For Nigeria that boasts of being among the world’s largest exporters of crude oil and natural gas, the economic befits of the Dangote Group’s investment drive would be huge. The envisioned capacity of the proposed refinery could reduce Nigeria’s dependence on imported refined products by half, while constituting a direct blow to those “subsidy monguls”that have over the last couple of years continued to feed on oil import contracts that the government provides. The same government officials pretend that the country is somehow incapable of meeting local needs, a classic case of the worn logic of exporting raw materials cheaply while importing finished products at exorbitant costs.
Expected to come on stream by 2016, the refinery will cost some US$9 billion. Dangote Group, headed by Alhaji Aliko Dangote, Africa’s richest businessman, is to invest US$4 billion and has, in addition, signed a loan agreement with a consortium of 12 local and international financial institutions for another US$3.3 billion with the balance, presumably, coming from other investors, both local and foreign. Some 8,000 engineers and technicians will be directly employed while 85,000 others will be indirectly engaged.
Other investors have so far shied away from putting their money in the downstream petroleum and other hydrocarbon sectors, even after several inceptives offered them by the government, including crude lifting, power projects and other attractive contracts on very liberal terms. In 2002 alone, not less than 12 operational licences to build private refineries were given to some firms, only for these to be revoked five years later when they failed to utilize them. Government officials and sundry experts have tried to explain the lack of interest of the private sector by citing subsidy policy and insecurity as disincentives. Officials and their economic advisers have consistently claimed that until Nigerians agree to pay higher prices for petroleum products, no local or foreign investor would build a refinery in the country. Obviously the management of Dangote Group and other investors must have factored in all these potential risks before taking the plunge. This is a move that could be a commercially beneficial one. It is also patriotic, a demonstration of confidence in the Nigerian economy to rebound.
Arguments have been made in the past that current prices are attractive enough for anyone or firm seriously wishing to refine locally as against simply importing finished products after the crude lifters have paid for and transported this to foreign refinery, and the paid shipping, insurance and other charges to bring the finished products back to Nigeria. In any case, there is sound commercial logic for locating refineries and other processing plants near the source of raw materials and prospective markets. Even on national security grounds, Nigeria’s ability to satisfy the nation’s strategic needs must not be taken lightly.
Security however is a critical issue, and the government needs to do all it can to address this because of the seemingly interminable attacks on oil installations and wilful disruptions of crude supply. Without regular crude supply, there would be nothing to refine.
While Dangote Group deserves all the accolades for this bold move, it is appropriate to also add that this should be an incentive for others to invest in local refineries no matter how small this may be. The country’s prosperity, energy security and political survival require that it seeks not only meaningful and complete self-reliance in local refining and processing of petrol, kerosene, plastics, fertilizers and other hydrocarbon-based chemicals and products, but the ability to export these and earn critical foreign exchange as well.