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One of Muhammadu Buhari’s last acts as Nigeria’s president was cutting the ribbon at the Dangote oil refinery on the outskirts of Lagos, Nigeria’s commercial capital.
The project, long in the making, was the work of Africa’s richest man, Aliko Dangote. Finished seven years later than planned, it cost more than double its original $9bn budget.
But it is still unclear when the refinery will begin delivering refined products to market, despite Dangote’s claim at May’s inauguration ceremony that he expects production to begin in July. A more realistic target could be November, according to a source familiar with the plant’s operations.
Insiders say the ribbon-cutting fanfare was a political sop to Buhari, who was a champion of the project, so he could take credit for bringing a potentially game-changing infrastructure project to fruition. NNPC, Nigeria’s state-owned oil company, owns a 20 per cent stake in the plant.
A cement and sugar tycoon, Dangote has a record of success and domestic production. Although his critics accuse him of a cosiness with successive governments that has proven beneficial to his empire — worth about $21bn, according to the Bloomberg Billionaires Index — Nigerians will be hoping he succeeds in his latest venture. The project also comprises a fertiliser processing complex, a deep seaport and a 435MW power station.
Nigeria is largely incapable of refining crude. Its three state-owned refineries are in disrepair and operate at only about 30 per cent of capacity, despite the government spending $25bn to revamp them.
Thus, Nigeria spends $23bn annually on importing petroleum, which is then subsidised to the tune of about $10bn a year — at least until Bola Tinubu, the new president, removed subsidies on his first day in office, last month.
At full production, Dangote’s refinery could process as much as 650,000 barrels per day. Although Nigeria’s Opec production quota is 1.8mn, the country now routinely produces just under 1mn barrels daily due to theft, vandalism and infrastructure problems (see above). The IMF said in a recent report that it does not expect the refinery to reach more than a third of its production capacity by 2025. Nevertheless, Dangote is bullish about the prospects of reaching full output by the end of next year.
Securing crude supplies will be crucial to the plant’s success. But the rampant violation of pipelines in the Niger Delta could make achieving that a big challenge.
As such, no magical solution to Nigeria’s oil woes appears likely. Analysts at Lagos-based consultants SBM say that while Dangote’s refinery — which at full stretch could produce 53mn litres of petrol daily — may “largely provide” the capacity for Nigeria “finally” to solve the supply problems that lead to periodic scarcities, it will have “little impact on the price of the products”. These will continue to be determined by global oil prices. However, the refinery could be a boon for neighbouring countries, which often have to import petroleum products from further afield.
