Opaque NNPCL and ‘subsidised’ crude oil for refineries
07 August 2024 |
4:15 am
Nigerians, who have in outrage, watched the Dangote Refinery’s macabre dance with handlers of the Nigerian oil sector, heaved a sigh of relief last week when the crude-for-naira deal for local refineries became public. It is good that the federal government finally succumbed to the voice of reason of never going the wrong way in…
Nigerians, who have in outrage, watched the Dangote Refinery’s macabre dance with handlers of the Nigerian oil sector, heaved a sigh of relief last week when the crude-for-naira deal for local refineries became public. It is good that the federal government finally succumbed to the voice of reason of never going the wrong way in supporting your own. But the overarching problem that transcends the stop-gap measure is the culture of opacity at the Nigerian National Petroleum Company Limited (NNPCL). Beyond just a leeway for Dangote Refinery and the likes, Nigerians deserve to know the full details of the crude-for-naira deal with refineries – in whose interest, and for what purposes.
Amid the embarrassing face-off between handlers of the Nigerian petroleum sector and Dangote Refinery, the Federal Executive Council (FEC) recently approved a proposal by President Bola Tinubu directing the NNPCL to sell crude oil to Dangote Petroleum Refinery and other refineries in naira. An official statement has it that “to ensure the stability of the pump price of refined fuel and the dollar-Naira exchange rate,” FEC adopted the deal. The government acknowledged that Dangote Refinery required 15 cargoes of crude, at $13.5 billion yearly. “NNPC has committed to supply four. But the FEC has approved that the 450,000 barrels meant for domestic consumption be offered in Naira to Nigerian refineries, using the Dangote refinery as a pilot. The exchange rate will be fixed for the duration of this transaction.”
For a fact, the last couple of weeks leading to that crude-for-naira deal have been more than shocking and embarrassing for the country. The claims and counterclaims between a frontline operator and its regulators, coming from the same country, exposed the underbelly of the country – more like a people that can neither govern themselves nor manage their affairs. The crux of the matter is that the Dangote Refinery – a jewel of industrialisation in Nigeria – is building one of the world’s largest refineries to end the aberration of the oil-rich country importing 100 per cent of its daily consumption, with extra for other African countries. By global acknowledgement, the $20 billion giant refinery is a game-changer and of significant impact on the politics of the global oil market – coming from Aliko Dangote who has become the face of African industrialisation given his trajectory in Dangote Cement.
Curiously, the same refinery is presented as an alleged target of the same country it supposedly represents, to warrant Aliko Dangote himself threatening to withdraw from the flagship project. His primary complaints were being dubbed a monopolist, competing with regulator-turned-importer and depravity of crude supply for which he is now importing from South America and the United States that used to depend on Nigeria. President of the African Development Bank Group, Dr Akinwumi Adesina, described the development as disparaging of Dangote, and a “self-defeating” exercise of the country. “Who will want to come and invest in a country that disparages and undermines its own largest investor?” Adesina inquired rhetorically. Irrespective of who is at fault – a Dangote that is accused of monopolising the petroleum and cement production or an overbearing NNPCL that wants to sustain the corrupt culture of fuel importation and subsidy instead of having multiple refineries work for Nigeria – the optic is very bad for the national image. The federal government needed to act fast to save face, and the crude-for-naira deal came in handy.
But the policy is not new; it is necromantic resuscitation of a two-decade-old ghost of the same opaque and corrupt NNPCL. It was an idea the administration of Olusegun Obasanjo experimented with in 2001, to sell crude oil at a heavily discounted price with the hope that NNPC would refine this cheap crude and sell the petrol to Nigerians at an affordable rate. The downside was that the policy deprived the government of the badly needed foreign exchange. A subsequent spike in the price of crude oil that was sold to NNPC didn’t assuage the revenue loss to the federal government. Meanwhile, NNPC was feeding fat on ‘easy money’ from the export of subsidised crude oil and its sale at a premium on the world market. Records have it that NNPC even declared profits from the sale of crude oil! So, who needs a local refinery where it is more profitable to export cheap crude, and officials can help themselves to the proceeds? President Obasanjo’s suspension of the crude oil subsidy arrangement gave birth to the petrol subsidy regime, where marketers would import petrol and claim the subsidy from the government at an agreed rate or NNPC would exchange its crude barrels for petrol products and pay the subsidy in the arrangement.
The point is that more than two decades after this same policy was cancelled, it has been resuscitated in the name of local refineries. The crude will be paid for in naira and the exchange rate will be ‘fixed’ meaning there will be another subsidy therein. “Of course, there will be favourable payment terms meaning there will also be a credit component to the arrangement. And of course, every barrel of crude sold to Dangote in naira is a barrel that cannot earn dollars for Nigeria,” an analyst offered. While subsidy has gone nowhere in the era of Tinubu, it will be finding its way into crude oil supplies. How will the government survive not getting FX revenue from the 450,000 barrels, and meet other credit obligations without an aggressive plan to rescue daily 40 per cent of crude production loss to insecurity and saboteurs alike?
An equally important question is: in whose interest and for what purpose is the crude-for-naira deal? NNPCL has accused Dangote of foisting monopoly on the system, to suggest a mutual distrust between the two parties. Hence, by what arrangement is the FG’s crude-for-naira deal going to benefit Nigerians with affordable market prices of not only petrol but all other seven products that each barrel of ‘subsidised’ crude oil produces at the refinery? Nigeria still cannot afford the global market rate of pump price to warrant continued subsidy of the product. Add to that, Dangote has not promised a cheaper PMS to anyone. Therefore, in whose interest is Dangote Refinery, which is roiled by crude sold in Naira – for affordable fuel in Nigeria or more profit racking for the genius in the high-end global market? NNPCL should provide that answer because Nigerians deserve to know.
The NNPCL and its major shareholder, FG, have more questions to answer. Since the President’s poorly thought-out ‘subsidy is gone’ declaration 15 months ago, what has the NNPCL been up to with a subsidy that is now estimated to reach N5.4 trillion in 2024? Also, what is the plan of NNPCL to ensure an end to importation and subsidy over a year after subsidy is supposedly gone? Contrary to promises, why is none of the four government-owned refineries working to date, even after three failed take-off attempts of Port Harcourt Refinery in the short life of this current administration? Doesn’t that confirm the conflict of interest of two-faced government officials who should make the refineries work also blending cheap crude in Malta for Nigerian consumption? Small countries like Ghana, and Cote D’Ivoire, among others, have functional refineries. Why is Nigeria different and the Tinubu-led administration so comfortable with the NNPCL’s mediocre leadership? When will the FG-supervised NNPCL’s opacity end?
As Adesina averred, the Dangote Refinery project (ditto for all other similar investments) “is more than delivering the cheapest product to the market. It is about domestic supply security, driving (and yes, protecting) globally competitive industries, maximising forward and backward linkages in the local economy, job creation, reducing forex expenses and shoring up the Naira.” It is all about national interest and having it as a priority in all considerations. The fear of Dangote foisting a monopoly should not have arisen if NNPCL had been resourceful, not incompetent, complicit, and failing to operationalise the other four government-owned refineries. And they should work along with Dangote Refinery and others. Truth, integrity, fairness and national interest should be the watchword of all parties.
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