The news that Alhaji Aliko Dangote, the richest man in Africa has decided to require the bull by the horns and invest within the risky oil refining business can only be met with an optimistic response. Especially from quite 90% of the Nigerian populace who have recently been made in touch the brunt of high fuel prices thanks to the controversial removal of subsidy on imported petrol products.
Dangote is already an accomplished businessman with tons of monetary muscle; and albeit the jury remains out on his close relationship with this and past governments including his ability to ruthlessly monopolize the industries he invests in, we cannot totally disregard his contribution to the Nigerian economy within the areas of job creation and therefore the availability of locally produced commodities without us having to depend upon imported substitutes. within the area of competition, we simply can’t blame him for the signs of monopoly we discover in his areas of business interest, the responsibility lies with the govt whose responsibility is to guard the interest and welfare of consumers by promoting competition and stop the abuse of monopoly power.
The Nigerian billionaire plans to create an $8 billion refinery which will produce 400,000 barrels per day by the top of 2016. Currently, we are only ready to produce below the 445,000 barrel per day mark through the combined efforts of our four refineries in Port Harcourt, Kaduna and Warri. However, the EIA states that the operational capacity of those four refineries averaged only 24% in 2011. consistent with OPEC, our local oil consumption stands at 267,000 barrels per day which suggests that the proposed refinery will have the capacity to cater for our domestic consumption needs and even have substantial surplus to export to neighboring countries.
Obviously, this is often not taking under consideration the plans by the federal to construct three Greenfield refineries in Lagos, Kogi ad Bayelsa to be operational by 2017 and therefore the refurbishment of the prevailing infrastructure. If we are ready to get this right, Nigeria can easily become a net exporter of refined petroleum products in ten years. that’s however an enormous “if” taking into consideration the myriad of things currently plaguing the industry.
Potential benefits to the Nigerian Economy
Refineries are expensive to take care of , they require premium management within the hands of experienced professionals who are conscious of the various operational and financial risks encountered in their day to day running. this is often where we are failing and it’s provided the proper platform for saboteurs to make sure none of the prevailing refineries work on full capacity. This has led the country to depend heavily on importing refined petroleum products; a move which has been highly beneficial to a couple of strong parties.
Breaking the Jinx
If Dangote can successfully pull this off, it’ll immediately quell the parable that we will never get our refineries performing at full capacity or that we will not refine 100% of the oil we’d like for domestic consumption. As many stakeholders have argued, this may also strengthen the very fact that the private sector features a key role to play in solving key macroeconomic problems within the country.
Competition
Few hands can compete with Dangote in his commodity refining and importation business industries which he has successfully ended up monopolizing. However, the oil and gas sector may be a different ball game as there are many experienced personnel and interested parties within the sector who also can close as formidable forces. They even have technical expertise and financial wherewithal to draw in and partner with foreign investors in investing in petroleum refining within the country. The burgeoning host of indigenous energy companies within the country are going to be looking to leverage on the refining business if this move pulls through. consistent with Forbes, Nigerian Abdul-Samad Rabiu is already constructing a $500 million cement plant in Edo state to rival Dangote cement. this provides us a touch of how successful and highly lucrative businesses can encourage competition which can automatically cause job creation.
Cost effectiveness and Job creation
This development has the potential of benefitting from economies of scale given the proposed capacity of the refinery. counting on how regulation and other factors compute , we could find ourselves refining oil at a way cheaper rate which can put a significant dent to the prospect of importing petrol from foreign refineries. If the constituted authorities are often muster the courage to support this, this might spell the top of an era of massive corruption and rent seeking behavior witnessed by the parties taking advantage of the importation of refined petroleum products. With more transparency, this will also ultimately cause the reduction in pump prices within the end of the day if we consider how we might be eliminating the transportation cost of exporting the crude and importing the finished product which may be a key component of the pricing model. As this might drive the creation of another profitable and interesting industry in Nigeria, we should always be watching prospects of job creation and acquisition of key skill sets and competencies during this important area of the downstream sector. it’s already been mooted that over 2,000 jobs are going to be created and this number can only grow through potential spin-offs and further investment.
Challenges
We are eagerly waiting to ascertain how the Nigerian government will react to the present development given its failure to unravel the issues plaguing our existing oil refineries for many years now costing the country trillions of naira. tons of Nigerians are going to be keeping tabs on this development and it’s logical to suggest that giving his cordial relationship with the govt , Dangote might just be the person to open the flood gates and help reduce the bottlenecks related to licensing and other regulatory requirements. it’ll even be interesting to ascertain how the oil importers and power brokers will answer this considering the might of the opposition they’re going to be facing this point . Dangote has all the ingredients to survive this battle as he has friends in high places and also knows his politics during a volatile business environment like Nigeria.
Pricing also will be a stimulating issue because the initial cost outlay of this project and other factors might prevent us from immediately benefitting from a reduced pump price. it’ll even be interesting to ascertain the role the NNPC will play considering its association with the International Oil Companies within the area of supply and also the PPPRA when it involves setting prices. subsequent five years are going to be a stimulating one. Fingers crossed.
