Nigeria’s richest man Aliko Dangote takes on the ‘oil mafia’ | EUROtoday

Petrol manufacturing at Nigerian enterprise tycoon Aliko Dangote’s $20bn (£15.5bn) state-of-the-art oil refinery should be a few of the greatest enterprise information Nigeria has had in years.

But many Nigerians will decide its success on two key questions – firstly: “Will I get cheaper petrol?”

Sorry, however most likely no – until the worldwide worth of crude drops.

And secondly: “Will I still have to spend hours watching my hair turn grey in a hypertension-inducing fuel queue?”

Hopefully these days are gone but it surely may partly depend upon the behaviour of what Mr Dangote calls “the oil mafia”.

For a lot of the time since oil was first found in Nigeria in 1956, the downstream sector, which incorporates the stage when crude is refined into petrol and different merchandise, has been a cesspit of shady offers with successive governments closely concerned.

It has at all times been inconceivable to comply with the cash, however you understand there’s something dreadfully incorrect when the headline “Nigeria’s state-owned oil firm fails to pay $16bn in oil revenues”, pops up in your information feed, because it did in 2016.

It is barely within the final 5 years that the state-owned Nigerian National Petroleum Company (NNPC) has been publishing accounts.

The Africa head on the Eurasia Group think-tank, Amaka Anku, hails the Dangote refinery, wherein the NNPC has a 7% stake, as “a very significant moment” for the West African state.

“What you had in the downstream sector was an inefficient, corrupt monopoly,” she says.

“What the local refinery allows you to do is have a truly competitive downstream sector with multiple players who will be more efficient, profit making and they’ll pay taxes.”

To put it bluntly, the inhabitants of this oil-rich nation has been conned on a colossal scale for a few years.

Oil income accounts for almost 90% of Nigeria’s export earnings however a comparatively small variety of enterprise individuals and politicians have gorged themselves on the oil wealth.

Aspects of the enterprise mannequin have been baffling, together with that of Nigeria’s 4 beforehand present oil refineries.

Built within the Nineteen Sixties, 70s and 80s, they’ve fallen into disrepair.

Last 12 months Nigeria’s parliament reported that over the earlier decade the state had spent a staggering $25bn attempting and failing to repair the moribund amenities.

So Africa’s largest oil producer has been exporting its crude which is then refined overseas, a lot to the delight of some well-connected merchants.

It can be like a bakery with a damaged oven. But moderately than repair it, the proprietor sends balls of dough to a different agency that shoves them in a working oven and sells the loaves again to the baker.

The NNPC swaps Nigeria’s crude oil for the refined merchandise, together with petrol, that are shipped again residence.

Exactly how a lot cash modifications palms and who advantages from these “oil swaps” is simply one of many unknowns in these offers.

“No-one has been able to nail down who exactly has benefited. It’s almost like a beer parlour gossip about who is getting what,” says Toyin Akinosho of the Africa Oil+Gas Report.

The NNPC started subsidising the worth of petrol within the Seventies to cushion the blow when world costs soared. Every 12 months it clawed this a reimbursement by depositing decrease royalty funds – the cash it obtained for each barrel pumped out of the bottom – with the Nigerian treasury.

In 2022 the subsidy price the federal government $10bn, greater than 40% of the overall cash it collected in taxes.

On his second day in workplace Nigeria’s Vice-President Kashim Shettima referred to “the fuel subsidy scam” being “an albatross around the neck of the economy”.

Nigerian oil skilled Kelvin Emmanuel says in 2019 the nation’s official petrol consumption “jumped by 284% to 70m litres per day without empirical evidence to justify such a sharp increase in demand”.

Parliament has beforehand reported that – no less than on paper – importers had been being paid to usher in way more petrol than the nation consumed. There was some huge cash to be made exporting a few of the subsidised petrol to neighbouring nations the place costs had been far greater.

The NNPC earned billions of {dollars} a 12 months from the crude oil manufacturing. But for a few years, beneath earlier governments, a few of its earnings by no means reached the treasury because it was accused by state governors and federal lawmakers of together with these inflated subsidy prices on its stability sheet.

The NNPC didn’t reply to a request for an interview or a response to those allegations however in June denied it had ever “inflated its subsidy claims with the federal government”.

It might have been the primary income for successive governments however for many years, till 2020, the board didn’t disclose its audited accounts. Its press launch from March this 12 months promised extra transparency and accountability.

After coming to energy in May 2023, President Bola Tinubu mentioned the subsidy was unsustainable and all of a sudden minimize it – pump costs instantly tripled.

He additionally stopped the coverage of artificially propping up the worth of the native foreign money, the naira, and let market forces decide its worth.

When he took over, the change charge was 460 naira to the US greenback. In November 2024 it was over 1,600.

The triple shock of upper gas costs, sporadic shortages of provide and a depreciating foreign money has been a tricky physique blow for individuals throughout the nation, lots of whom are compelled to run turbines to maintain the lights on and telephones charged.

“Beyond the financial burden, the uncertainty and stress of constantly dealing with fuel shortages have added a layer of anxiety to everyday tasks,” is how one Lagos resident summed it up.

“I feel like I’m always navigating through crisis mode. It’s exhausting.”

As the naira plunged and pump costs elevated a number of instances, the federal government, conscious of the potential hazard of protests, continued to pipette some medication to the lots.

In a transfer which could possibly be likened to swallowing half a paracetamol for acute appendicitis, the federal government made positive individuals had been paying barely lower than the market charge for a litre of petrol.

In different phrases, the NNPC was promoting at a loss and the subsidy was nonetheless alive.

But with two latest will increase in October, Nigerians at the moment are paying market costs for gas for the primary time in three a long time. In the primary metropolis Lagos it went up from 858 naira ($0.52) to 1,025 naira per litre.

One of the main components in Nigeria’s financial disaster has been a restricted provide of international foreign money. The nation doesn’t export sufficient services to usher in the {dollars}.

But a lot of individuals, together with gas merchants, have been chasing the identical restricted provide of international foreign money, which ends up in the naira dropping much more worth.

The excellent news is that Mr Dangote’s facility goes to purchase crude and promote refined fuels in Nigeria within the native foreign money, which can go away extra {dollars} obtainable for everybody else.

The unhealthy information for these hoping it will imply cheaper gas is that the worth Mr Dangote pays for a barrel of native crude will nonetheless be the naira equal of the worldwide price in {dollars}.

So if the worth of crude goes up on the world market, Nigerians will nonetheless be compelled to fork out extra naira. Refining regionally will imply much less freight prices however that’s a comparatively small saving.

It is hoped that the arrival of Mr Dangote’s oil refinery will assist carry a measure of transparency to the sector.

He knew he can be upsetting a few of those that profit from the murky establishment when the $20bn undertaking started. But, he says, he underestimated the problem.

“I knew there would be a fight. But I didn’t know that the mafia in oil, they are stronger than the mafia in drugs,” Mr Dangote informed an funding convention in June.

“They don’t want the trade to stop. It’s a cartel. Dangote comes along and he’s going to disrupt them entirely. Their business is at risk,” says Mr Emmanuel, the oil expert.

The fact that there have been some public disagreements with the regulator has only fuelled that suspicion.

Mr Dangote’s refinery near Lagos is thirsty, with a capacity of 650,000 barrels of crude a day.

You would have thought being located in Nigeria would make supply easy but then up pops this headline: “Nigeria’s Dangote buys Brazilian crude”.

It follows a row over supply and pricing. The regulatory authority has complained about Mr Dangote’s negotiating tactics.

Nigeria’s crude oil is low in sulphur and, as one of the most prized in the world, fetches a higher price than many of its competitors.

When discussions over price began, Farouk Ahmed, the chief executive of the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), accused Mr Dangote of “wanting a Lamborghini for the worth of a Toyota”.

Mr Dangote has complained of not being allocated as much crude as earlier agreed but even when the price issue is resolved, he will still need to import some crude.

“NNPC doesn’t have enough crude for Dangote. Despite all this instruction to give ample supply of crude to the refinery, NNPC can’t supply Dangote with more than 300,000 barrels per day,” says Mr Akinosho of the Africa Oil+Gas Report.

He says this is partly because the NNPC has pre-sold millions of barrels of oil for loans.

In August 2023 it secured a $3bn loan from the Afreximbank financial institution. In return it is due to supply 164 million barrels of crude.

In September the NNPC admitted it was significantly in debt. It was reported to be owing its suppliers around $6bn for fuel brought into the country.

Nigeria’s oil production has plummeted in recent years from around 2.1 million barrels per day in 2018 to around 1.3 million barrels per day in 2023.

The NNPC has been stressing oil theft as the number one reason why production has dropped.

It says in just one week – from 28 September to 4 October – there were 161 incidents of oil theft across the Niger Delta and 45 illegal refineries were “discovered”.

But Ms Anku believes that “the theft problem is overrated by the NNPC and the oil sector”.

“It’s a convenient excuse,” she provides.

She points to other contributing factors causing the drop in production, including international oil companies selling their on-shore oil fields – some of which may no longer be viable having pumped oil for 60 years.

The 66-year-old Dangote, who is listed by the Bloomberg Billionaires Index as the second wealthiest person in Africa, made his fortune in cement and sugar.

He has always denied the suggestion that his empire benefitted from links to politicians in power who helped ensure he had a monopoly.

Today there are those who are critical of Mr Dangote’s tactics and amid tension with the regulatory authorities, the same accusation has resurfaced when it comes to the supply of fuel in Nigeria.

“Mr Dangote requested me to cease issuing licences for importation and that everybody should purchase from him. To which I mentioned ‘No’ as a result of it’s not good for the market. We have vitality safety pursuits,” says Mr Ahmed of the regulatory authority.

Mr Dangote has not commented on the accusation but has said it makes business sense for the traders to buy from his refinery rather than from outside.

A feud between the regulator and Mr Dangote over supplies and pricing has rumbled on and morphed into another row with local fuel traders refusing to buy from the new refinery.

The mud slinging has also included allegations that some traders have been buying up substandard fuel from Russia which is then blended with other products before being shipped into Nigeria.

But not everyone is worried or surprised by the disagreements.

Ms Anku points to lessons learnt from US businessmen back in the 19th Century.

“The JP Morgans and the Stanfords – they didn’t have it straightforward both. That’s why they needed to go and get authorities assist and subsidies to construct their railways and so forth.

“I see the drama as a very normal process as you’re changing the structure of the economy. There are losers, they lash out. There’s no chance they’ll stop the refinery from working or selling its products to the Nigerian markets… in my view.”

The trendy, native refinery has additionally led to a debate over the standard of gas available on the market. It is a vital subject given the huge variety of turbines belching out fumes throughout Nigeria because of the woeful energy provide.

“Every day I wake up to the smell of what I’m sure [could] kill me. It’s because of the quality of the diesel,” says Mr Akinosho.

He sees Mr Dangote’s refinery as an actual alternative for greater high quality petroleum merchandise in Nigeria which might be higher for each automobile engines and folks’s lungs.

But proper now, Nigerians being hit arduous within the pocket might discover it tough to be optimistic.

Arguments between officers on the Dangote refinery, the oil entrepreneurs and the regulators are batted backwards and forwards within the media. All sides have been accused of hiding some info and figures which leaves individuals guessing what’s going on inside this nonetheless considerably opaque trade.

“Everyone is a villain. There are no heroes here,” concludes Mr Akinosho.