How NNPC buying 20% of Dangote Refinery could destroy any idea of future competition in the market
Four oil firms including Nigeria’s state-oil company, Nigerian National Petroleum Corporation (NNPC) have approached Dangote Industries to acquire a stake in Africa’s largest oil refinery, according to a report by Reuters.
Devakumar executive director, said the firms from Western and Middle East countries and involved in trading and crude production were looking to secure crude supply agreements, a similar objective to that pursued by the Nigerian National Petroleum Corporation (NNPC).
Nigeria, Africa’s biggest crude oil exporter, imports fuel due to its moribund state refineries, which has prompted the state oil company’s interest in the 650,000 barrel per day (bpd) Dangote refinery.
NNPC’s spokesman, speaking to Reuters in a phone interview, said the corporation had considered the idea of acquiring a stake in the $19.5 billion oil refinery project owned by Africa’s richest man, Aliko Dangote.
Edwin said the refinery is scheduled for mechanical completion this year with commissioning by January 2022.
Nigerian billionaire Dangote, who built his fortune in cement, first announced a smaller refinery in 2013, to be finished in 2016. He then moved the site to Lekki, in Lagos, upgraded the size and said production would start in early 2020.
The company has held talks with firms including Vitol and Trafigura over the supply of crude and lifting of petroleum products for sale abroad.
Nigeria lost its biggest customer, the United States, after it start producing shale oil. The U.S. is now pushing into some of Nigeria’s most valued markets, Edwin said
However, the idea of NNPC buying 20% of Dangote Refinery, being promoted as the biggest in Africa, could by way of inflated valuation alone refund Dangote money spent to build the refinery to date and it qould destroy any idea of future competition in the market as imports are blocked and local refinery growth are stifled by NNPC as industry regulator.
Looking closely, one may find that another unintended consequences of NNPC – Dangote tie up appears to be certainly a long term strategy to secure that Dangote Refinery has local perpetual monopoly access to crude oil supplies from NNPC daily crude production stock at the best prices; and it also ensures that NNPC cannot ever successfully revive three of its old refineries or ever build new refineries to become competition to Dangote Refinery.
Indeed, given the very aggressive street reputation and history with rivals of Dangote in many industries such as cement, salt, sugar, flour and much more, Dangote Refinery can leverage its 20% investment relationship to NNPC to ensure that no new refineries are licenced to local businesses and any refinery licence out there may become cancelled or it can use official regulatory institutions all within NNPC to kill off all rivals.
Already, perhaps in anticipation of this investment, all local refineries owned by NNPC have been managed scandalously to comatose ruins. Looking into recent experiences, you can bet that the consequences of the destruction of NITEL as the biggest service provider in telecommunications industry may be child’s play compared to the oil and gas sector under Dangote – NNPC refinery monopoly.
Dangote – NNPC refinery may become the dominant price setter at all local retail fuel stations in Nigeria and the consequences for government and Nigerians will be too terrible to contemplate for economic stability and sovereign security. Just consider the cement prices only in the housing sector dominated by Dangote Cement where the product is cheaper in Togo, Benin Republic and more than in Nigeria.
In a hypothetical monopoply nightmare scenario where the Dangote – NNPC Refinery shuts down because of dispute with Labour or government, Nigeria will be crippled economically as imports are blocked and local competition is pauperised.
No sane government or rational people will contemplate or allow NNPC – Dangote Refinery tie up.
Just look at all the sectors where Dangote is dominant and consider the high prices, destruction to competition and worse. However, it is common knowledge that some of the Nigeria policy makers rarely make sane and foresight choices.
Government officers who enjoy public trust in office without deep consideration for public good often focus on short term benefits and greed, and they damn the consequences on tomorrow’s future generations.