlier need would be met by the latter in November this year. Still, the facts on ground have made it clear that this is a mere wish. More details will come on this later.
As the country battles with paucity of FOREX – for importers to do a hitch free business, another disruption hit the international oil market. Recently, the oil price climbed to over $90 per barrel. The situation is worsened in Nigeria as the naira hit an all-time low of N1,000 to a dollar.
Now the real issue. On one hand, it is shocking and disappointing to hear that Dangote Refinery, whose hopes of being a big relief have been rested, could not source crude from the NNPCL. On the other hand, it’s strange and absurd to learn that the bank, as we speak, is still shopping for a $3 billion loan it has agreed to borrow NNPCL! And that out of the sum, it has only raised $500 million by itself!
For the record, AFREXIM is not a depositor’s bank. This apparently informed why it was forced to approach other financial institutions in different parts of the world to source the difference of the loan. According to an online newspaper, Newswire: “Authoritative sources in New York financial circles confirmed that staff and agents of AFREXIM have been shopping for funds and financial instruments in the US and discussing raising funds from top notch American Banks like JP Morgan Chase and Citigroup among others.” This approach looks very odd to some US banks, raising questions about the strategy of Nigeria using a third party and non deposit financial institution and broker in a transaction of this nature. They therefore posited that the method “…raises credibility issues”.
Similarly, industry watchers in the US are said to be worried, questioning the option of engaging a broker instead of a deposit bank. They reportedly reason this could raise the level of risk involved in the loan since AFREXIM would have its own charges, apart from those of the “eventual financiers it may manage to enlist”.
From all indications, the NNPCL-AFREXIM crude for loans deal is abstract. The deal does not look clean and therefore raises many questions. First, why should NNPCL enter into a deal which ordinarily is meant to deliver solace to all stakeholders in this trying time with a financial institution without firm solvency? Why and how did a questionable deal like this pass the “integrity test” at the peril of a local refining firm with many production cost benefits, especially at the local level? Whose benefit or interest is the deal serving?
To worsen the situation, recently, the speculation is rife about another hike in the pump price of fuel. Of course, the reasons adduced by the downstream operators include: increase in the oil price, depreciation of naira value and dearth of FOREX. All of these always tell on the landing cost of the product. Presently, the importers claim that the landing cost of PMS has jumped from old N651 to N720 per litre. Consequently, the patronage by petrol dealers has dropped substantially. Reports in Lagos have it that most fuel depots are now deserted as the available price is not affordable and realistic to the traders.
Amidst the uncertainty, the NNPCL maintains that there is no plan to hike petrol pump price. Surely, the dealers lack faith in the corporation’s declaration and this clearly informed the restraint being exercised by them. The implications of this includes: shortage in supply, hoarding, arbitrary price hike and return of long queues to service stations.
In view of the prevailing challenges, we make bold to say that the current crude-loan swap deal is not far from being another booby-trap to frustrate fuel subsidy removal policy and local purchase of crude so as to ensure that the cabal maintains the present awkward trend and in the end, as usual, make fortunes out of it.
We therefore call on the Executive and Legislature to use the suspicious deal as a launch pad to commence the long deserving and thorough check and extensive investigation on the past activities of the NNPCL. The entity requires cleansing and top-down overhaul. If the heads must roll after the scrutiny, let it be! The oil corporation should and must now be run to actualise the goal of its new status as well as in line with the ‘Renewed Hope Agenda of the present administration. The mistakes of the past are definitely impeding the business of the national oil company as a now largely privatised enterprise.
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In addition, President Tinubu should and must realise that any measure or approach taken to resolve fuel production and distribution in the country without a conscious recourse to reactivating and reviving our ailing refineries is a joke and journey to nowhere. We hereby remind the President about his administration’s recent commitment, especially on putting back to work the Port Harcourt Refinery. As we published in our recent Editorial, Nigerians would hold him (Tinubu) to his words. His Minister of State for Petroleum Resources, Heineken Lokpobiri, has promised that the Port Harcourt Refinery would be alive in December this year. This is realistic, provided the government has the political will.
Dangote Refinery is another sure way. Therefore, the Federal Government should assert itself, render all and due assistance to it to source its crude internally. For that relief that should come with the first privately owned and biggest refinery to become a reality, the President, as the Minister in charge of Petroleum, must work to remove all the obstacles in the way to make our downstream sector become functional and viable for a prosperous and sustainable economy