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

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

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

Sorry, however most likely no – except the worldwide value of crude drops.

And secondly: “Will I nonetheless must spend hours watching my hair flip gray in a hypertension-inducing gas queue?”

Hopefully these days are gone but it surely would possibly 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 realize there’s something dreadfully improper when the headline “Nigeria’s state-owned oil agency fails to pay $16bn in oil revenues”, pops up in your information feed, because it did in 2016.

It’s only within the final 5 years that the state-owned Nigerian Nationwide Petroleum Firm (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 really vital second” for the West African state.

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

“What the native refinery lets you do is have a really aggressive downstream sector with a number of gamers who can be extra environment friendly, revenue making they usually’ll pay taxes.”

To place 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 folks and politicians have gorged themselves on the oil wealth.

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

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

Final yr Nigeria’s parliament reported that over the earlier decade the state had spent a staggering $25bn making an attempt and failing to repair the moribund services.

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 might be like a bakery with a damaged oven. However relatively 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 house.

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

“No-one has been in a position to nail down who precisely has benefited. It’s nearly like a beer parlour gossip about who’s getting what,” says Toyin Akinosho of the Africa Oil+Gasoline Report.

The NNPC started subsidising the worth of petrol within the Seventies to cushion the blow when international costs soared. Yearly it clawed this a reimbursement by depositing decrease royalty funds – the cash it acquired 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 gas subsidy rip-off” being “an albatross across the neck of the financial system”.

Nigerian oil skilled Kelvin Emmanuel says in 2019 the nation’s official petrol consumption “jumped by 284% to 70m litres per day with out empirical proof to justify such a pointy improve in demand”.

Parliament has beforehand reported that – at the least on paper – importers have 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 have been far increased.

The NNPC earned billions of {dollars} a yr from the crude oil manufacturing. However for a few years, below 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 authorities”.

It could 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 yr promised extra transparency and accountability.

After coming to energy in Might 2023, President Bola Tinubu mentioned the subsidy was unsustainable and abruptly reduce it – pump costs instantly tripled.

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

When he took over, the alternate fee 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 forex has been a troublesome physique blow for folks throughout the nation, lots of whom are compelled to run turbines to maintain the lights on and telephones charged.

“Past the monetary burden, the uncertainty and stress of continually coping with gas shortages have added a layer of tension to on a regular basis duties,” is how one Lagos resident summed it up.

“I really feel like I’m at all times navigating by means of disaster mode. It’s exhausting.”

Because 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 drugs to the plenty.

In a transfer which could possibly be likened to swallowing half a paracetamol for acute appendicitis, the federal government made certain folks have been paying barely lower than the market fee for a litre of petrol.

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

However with two current will increase in October, Nigerians are actually paying market costs for gas for the primary time in three many years. In the primary metropolis Lagos it went up from 858 naira ($0.52) to 1,025 naira per litre.

One of many main elements in Nigeria’s financial disaster has been a restricted provide of international forex. The nation doesn’t export sufficient services and products to usher in the {dollars}.

However a lot of folks, together with gas merchants, have been chasing the identical restricted provide of international forex, which results 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 forex, 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 domestically will imply much less freight prices however that’s a comparatively small saving.

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

He knew he can be upsetting a few of those that profit from the murky established order when the $20bn challenge started. However, he says, he underestimated the problem.

“I knew there can be a battle. However I didn’t know that the mafia in oil, they’re stronger than the mafia in medicine,” Mr Dangote advised an funding convention in June.

“They don’t need the commerce to cease. It’s a cartel. Dangote comes alongside and he’s going to disrupt them completely. Their enterprise is in danger,” says Mr Emmanuel, the oil skilled.

The truth that there have been some public disagreements with the regulator has solely fuelled that suspicion.

Mr Dangote’s refinery close to Lagos is thirsty, with a capability of 650,000 barrels of crude a day.

You’d have thought being positioned in Nigeria would make provide simple however then up pops this headline: “Nigeria’s Dangote buys Brazilian crude”.

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

Nigeria’s crude oil is low in sulphur and, as one of the vital prized on this planet, fetches a better value than lots of its rivals.

When discussions over value started, Farouk Ahmed, the chief govt 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 allotted as a lot crude as earlier agreed however even when the worth subject is resolved, he’ll nonetheless have to import some crude.

“NNPC doesn’t have sufficient crude for Dangote. Regardless of all this instruction to offer ample provide of crude to the refinery, NNPC can’t provide Dangote with greater than 300,000 barrels per day,” says Mr Akinosho of the Africa Oil+Gasoline Report.

He says that is partly as a result of the NNPC has pre-sold thousands and thousands of barrels of oil for loans.

In August 2023 it secured a $3bn mortgage from the Afreximbank monetary establishment. In return it is because of provide 164 million barrels of crude.

In September the NNPC admitted it was considerably in debt. It was reported to be owing its suppliers round $6bn for gas introduced into the nation.

Nigeria’s oil manufacturing has plummeted lately from round 2.1 million barrels per day in 2018 to round 1.3 million barrels per day in 2023.

The NNPC has been stressing oil theft because the primary purpose why manufacturing has dropped.

It says in only one week – from 28 September to 4 October – there have been 161 incidents of oil theft throughout the Niger Delta and 45 unlawful refineries have been “found”.

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

“It’s a handy excuse,” she provides.

She factors to different contributing elements inflicting the drop in manufacturing, together with worldwide oil corporations promoting their on-shore oil fields – a few of which can now not be viable having pumped oil for 60 years.

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

He has at all times denied the suggestion that his empire benefitted from hyperlinks to politicians in energy who helped guarantee he had a monopoly.

At present there are those that are vital of Mr Dangote’s ways and amid rigidity with the regulatory authorities, the identical accusation has resurfaced on the subject of the availability of gas in Nigeria.

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

Mr Dangote has not commented on the accusation however has mentioned it makes enterprise sense for the merchants to purchase from his refinery relatively than from outdoors.

A feud between the regulator and Mr Dangote over provides and pricing has rumbled on and morphed into one other row with native gas merchants refusing to purchase from the brand new refinery.

The mud slinging has additionally included allegations that some merchants have been shopping for up substandard gas from Russia which is then blended with different merchandise earlier than being shipped into Nigeria.

However not everyone seems to be nervous or shocked by the disagreements.

Ms Anku factors to classes learnt from US businessmen again within the nineteenth Century.

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

“I see the drama as a really regular course of as you’re altering the construction of the financial system. There are losers, they lash out. There’s no likelihood they’ll cease the refinery from working or promoting its merchandise to the Nigerian markets… for my part.”

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

“Every single day I get up to the odor of what I’m certain [could] kill me. It’s due to the standard of the diesel,” says Mr Akinosho.

He sees Mr Dangote’s refinery as an actual alternative for increased high quality petroleum merchandise in Nigeria which might be higher for each automotive engines and other people’s lungs.

However proper now, Nigerians being hit arduous within the pocket could 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 information and figures which leaves folks guessing what’s going on inside this nonetheless considerably opaque trade.

“Everyone seems to be a villain. There are not any heroes right here,” concludes Mr Akinosho.