The Dangote Refinery, a significant undertaking in Nigeria, is enmeshed in new controversy. This time, there is tension between the Nigerian National Petroleum Corporation (NNPC) and Aliko Dangote, Africa’s richest man and owner of the Dangote Group, which has sparked concerns over the safety, quality, and ethics surrounding the refinery.

Inside sources have informed us that Alhaji Aliko Dangote has applied for a license to operate, which is the last step of approval before any refinery can start any form of production but NNPC, the regulatory body has hesitated to provide this license due to safety concerns, because the refinery remains uncompleted. He also approached the NNPC to purchase crude but the NNPC declined saying they cannot sell crude to a refinery that is uncompleted. It is now alleged that Dangote is trying to source Nigeria’s crude through trading houses which he would then import into Nigeria – a move that might be seen as ‘going through the backdoor.’

But even if he gets the crude, there are safety and quality concerns voiced by employees of Dangote, contractors, and some officials at NNPC. Without the completion of the refinery, there are concerns that the quality of jet fuel and diesel produced would be subpar. NNPC is anxious because substandard jet fuel and diesel could endanger lives. The refinery, as it stands, can only carry out the first phase of crude distillation which is similar to what illegal refineries operating in the Niger Delta region have been found to do. However, due to the complex nature of the Dangote Refinery, whose catalytic cracking unit is still uncompleted, the quality of the refined products is in question.

It is alleged that some staff within the Dangote Group have voiced their apprehensions regarding the move to start the refinery without its completion. Despite these valid concerns, Dangote’s response suggests a desperate need for the venture to work, potentially as a ‘matter of survival.’

Financial Strain biting hard?

Dangote is reported to be mired in significant debt, pushing the company to the brink of receivership if they don’t secure additional funds to repay certain loans by December. This financial pressure may explain why Dangote is so eager to secure a license to start operations, even with the refinery not being fully complete.

You will recall that earlier this year, the uncompleted refinery was hurriedly commissioned by the former President Buhari in order for Dangote to access additional equity funding from the Nigerian Government as well as a crude allocation of 300,000barrels per day which insiders say would have been sold to raise cash for creditors and partly fund the completion of the refinery. This crude allocation was however put to a hold when the new Government of President Tinubu was sworn in, and it was discovered that the refinery was far from being complete but was falsely commissioned in order to take the crude allocation and sell outside the country.

The standoff between Dangote and the NNPC underscores a broader issue of safety, quality, and financial security that have bedevilled the Dangote refinery project. With concerns over substandard products potentially jeopardizing lives of workers at the uncompleted refinery and nigerians in general, and a major business figure risking immense financial losses, the resolution of this impasse will have far-reaching implications for Nigeria’s oil industry.

From Editorial Board, Africa Oil+Gas Report

The ceremony around the planned visit by the Nigerian President to the Dangote Refinery on May 22, 2023, will peak with a cutting of the ribbon, inaugurating the 650,000 Barrels per stream Day Plant, located in the Eastern flank of Lagos, the country’s commercial city.

Everyone, it seems, look forward to the production of petroleum products from the plant after that symbolic activity.

But it will not happen.

As President Muhammadu Buhari leaves office a week after commissioning one of the largest single train hydrocarbon processing plants on the planet, he could be forgiven for believing he had had his wish to be in such a large place but technology does not sit well with politics.

The ongoing technical commissioning process has not gotten anywhere close to the point of introducing raw hydrocarbon into the plant, let alone delivering petroleum products.

One key challenge of Nigeria’s chattering classes is that they hardly look up the regulation. Hydrocarbon will be introduced only when the Nigerian Midstream Downstream Regulatory Agency (NMDPRA) approves and issues Licence To Operate the Refinery to Dangote.

Speculations about inauguration and commissioning are just, well, speculations. Both words do not appear anywhere in the Procedure to License a Refinery in the Nigerian law.

The three stages are:

License to establish a Refinery

Approval to construct Refinery

License to Operate the Refinery

Nowhere does inauguration or commissioning appear.

So the Refinery can be inaugurated or commissioned as the Licensee desires, as long as no attempt is made to operate the Refinery by introducing crude oil and make products for sale, it does not concern NMDPRA.

The claim that some “large sub-sea pipeline infrastructure connected to Oil and Gas blocks in the Niger Delta region for supply of crude feedstock” is a false narrative. What’s in the plan is that Single Point Mooring (SPM) buoys will play the transportation role in input crude delivery and output petroleum products.

We live in a society where optics trumps everything. Buhari has been president for 8 of the 9 years that the Refinery project has been on. What is wrong with Dangote asking the President to inaugurate the Refinery so his name is on the marble when the Refinery becomes fully operational? Afterall no law will be breached by such gesture?

That said, Aliko Dangote the billionaire owner of the Refinery is determined that the 19billion-dollar project, the second of his three, hydrocarbon processing mega projects (Fertilizer, Refinery and Petrochemicals) is delivered by end of 2023.

The technical work has gone far, involving trial-running every single equipment, which has taken a while because of the lengthy time of construction. Some equipment were installed six years ago, and were just standing there in the air, water or even underground. Anything, literally could have happened.

As of February 2021, the installation of the Crude Distillation equipment had been completed. So had the kitting up of the Residue Fluid Catalytic Cracking Unit (RFCCU).

Supply chain challenges thrown up by the COVID-19 did slow down work, but the construction of Africa’s largest hydrocarbon processing factory picked up steam again in mid-2021.

“The electrical and instrumentation works are usually invisible to the gaze of non-refinery workers, but they are key. Their installation needed extreme care and it consumes over 30% of the Refinery construction time,” say several managers familiar with the project.

“A lot of our contractors are Chinese. Those who went home couldn’t come back quickly, but the project workflow recovered and those installations especially that of the Crude Distillation Column, which arrived Nigeria in December 2019 were expedited.

“We will have 15 process units in the Refinery and they must all work together” the managers tell us.

The operations planning will emphasize the mantra at the commissioning: we must flow everything out with air, then do it with water, then with steam, them with air again”. This is all to ensure that the likelihood of moisture absorption is zero, as the contrary will lead to cracks.

“The equipment must be pickled. What that does is that it oxidizes the facility”. The Dangote Refinery is significantly an Indian supervised operation.

But a significant percentage of the 1,000 Nigerian engineers sent to training in India for the eventual operations of the facility, have returned and are currently engaged on site.

The relationship between the Nigerian crude oil refining sector and Indian engineering expertise goes back to 1988, when the second (larger) refinery in Port Harcourt, the major city in the country’s oil producing Delta region was being constructed.

“Some of the experts working on Operations Planning were part of the construction of the Port Harcourt Refinery 35 years ago”, our sources say.

Mr Dangote initially announced the likelihood of the project in 2013. But it was at the All-Convention Luncheon at the Annual Conference of the Nigerian Association of Petroleum Explorationists NAPE, in November 2014 that he provided the first relatively comprehensive details of the facility. He told the roomful of geoscientists that the capacity had increased from 500,000 BSPD to 650,000 BSPD.

Dangote Industries was advised by Jacobs Engineering and it licensed the Honeywell UOP for the basic engineering design. On a daily basis, the facility will have the capacity to produce 59million liters of gasoline, 20million litres of kerosene and 9million litres of diesel and others.

The construction has taken a while and has been the most excruciating economic challenge Nigeria has ever faced. Would Dangote Industries have delivered this project much earlier if it had awarded it to a world- class EPC contractor like Bechtel, TechnipFMC, Siemens, KBR?

“Yes”, said Alex Ogedengbe, a retired Group Executive Director at NNPC who was involved in the construction of the Warri and Port Harcourt Refineries in the 1980s. “There are just about six or seven such EPC contractors in the world,” he explained. Mr Ogedengbe was speaking at a private webinar organized by oil and gas analyst, Ronke Onodeko in April 2020.

Dangote sources maintain that the cost would have been at least 30% higher if that route had been taken. And while it could be argued that Dangote Industries could have had good value for money if a Bechtel or KBR had handled the construction, multiple sources argue that the delay could have been minimized if the current structure had been in place since inception. The company went into this project with the mindset of constructing a cement plant, which was its major competence before this huge assignment. “We wasted the most time at the engineering stage”, one manager recalls. “A reputable EPC contractor would still have hired expertise from outside like we are doing and subcontract several units. Dangote Industries bought brand new equipment for this work; an EPC contractor might not have even done that, but it would have coordinated things better at the outset.”

One more advantage of building it yourself: all the equipment you purchase for logistics and construction purposes are yours.

Everyone we spoke to agreed that things began to take very good shape when Giuseppe Surace came along. The Italian engineer who had been Chief Executive of Saipem in Nigeria and Brazil, joined the project in June 2017 as the Chief Operating Officer. “On the factory floors, in the Executive Offices, everywhere on site, the consensus is that one of the best decisions that Aliko Dangote made was Surace’s appointment. “He saved the project” said our sources.

A highlight of the swirling speculations around President Buhari’s impending visit is the description of how crude oil will be pumped into the Refinery. One widely circulated message talks of large sub-sea pipeline infrastructure connected to Oil and Gas blocks in Niger Delta region for supply feedstock “.

This is a false narrative.

The truth is that Single Point Mooring SPM buoys will play a huge role in input crude delivery and output petroleum products. There are three of them either way. Three SPMs will deliver the input crude oil from vessels into a jetty from which it is pumped into the plant. And three SPMs will ferry petroleum products out to vessels on the sea for export. “We have facility to evacuate through roads, we have large loading capacity (103 loading terminals) and we can evacuate 75% of our production through road and we can evacuate 75% of our production through the sea so that if we want to export”, Dangote officials have repeatedly explained.

“Within Nigeria, we can evacuate to Warri, Port Harcourt, Calabar and so on, those options are available”, the officials say.

On the table is the idea of a 6-lane road through Epe, a town in the east of Lagos. But what of the supply of the product to Lagos? Will some of it be through Lekki Expressway? The subject of the quality of Nigerian roads to take in the products, through land tankers is still a fraught one.



Editorial, Oil+Gas Report

In the midst of dwindling revenues and skyrocketing subsidy costs, Nigeria has taken a bold step by removing fuel subsidies, igniting controversy and unrest among its population. Despite the opposition’s claims that subsidy removal will disproportionately affect the poor, the government’s redirection of funds towards crucial sectors such as health and education paints a promising picture for Nigeria’s future. The recent World Bank loan of almost a billion dollars for palliative measures may provide temporary relief, but it is not seen a sustainable solution.

However, the fate of the much-anticipated Dangote Refinery, meant to reduce Nigeria’s reliance on imported petroleum products, remains uncertain as unforeseen technical difficulties delay its completion.

The Dangote Refinery, announced in 2013 with an initial $3.3bn loan deal with local and foreign banks to fund the construction, was expected to transform Nigeria’s reliance on imported petroleum products and boost the country’s economy. With an initial completion date of 2018, the refinery was planned to produce enough refined petroleum to meet domestic needs and provide a surplus for export. However, the project has been plagued by continuous delays, attributed to factors such as lack of technical expertise, financial constraints, and poor project scoping.

Reports suggest that the Dangote Group is lobbying for an additional $3 billion cash injection, which could add to Nigeria’s debt burden and divert funds from more immediate solutions to the subsidy removal. Adding to the concerns surrounding the Dangote Refinery is the agreement between the Nigerian government and the Dangote Group. The Nigerian government in 2021 agreed to provide $2.7billion in cash-and-crude to the Dangote Group to fund the construction of the refinery in return for 20% equity. On December 1, 2021, the Federal Government through NNPC made a payment of $1.038billion in two tranches of $519.5million each to Lekki Refinery Funding Limited account with the beneficiary bank, representing the first cash portion of the deal, with the balance to be paid by the government upon completion of the project. This money was a loan from one of the international finance institutions to NNPC.

With the company missing out on interest payments due January 2023 of 750million dollars which is still yet to be paid despite being structured by the banks almost three times, the project is faced with a big dilemma – and with it, Nigeria’s hopes for the refinery.

As it stands, there is evidence to suggest that the Company has exceeded its single obligor limit with local Nigerian banks and no international bank is willing to extend funds to it. In addition, the company will need at least 3 billion dollars in addition to its annual interest payments of about 700million dollars to complete the project by 2025. Whilst there are already talks for a backdoor arrangement being proposed with the CBN to enable a commercial bank circumvent its single obligor limit to the company in order for it to raise further cash for it to pay its interest obligation of 750million dollars which have fallen due, such a move has been viewed cautiously by supporters and critics of the project alike.

These reports also suggest that the company unsuccessfully approached the outgoing president Muhammadu Buhari administration to release the remainder cash sum of 1.7billion dollars which was to have been paid upon completion of the project. According to these reports, President Buhari backtracked after further due diligence was done on the project which revealed that the project would not be completed before 2025 unlike the December 2022 date the company had promised at the time of signing the agreement.

As a result, intense pressure is now being mounted on the incoming government of Bola Tinubu to pay the remainder sum of $1.7billion dollars upon taking office as well as approve a new cash injection of 3billion dollars and crude for additional 20% equity in the project so the company can raise sufficient cash in the short term to pay outstanding interest costs and complete the project. This is premised on the fact that the new government has declared it wants to plug revenue gaps by removing the subsidy but the company has now given them the impression that the project will be completed by mid-2024 – which is far from the case. The incoming government must therefore be wary of yet another such lofty promise by the project owners as sources close to the Chinese company brought in to salvage the refinery project say a 2024 date is not feasible.

Should the incoming government go this route, it does nothing to solve the problems with the completion of the refinery, adds further unnecessary debt burden to the country and its citizens, and takes away money from critical and immediate solutions to the subsidy removal. Nigeria is already over-leveraged to the Dangote refinery project.

Many commentators believe that rather than relying on the uncertain completion of the Dangote Refinery, the Nigerian government should focus on the ongoing refurbishing exercise of its existing refineries. This strategy would not only provide a more reliable short-term palliative solution but also pave the way for a smoother transition from imported petroleum products. They should also encourage the modular refineries to ramp up production.

In addition, the Nigerian government should explore alternative strategies, such as investing in renewable energy sources, to reduce the nation’s reliance on imported petroleum products. This approach would provide long-term benefits to Nigeria’s economy and environment, while also fostering self-sufficiency in fuel production.

The removal of fuel subsidies offers Nigeria a unique opportunity to reassess its priorities and invest in a more sustainable future. By rejecting the new investment proposal for the Dangote refinery which has become an albatross whilst focusing on feasible alternative strategies, Nigeria can emerge stronger and more resilient in the face of global challenges. Can the incoming government afford to mortgage Nigeria’s scarce resources on a false hope? With billions of dollars and the country’s economy at stake, Nigeria cannot afford to pin all its hopes on the Dangote Refinery and even if the new government were to invest further in the project, there must be proper due diligence done before any investment is considered.

Sylvester Audu is a Writer and Social Justice Advocate writing from Abuja