Stats: 3,189,365 members, 7,937,111 topics. Date: Sunday, 01 September 2024 at 01:46 PM |
Nairaland Forum / Nairaland / General / Politics / Pertinent Questions Over DANGOTE Refinery (1116 Views)
APC Manifesto: Questions Over Buhari’s Key Campaign Promises / 10 Governors Visit Dangote Refinery, Say It’s A Pride To Nigeria / WAEC: Pertinent Questions For Buhari (2) (3) (4)
Pertinent Questions Over DANGOTE Refinery by AmuDimpka: 11:40pm On Jun 28, 2017 |
The expectation is that when DANGOTE Refinery in Lekki, Lagos starts producing petroleum products, Nigeria will no longer have to import 92% of its daily products consumption to augment the 8% production by NNPC's four refineries. Now, some are already touting the foreign exchange savings of $16.8bn that this will bring in addition to huge savings in the logistics of importing petroleum products which NNPC says cost $11.2bn yearly. But this only tells half the story as some pertinent questions remain to be asked and answers provided to enable us fully grasp what lies ahead in a post DANGOTE Refinery era from where at least 92% of Nigeria's petroleum products needs will be met. The first question is this, since DANGOTE Refinery is privately owned and will require 600,000 barrels of crude oil a day to refine into petroleum products, at what rate and in what currency will this crude oil be supplied to the refinery? NNPC receives a daily allocation of 445,000 barrels of crude oil a day supposedly for refining to meet Nigeria's petroleum products need but since its refineries can only meet 8% of this, the remaining 92% is currently imported. What NNPC then does is to swap the un utilized portion of the 445,000 crude oil it is allocated but unable to refine locally, for petroleum products which are imported and dispensed at petrol station at N145 a liter for petrol and N50 a liter for kerosene. Now this is the crux of the matter, NNPC has never been able to pay the full value of the 445,000 daily allocation of crude oil to the Federation Account, whether in Naira or USD, claiming that the petroleum products it imports are dispensed at subsidized prices. NNPC also claims that the financing of the logistics of importation of this petroleum products for which it is swapping the bulk of its daily allocated 445,000 barrels, comes to $11.2bn annually. If the 445,000 barrels of oil daily allocation to NNPC supposedly for local refining by its four refineries, was sold even at the conservative rate of $45 a barrel, that money would go into the Federation Account. So, when DANGOTE is finally able to begin production and meet Nigeria's petroleum products needs, its important to know whether it will be paying Naira or USD for the 600,000 barrels of crude oil it needs daily to produce petroleum products. Secondly, since DANGOTE Refinery is not government owned but set up to make profit for its shareholders, at what rate and in what currency will it supply petroleum products to meet at the very least the 92% daily consumption in Nigeria? Nigerians will have to accept that DANGOTE Refinery is a privately owned entity and that even if it eventually is quoted on the stock market, it still has to pay dividends to its shareholders who have invested over $9bn in its construction. So, clearly, talk of DANGOTE Refinery selling petroleum products to oil marketing companies at subsidized prices to ensure that Nigerians continue to buy petrol at N145 a liter and kerosene at N50 a liter, are out of the question. Bottom line, DANGOTE Refinery will sell petroleum products to buyers, whether local or foreign at international market rates, although it is yet to be made clear whether the local buyers in Nigeria will be paying in Naira or USD. When you consider that DANGOTE Refinery was paid for in USD and is situate in the Lekki Free Zone, which legally frees it from local taxes while allowing it to export its products into Nigeria, buyers are likely to pay for its products in USD. At the end of the day, getting petroleum products from DANGOTE Refinery will be no different from getting products from say a refinery in Europe, the only difference being the elimination of financing required for the logistics of importation. The third question then is, at what prices will petroleum products sourced from DANGOTE Refinery be sold at the petrol stations to end users, as Nigerians currently pay subsidized prices for petrol and kerosene. Rightly, the 600,000 barrels of crude oil required by DANGOTE Refinery to produce petroleum products should be sold to it at international market price with slight discounts to factor in consistency of supply required by a refinery. This will be good news for Nigeria because it means that unlike the situation were it is being short changed by NNPC in making payments over the daily allocated 445,000 barrels of oil, DANGOTE Refinery will pay fully for its 600,000 barrels a day of oil. Also, DANGOTE Refinery cost is over $9bn and with the bulk of this sum borrowed at interest, it will be foolhardy to expect the owners of the refinery to sell the end products to Nigerians at subsidized prices. This means that it is either petroleum products are bought from DANGOTE Refinery at market prices and sold to Nigerians at subsidized prices, or Nigerians will have to prepare themselves for increases in petroleum prices post 2019. Which brings me back to this troubling issue, why is NNPC not already treating its four refineries in Kaduna, Warri and Port Harcourt (2) the same way it is going to treat the DANGOTE Refinery when it comes on-stream? Each of these refineries on their own are business entities, why not allow them buy the crude oil they need at international market prices, get loans to fund their operations, and then sell their petroleum products to buyers at international market prices? Unlike DANGOTE Refinery, these four refineries are not in any free zone, meaning they will be subject to local taxes, they're already staffed and managed by Nigerians, and are already in production albeit at minimal capacity. Why not allow these refineries develop their business models and approach lenders for funding the same way DANGOTE Refinery has done, and and so domesticate the subsidies that are going to foreign importation or that will go to DANGOTE Refinery? More importantly, giving these four local refineries the opportunities to operate maximally, will provide competition for DANGOTE Refinery, otherwise Nigerians may be subject to a petroleum products monopoly post 2019. But come to think of it, to allow these local refineries thrive will mean an end to the lucrative business of swapping NNPC's 445,000 barrels of daily allocated crude oil for petroleum products that has become the new oil well. Worse, it may just dampen ALIKO DANGOTE's dream of being Nigeria's dominant player in the petroleum downstream sector, just like he had done with sugar and salt, but then again Nigeria has always been about monopolists, whether government or private. Kingsley Omose https://etimes.com.ng/pertinent-questions-dangote-refinery/ 4 Likes 1 Share
|
Re: Pertinent Questions Over DANGOTE Refinery by Nobody: 11:55pm On Jun 28, 2017 |
![]() |
Re: Pertinent Questions Over DANGOTE Refinery by walemoney007(m): 12:27am On Jun 29, 2017 |
Kathmandu:guy ![]() |
Re: Pertinent Questions Over DANGOTE Refinery by PapaBrowne(m): 12:45am On Jun 29, 2017 |
Interesting piece.But I don't agree with the logic. Let's face it, Dangote is a pure and proper business man and has definitely assessed the bank ability of the Refinery before jumping. I think what your article clearly shows but didn't state is the likelihood that the FG actually makes profits from importing crude and selling back to Nigerians. That's why they have been very unwilling all these years to allow the refineries get fixed! |
Re: Pertinent Questions Over DANGOTE Refinery by slimfit1(m): 12:55am On Jun 29, 2017 |
The Lagos rail will reduce need for petrol too |
Re: Pertinent Questions Over DANGOTE Refinery by Chidexter(m): 1:15am On Jun 29, 2017 |
Nigeria is so poor and inefficient that we need an entrepreneur to take over oil refining. Issorait |
Re: Pertinent Questions Over DANGOTE Refinery by igbofocus: 2:20am On Jun 29, 2017 |
let him continue by the time we are gone, he will know whats up! 1 Like |
Re: Pertinent Questions Over DANGOTE Refinery by 2n2k(m): 6:05am On Jun 29, 2017 |
Good questions. Here are my own insights 1. Dangote refinery will buy crude at international price from Nigeria. It has facilities to also receive crude from other countries in case Nigeria fails to supply crude due to sabotage or unrest. Of course it will pay fully for the imported crude. 2. Refineries- whether Dangote or anyone, don't sell at subsidized prices. Subsidy is in distribution sector between the marketer/government and final consumers. Subsidy arises because the cost to the marketer (which include full refinery price) is not being fully paid for by the final consumer at the filling stations and somebody (government in this case) must step in to reimburse the marketer with the difference since marketer cannot operate at a loss. In all cases, refineries would have received full payments from marketers before it supplies. How marketers sell the products is not the refinery's concern 3. Note that Dangote refinery together with all the four nnpc refineries (working at full capacity) cannot meet Nigerian refined petroleum products needs and there is still need for either importation or more refineries. The 600,000 barrels capacity for Dangote is for both refinery and petrochemical sections just like that of 110,000 barrels for kaduna is divided between refinery and the petrochemical also. 4. On the issue of forex savings to Nigeria, either out of ignorance or just for simplicity in reporting, the quantum of savings from import substitution of any product in nigeria is usually overstated. They usually report gross amount of the current forex that is used to import presently as savings as if there will be no forex cost incurred in producing within Nigeria. Most of the inputs will still come from abroad and require forex outflow. 5. In the case of Dangote refinery, the forex savings will be substantial because the major raw materials (crude oil) will come from Nigeria. Since it is a Nigerian company, the flow cycle will be like this: a. Nigeria sells crude oil to Dangote at international price b. Dangote pays in dollars to government account in CBN c. Dangote sells refined products to either Nigeria or overseas marketers d. In the case of oversea marketers, the export proceeds in dollars come to Dangote through the CBN e. In the case of local marketers, marketers raise letter of credit through banks and pay in naira f. Nigerian govt pays dollars to Dangote through CBN for the marketers letter of credit g. Dangote converts some of the dollars to naira to meet local expenses including salaries by selling it to CBN h. Dangote draws from its dollars account to meet its dollars denominated expenses including paying for crude from Nigeria i. The cycle goes back and starts from 'a' all-over. As you can see, the dollars will in most cases (except for some foreign expenses) be circulating within the CBN either for Nigeria government or for Dangote. That is whole essence of industrialization especially when the inputs are majorly locally sourced. 4 Likes 2 Shares |
Re: Pertinent Questions Over DANGOTE Refinery by Atiku2019: 6:13am On Jun 29, 2017 |
Dangote will never go into such a business without reviewing, assessing and finding solutions to such questions ![]() |
Re: Pertinent Questions Over DANGOTE Refinery by babdap: 6:14am On Jun 29, 2017 |
when we get to the bridge we will cross it. |
Re: Pertinent Questions Over DANGOTE Refinery by 2n2k(m): 6:16am On Jun 29, 2017 |
Chidexter: Name any developed country that its government is into oil refining. Ignorance is bliss. |
Re: Pertinent Questions Over DANGOTE Refinery by 989900: 8:05am On Jun 29, 2017 |
2n2k: GBAM! [i]You just saved me valuable time writing an epistle. @#3, it's kinda hard to put a correct figure on our consumption, hopefully the new private refineries coming in and revamped NNPC refineries will help us get relatively more accurate figures. [/i] |
(1) (Reply)
Naija Newspapers: Today's The Punch Newspaper Headlines [23 July, 2017]. / Should PMB Decides Not To Re Run Come 2019 / PHOTO: Medical Genotype Table For Intending Couples
(Go Up)
Sections: politics (1) business autos (1) jobs (1) career education (1) romance computers phones travel sports fashion health religion celebs tv-movies music-radio literature webmasters programming techmarket Links: (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) Nairaland - Copyright © 2005 - 2024 Oluwaseun Osewa. All rights reserved. See How To Advertise. 44 |