Analysis: Dangote refinery and Nigeria’s forex

In addition, the refinery will also create employment, boost fuel supply across Africa, and generate foreign exchange earnings for Nigeria through the export of 40 per cent of its products.

Update: 2024-08-18 15:51 GMT

The 20 billion-dollar Dangote refinery investment with a 650,000-barrel capacity per day will undoubtedly boost Nigeria’s foreign exchange.

Equally, the project is expected to reduce the pressure on foreign exchange drastically if sales of crude oil to Dangote are dominated by local currency.

Industry observers are of the notion that the project will meet 100 percent of Nigeria’s demand for refined petroleum products with a surplus for export.

In addition, the refinery will also create employment, boost fuel supply across Africa, and generate foreign exchange earnings for Nigeria through the export of 40 percent of its products.

Viewed as a game-changer for the revitalisation of Nigeria’s economy and the downstream petroleum products market on the entire African continent, the multi-dollar project is billed to elevate the status of the Naira, which has been struggling for survival against the dollar.

With its first-rated management and support from the government and other stakeholders, the project, regarded as a huge achievement for the Nigerian government, will, without mincing words, reduce the nation’s dependence on fuel imports and save foreign exchange.

Supreme News recalls that the world’s largest single-train refinery, was commissioned by former President Muhammadu Buhari on May 22, 2023, in Lagos, a few days before the change of baton with President Bola Tinubu, his successor.

However, some oil and gas experts, in an exclusive interview with newsmen, expressed optimism about the world-class project sited in Lekki, a Lagos State riverine community.

Speaking at the Federal Executive Council meeting recently, Mr Zacch Adedeji, the Executive Chairman of the Federal Internal Revenue Service (FIRS), highlighted some of the benefits of the project to Nigeria.

Adedeji said that the pressure on foreign exchange would drastically reduce if sales of crude oil to Dangote were dominated by local currency.

According to the FIRS boss, Nigeria spends about 30 per cent to 40 per cent of its FX on the importation of petrol, thereby putting much demand on the country’s foreign reserve.

Adedeji said that the proposed transaction would be a game-changer for the FX market by saving what he termed hard-earned greenback instead of spending it on importation.

“What does this mean to our economy? The pressure on foreign exchange rates today will be reduced.

“We spend roughly 30 per cent to 40 per cent of our FX on the importation of PMS that we consume. That will be drastically reduced,” he said

The FIRS boss noted that Nigeria would save $7.32 billion annually if all transactions of crude to local refineries were done in local currency as approved by the FEC.

He explained that Nigeria currently spends 600 million dollars on importation of petrol per month, amounting to about $9.72 billion annually.

Whereas, selling crude oil and buying refined products from Dangote Refinery in local currency will save the country a total of $7.32 billion annually, a 94 percent decline from actual spending.

“With the new approval, this will reduce to a maximum of 50 million dollars per month. When annualised, that is only 600 million dollars, which is a total reduction of 94 percent. In monetary terms, that is savings of about $7.32 billion,” Adedeji added.

Supporting Adedeji, an oil and gas consultant, Mr Demola Adigun, described the project as a national treasure that must be supported to perform efficiently.

To derive expected value Adigun listed advantages of the project to include job creation and value addition in the downstream as well as energy security.

He said that the Dangote refinery would significantly create other developments in the manufacturing economy

According to him,the government can support the refinery to create a healthy environment for the Dangote refinery and other domestic refiners.

“Government can find ways to ensure that his products are purchased when available; government can support the refinery through improved and adequate regulations,” he said.

The expert advised that Dangote must also focus on supporting the extended development of the host community through providing ancillary services and infrastructure.

He added that the government can promote more independence of the regulator and only intervene when necessary following the laws.

Mr Rabiu Bello, a Senior Independent Non- Executive Director, Board of Seplat Energy Plc., described the successful startup of Dangote refinery as a game-changer in the development of Nigeria’s Midstream and Downstream Petroleum sectors that require transparent collaboration and stakeholder engagements for the realisation of the potential benefits.

To him, it is a great opportunity for Nigeria to be a refining hub and net exporter of petroleum and petrochemical products this decade.

Describing Dangote refinery as a typical manufacturing plant that relies on a sustainable supply of raw materials to deliver value to its shareholders, Bello revealed that the survival instinct required by the refinery to survive is crude oil and natural gas, which fortunately, is government-owned.

“Thus, the government can support the refinery-guaranteed crude oil and gas supplies to ensure sustainable operations of the refinery and petrochemical facilities.

“This should be implemented through strategic commercial cooperation and partnership that can create value for both the Dangote refinery and the government but more importantly, for the domestic Nigerian economy.

“A 20 billion dollar investment in a refinery over 10 years is a huge value proposition that must be protected but a year supply of 650,000 barrels daily to the refinery at 90 dollars per barrel is worth more than 21 billion dollars.

“This is a significant percentage of federation revenue that must be protected sustainably through efficient operation of the refinery.

“Dangote Refinery is sufficient to pay for the crude and deliver adequate returns to refinery shareholders and the government,’ he explained.

Bello said that all domestic refineries, including the NNPCL refineries, should be treated equally and supported with guaranteed crude supplies, depending on their efficiency and operational capacity.

He added that the midstream and downstream regulators have sufficient legal authority to do the needful in ensuring that products satisfy quality standards.

He advised that the regulator should also develop proper regulatory frameworks to create a level playing field for all players so that Nigerian consumers are not shortchanged at any point in the supply chain.

He said that with complex refineries like Dangote and the new NNPCL refinery in Port Harcourt operating efficiently, Nigeria would start exporting lots of excess products such as diesel and kerosene by the time they start processing 500,000 per day.

The expert noted that the full benefits of Nigeria’s oil and gas sector could only be realised when the country developed the midstream and downstream segments of the value chain, which essentially meant the development of oil and gas processing facilities.

He said that these critical infrastructures were required to convert crude oil and natural gas into petroleum products and petrochemicals such as petrol, diesel, kerosene for household and aviation, cooking gas, methanol, fertilisers, clean natural gas for power generation, and other products used by industries.

“Without processing our oil and gas domestically, all these products must be imported from those countries that can buy our crude oil and gas, process it for their own use, and export excess to those in need, like Nigeria.

“In summary, some of the benefits of having a critical midstream facility like Dangote Refinery in Nigeria include the guaranteed supply of products at a lower cost than import, employment generation, import substitution, export earnings from sales of excess products to an international market, and enhanced economic growth. 

Tags:    

Similar News