How will Dangote Refinery affect NNPC's unproductive refineries?

Sitting on a land area of approximately 2,635 hectares in the Ibeju Lekki end of Lagos State, the multi-billion dollar project, commissioned by President Muhammadu Buhari on Monday, May 22, 2023, will commence operations by the end of July.

With a capacity to produce 650,000 barrels per day, the biggest oil refinery in Africa and world’s biggest single-train facility is expected to boost Nigeria’s refining capacity and meet the country’s requirement for all refined products such as diesel, petrol and kerosene.

President Muhammadu Buhari-Inaugurates Dangote Petroleum Refinery in Lagos on Monday, May 22, 2023. [Premium Times] Pulse Nigeria

A lot of industry players and stakeholders are quite excited and impressed about the launching of Dangote oil refinery because apart from being the largest industrial project in Africa, it has the potential to transform the continent’s energy landscape.

According to the African Petroleum Producers Organisation, when the refinery becomes operational, it will supply over 12% of Africa’s products demand and bring about 36% reduction in the importation of petroleum products into the continent.

Nigeria having an in-country facility for refining crude oil will also make the West African country become an exporter of fuel. This in turn will help the government to spend less on foreign exchange and the logistics cost around petrol supply will reduce.

Apart from creating over 100,000 direct and indirect jobs, it is believed that the refinery will fuel further growth and development in the cosmetics and plastics industry.

According to the Nigerian Economic Summit Group (NESG) Dangote refinery will add about $21 billion yearly to the Nigerian economy.

However, while the commissioning of the Dangote refinery continues to generate excitement, there have been questions and concerns about the viability of other refineries in the country.

Aliko Dangote's refinery project has the capacity to produce 650,000 barrels per day. [Nairametrics] Pulse Nigeria

The four government-owned refineries in Warri, Port-Harcourt and Kaduna states have been comatose for years. The refineries managed by the Nigeria National Petroleum Company (NNPC) Limited, have a combined refining capacity of 445,000 barrels.

Despite the billions of naira spent on rehabilitation works being carried out on them, these facilities for several years have not been able to process a barrel of crude oil.

In 2020, the first-ever audited account and financial statements of the refineries published by the NNPC showed that three of the four refineries recorded ₦1.64 trillion losses between 2014 and 2018.

Despite processing no crude oil in 2020, the refineries cost the Federal Government ₦10.23 billion in expenses. Still, the government thinks it’s important to sink more public funds into their rehabilitation.

In fact, recently, the Group Chief Executive Officer (GCEO) of the NNPC, Malam Mele Kyari disclosed that the corporation needed to take loans to fix the Warri and Kaduna refineries.

Group Managing Director of the NNPC, Mele Kyari (Nairametrics) Pulse Nigeria

As of March 2021, the Federal Government had spent a whopping sum of $26.5b on the maintenance of these unproductive 445, 000 barrels/day capacity refineries. According to a report by the Guardian, the sum at the time could build three new refineries of the same size.

Ironically, where the FG failed to revive three of its four refineries with $26.5bn, Aliko Dangote set up the biggest single-train refinery in the world with $18.5bn.

It is against this background that some economists have advised the government to discard its dysfunctional refineries and stop spending public funds on fruitless maintenance of the facilities every year. There are also those who have argued that the facilities can still be brought back to life.

But in the opinion of Adeola Yusuf, Energy Policy Analyst and Team Lead, Platforms Africa, Dangote refinery alone cannot fully satisfy the energy needs of Nigeria.

In a telephone interview with this writer on Monday, May 22, 2023, Yusuf said in addition to the NNPC refineries which have been under repair for years, Nigeria needs functional modular refineries for efficient fuel supplies across the country.

The NNPC says the Port-Harcourt refinery will begin operations before the end of 2023. [Premium Times] Pulse Nigeria

“There are divisions as to what would happen to the NNPC refineries after Dangote refinery begins operations but what we all know is that if Dangote refinery is working, it does not stop other refineries from working. In fact, we at Platforms Africa have been advocating for modular refineries to be established in different parts of the country. What that would mean is that if a modular refinery is established in Kano, for instance, there won’t be any need for trucks to come to Lagos to transport the products to Kano”, he said.

However, he maintained that it may take a miracle for the four NNPC refineries to get back in shape due to the perceived lack of political will on the part of the government.

According to him, “The original equipment manufacturer of the Port Harcourt refinery had once advised that rather than spending money on maintenance, the government should consider a total overhaul of the facility or sell it off to companies that would be able to do a complete overhaul”.

But having spent billions of naira to revive the refineries, the NNPC has projected that the government-owned refineries in Rivers, Delta and Kaduna States will soon begin operations.

According to the NNPC boss, the Port Harcourt refinery will be ready before the end of 2023 while those in Warri and Kaduna would start production in 2024.

“Port Harcourt will start producing fuel this year and by the first quarter of next year, Kaduna will start producing fuel,” Kyari said in a recent interview with Trust TV.

With this promise, Nigerians can only look forward to seeing the refineries up and running or wait for the NNPC to come up with another excuse for not meeting its own deadline.