By Godwin Osaka
The Nigerian downstream petroleum sub-sector has once again come under local and international spotlight, no thanks to a high-profile dispute among some heavyweights in the fuel distribution value chain. Although the main actors in the saga are the Dangote Refinery and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), other key players in the sector- the Nigerian National Petroleum Company Limited (NNPC), the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), the Depot and Petroleum Products Marketers Association (DAPPMAN), have been expectedly tugged into the disagreements.
The $20 billion Dangote Oil refinery, built by Africa’s richest man, Aliko Dangote on the outskirts of Lagos, began operations in January but has been unable to get adequate crude supplies from Nigeria. This became one of the issues at the heart of the rift between the refinery, Nigeria’s downstream oil regulator and other fuel marketers in the country.
Valuechain reports that the main issue started last month when the Dangote Refinery accused oil majors in Nigeria of blocking its access to locally produced crude and the regulator was allowing fuel traders import high-sulphur diesel thereby undermining its refinery. Vice President, Oil and Gas, at Dangote Industries Limited (DIL), Devakumar Edwin, said the International Oil Companies (IOCs) are deliberately and willfully frustrating the refinery’s efforts to buy local crude by jerking up high premium price above the market price, thereby forcing it to import crude from countries as far as United States, with its attendant high costs.
Speaking to a group of energy editors at a one-day training programme organised by the Group, Mr. Edwin said, “It seems that the IOCs’ objective is to ensure that our petroleum refinery fails. It is either they are deliberately asking for ridiculous/humongous premium or, they simply state that crude is not available. At some point, we paid $6 over and above the market price. This has forced us to reduce our output as well as import crude from countries as far as the US, increasing our cost of production…”
The Dangote Refinery official said the decision of the NMDPRA, in granting licenses indiscriminately for the importation of dirty diesel and aviation fuel has made the refinery to expand into foreign markets. The refinery, he said, recently exported diesel and aviation fuel to Europe and other parts of the world.
In response, the head of the NMDPRA, the downstream regulator, Farouk Ahmed said the Dangote refinery had not even been granted a full licence to operate, explaining that the facility cannot be solely relied upon to satisfy the fuel needs of the country
Speaking with journalists on the matter, the NMDPRA chief executive added that he had been under pressure by Dangote refinery to stop all import of diesel and jet fuel, despite the fact that the imported fuels had lower sulphur content than the Dangote refinery.
“So we cannot rely heavily on one refinery to feed the nation, because Dangote is requesting that we should suspend or stop all importation of petroleum products, especially Automotive Gas Oil (AGO) or diesel and jet fuel, and direct all marketers to the refinery.
“So, in terms of quality, currently…Dangote refinery as well as some major refineries produce between 650ppm and 1,200 ppm. So, in terms of quality, their quality is much inferior to the imported quality.”
The Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN) while reacting to earlier claims by Dangote oil refinery that its members were granted licenses indiscriminately to import dirty fuel into the country, said it would resist every attempt at introducing a Dangote Refinery monopoly into the downstream sector.
While acknowledging that the Dangote refinery is a business entity that is free to adopt any model that suits its management, DAPPMAN, however, stressed that “its Dangote’s practice of cheaper bulk sales prices to international buyers at the detriment of Nigerian buyers calls to question their patriotism to the country”.
DAPPMAN in a statement by its Executive Secretary Olufemi Adewole added, “Several Nigerian marketers had in recent past been offered Dangote refinery cargoes by international trading firms at rates that are very much lower than what they were directly offered by Dangote Refinery, and this will not be in the interest of the Nigerian fuel end-user.”
The statement concluded, “There is no doubt that the success of the Dangote refinery will be a thing of pride to the nation, but all downstream operators and their activities must be in tandem with the provisions of the Petroleum Industry Act 2021 which abhors ‘monopoly’ of any sort.”
Also weighing in on the issues, the National President, Independent Petroleum Marketers Association of Nigeria (IPMAN), Abubakar Maigandi, blamed Dangote for the importation of diesel by operators, saying his (Dangote) diesel is more expensive. Maigandi disclosed that Dangote did not heed the advice of marketers that the current price of diesel and aviation fuel be reduced to beat competitors in the market. The IPMAN boss maintained that nobody would be encouraged to import the so-called dirty fuel if the products from Dangote refinery were cheaper.
The controversy surrounding the refinery seemed to have further escalated when news surfaced about the Dangote oil refinery reselling cargoes of U.S. and Nigerian crude, over technical problems at the crude distillation unit of the refinery, although Dangote refinery has refuted the reports. Such resales by refineries are quite rare but not unknown, according to Reuters report quoting traders.
Stakeholders rally round Dangote refinery
Some prominent Nigerians and key stakeholders have added their voices to the groundswell of support for President of Dangote Group and Africa’s richest person, Alhaji Aliko Dangote, in the recent disagreements.
Former Vice President and the presidential candidate of Peoples Democratic Party (PDP) in the 2023 general election, Atiku Abubakar, described the disagreements as “troubling”.
Writing on his verified X account, Atiku said Dangote refinery was crucial for Nigeria’s energy and economic stability. He stated that Nigeria risked scaring foreign investors away with the current altercations. While calling for protection for the multi-billion-dollar investment, Atiku maintained that by doing so, the country will attract Foreign Direct Investment (FDI) as well as boost economic growth.
Nigerian billionaire, Femi Otedola, also threw his weight behind Dangote urging the federal government to support Dangote, like other countries supported their industrialists. In a series of posts on X, Otedola said Dangote had built “the largest single train refinery in the world, the second-largest sugar refinery in the world,” emphasising that he (Dangote) remains the highest taxpayer in Nigeria.
In his intervention on the Dangote/NMDPRA imbroglio, former Governor of Anambra State and presidential candidate of Labour Party (LP) in the 2023 presidential poll, Mr Peter Obi, stated that Dangote refinery should be fully supported, not vilified. Obi said the conflict between Dangote industries and some government agencies was deeply troubling, stressing that the issue transcends political affiliations and personal grievances.
A statement by Obi on his X handle said, “Given Alhaji Dangote’s significant contributions to Nigeria, it is crucial that these disputes are resolved swiftly. Obi said despite operating in a challenging business environment, Dangote had established a remarkable industrial hub in Nigeria, encompassing over 15 sectors, including cement, sugar, salt, fertiliser, infrastructure, tomatoes and automotive.
The Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA) while calling for protection of local industries maintained that undermining the refinery will be counterproductive and detrimental to Nigeria’s development aspirations. National President of NACCIMA, Dele Oye, said protecting local industries was crucial for the economic growth of any country, explaining that they are significant sources of job creation and economic diversification.
Similarly, the Manufacturers Association of Nigeria (MAN) declared that no regulatory agency in Nigeria should be seen to be casting aspersion on a home-grown investment, like the Dangote refinery.
The declaration was made by the Director General of MAN, Mr. Segun Ajayi-Kadir, who expressed concern over the allegations of poor quality of diesel levelled against the refinery. Ajayi-Kadir added that MAN had expressed grave concern and called for caution from major actors, government agencies and regulators in the oil and gas sector of the economy because hardly would any major foreign investor be encouraged to invest in Nigeria by the recent unwarranted castigation of Dangote refinery.
According to the director general, the manufacturing sector is beset with multifaceted challenges that include high cost of electricity, high cost of compliance with regulatory requirements, lack of access to financing, unfavourable foreign exchange, and unfair competition from imported and smuggled products.
“It is, therefore, imperative that the Nigerian government takes proactive steps to address these binding constraints in order to improve the competitiveness of local industries and enhance their contribution to the GDP,” he said.
The House of Representatives in defence of Dangote called on the federal government to suspend the chief executive of NMDPRA, pending conclusive investigations into the allegations against the authority.
The resolution followed the adoption of a motion of urgent national importance on the “Urgent Need to Address the Outrage Resulting from unguarded comments by the Chief Executive of the Nigerian Midstream and Downstream Petroleum Authority,” moved by Hon. Esosa lyawe at plenary.
The lawmaker stated that in their defence, Dangote called for a test of their products, which was supervised by members of the House of Representatives, wherein it was revealed that Dangote’s diesel had a sulphur content of 87.6 ppm, whereas the other two samples of imported diesel showed sulphur levels exceeding 1800 ppm and 2000 ppm, respectively, thus, disproving the allegations made by the NMDPRA boss.
He said, “The unguarded statements by the chief executive of the NMDPRA, which has since been disproved, sparked an outrage from Nigerians, who tagged his undermining of local refineries and insistence on the continued importation of fuel, an act of economic sabotage, as the imported products have been shown to contain high levels of dangerous compounds.
“The careless statement by the chief executive of the NMDPRA without conducting any prior investigation is not only unprofessional, but also unpatriotic, especially in the face of the recent calls for protest against the federal government.”
Dangote’s potential oil downstream monopoly presents risks
Valuechain reports that while the contributions Aliko Dangote, through his conglomerate, the Dangote Group, to the Nigerian economy has been monumental, however, what is undeniable is the significant overwhelming role the government of Nigeria has played in helping the Dangote Group, achieve market dominance in various industries. Benefiting from various government incentives like tax holidays, subsidies, pioneer status, duty waivers, import bans on certain goods, such as cement; entry barriers for other competitors, and high import tariffs to boost local dominance, Dangote’s s strong government relations have enabled him to establish and maintain a dominant position in cement, sugar, salt, fertilizer and other sectors of the Nigerian economy.
Although Dangote is not the only conglomerate to enjoy government support, elsewhere, some of today’s giants like Microsoft and Tesla have received and continue to receive substantial support from the US government. In India, the government has been instrumental in supporting titans like Gautam Adani and Mukesh Ambani. In China, government backing for companies like Huawei and Alibaba has propelled them to global leadership in technology and e-commerce.
However, any attempt to establish monopoly in the downstream petroleum value chain presents a number of challenges and potential risks to Nigeria’s economy, in view of how critical the sector is to the survival of the country. If any monopolistic tendency is allowed to be extended to the downstream petroleum sector, it may cripple the entire subsector by stifling innovation, competition and consumer choices. It is crucial for regulatory bodies like the NMDPRA to ensure fair competition and address potential industry drawbacks.
Countries around the world employ various regulatory frameworks and strategies to manage and regulate big monopolies. In the United States, the Sherman Antitrust Act, Clayton Act, and Federal Trade Commission (FTC) Act form the core of U.S. antitrust laws that prohibit monopolistic practices, price-fixing, and unfair business practices. The EU has robust competition laws under the Treaty on the Functioning of the European Union (TFEU), particularly Articles 101 and 102 which penalizes companies for anti-competitive behavior, including abuse of dominant position and anti-competitive mergers. Many of these countries have specific agencies responsible for investigating, imposing fines to companies found guilty. In the UK (The Competition and Markets Authority-CMA), in Canada, the Competition Bureau and in Australia, the Australian Competition and Consumer Commission (ACCC), among many others.
The Dangote Refinery, like any industrial project, must subject itself to regulatory oversight by various government agencies in Nigeria, particularly the premier regulator, NMDPRA. The NMDPRA is responsible for regulating the downstream oil and gas industry in Nigeria. Therefore, the era of regulatory capture, where regulatory agencies prioritize the interests of influential businesses are over. While it is the NMDPRA’s role to enable businesses in the down and midstream value chain to flourish, the agency must be supported by all well-meaning Nigerians in its efforts to becoming a strong, independent and unbiased regulator. All players must play according to the rules rather than whip up sentiments to draw public sympathy.
Need to support, empower NMDPRA a strong downstream regulator
One of the critical responsibility of any regulatory body anywhere in the world is to ensure that industry players comply strictly with safety, health and operational standards. This is particularly crucial in the oil and gas sector, where breaches can lead to disastrous consequences. NMDPRA insisting that all industry players, including the Dangote Refinery, operate within strict standards and best practices, is testament to the agency’s commitment to being an unbiased umpire…
There should be a level playing field, that will foster healthy competition and ensure that consumers benefit from competitive pricing. Dangote Refinery has enjoyed maximum support from all agencies of government including NMDPRA in setting up the plant. With its vast capacity and potential market dominance, the refinery must subject itself to be regulated in a manner that prevents unfair competitive advantages that could stifle other industry players and only the NMDPRA can do this. No one business entity will forever receive government patronage in form of concessions, FX allocation preferential treatment and market monopoly.
Therefore, for demonstrating remarkable courage and resilience, rising above ethnic or religious sentiment and risking obvious public backlash, the patriotic effort of the NMDPRA and its CEO must be commended, true patriotism prioritizes the collective good over personal gain.
President Bola Tinubu has made a significant policy commitment to grant regulatory agencies in Nigeria greater autonomy, ensuring they can operate independently and effectively. This move is crucial for Regulatory bodies such as the NMDPRA to enable them enforce regulations more effectively, create a more stable and predictable business environment for attracting both domestic and foreign investment, as well as prevent monopolistic practices.