Nigeria’s risk profile seen rising on Dangote-NMDPRA dispute

Nigeria’s oil and gas sector, the lifeblood of Africa’s biggest economy, where investments have been too few and far between, may take a hit due to the ongoing public disagreement between Dangote Industries Limited and the Nigerian Midstream and Downstream Petroleum Regulatory Agency (NMDPRA).

If it becomes fully operational, the $20bn Dangote facility on the outskirts of the commercial capital Lagos could process half of Nigeria’s daily oil output.

Yet what should be a moment of pride for the country’s most important industrialist is swamped with allegations from NMDPRA that the refinery’s diesel products are inferior to imported ones.

“Dangote refinery contributes to our gross domestic product (GDP), reduces our dependency on imports and the pressure of our scarce FX, and above all, creates direct and indirect jobs,” a senior source in Nigeria’s oil and gas sector told BusinessDay.

Read also: Dangote shelves steel investment plans amidst monopoly concerns

He added, “We all know that there are economic saboteurs who, for selfish reasons, never want this to work. Therefore, using their corrupt proxies in government, they intend to frustrate this refinery.”

Such a move would have been unthinkable only a few months ago under former President Muhammadu Buhari, with whom he enjoyed an excellent relationship.

Yet last Thursday, Farouk Ahmed, chief executive of NMDPRA, told the world that the Federal Government would not stop the importation of petroleum products, saying Nigeria cannot depend only on Dangote refinery to feed the nation.

The agency also said the diesel from the Dangote Refinery contains a high sulphur content of about 1,000 parts per million.

“Regulatory uncertainty is a disincentive to oil and gas investment because it hampers the future of business operations, while infrastructure decay increases the cost of production, affects competition, and erodes companies’ profitability,” Luqman Agboola, head of energy and infrastructure at Sofidia Capital, told BusinessDay.

He noted that any factor that affects foreign investment will disproportionately hit the oil and gas sector, hurting players across the value chain and causing the country to lose out on potentially large energy deals.

“Regulatory and political risks are real headaches for investors in the oil and gas sector. As such, prior to investing there, investors would undertake extensive due diligence to ensure that such risks are adequately addressed or mitigated,” Juwon Adebayo, energy and environmental lawyer at Center for Energy Resources Consulting, said.

Nigeria’s increased regulatory risk is also coming at a time there is mounting global advocacy aimed at halting all-new Final Investment Decisions (FIDs) for fossil fuels, especially oil and gas, a scenario that may create serious hurdles for new field development. More than $150 billion worth of projects risk getting stranded in Nigeria unless a proper care is taken.

Read also: Dangote rejects NMDPRA claims, says sulphur content meets African standard

Charles Ogbeide, energy analyst with a Lagos-based investment bank, said the comments from the regulator were reckless.

“The refinery is in the stages of completion and commissioning. They are producing AGO and it is normal for their sulphur level to be high for now,” Ogbeide said.

“That their products are inferior is an unfortunate statement that indicates that he has a personal grudge against Aliko Dangote,” he noted.

Kelvin Emmanuel, an energy economist and board member at Obsidian Archenar Nigeria, said NMDPRA has had officials staying with the refinery for 12 months to check the entire system from mechanical to electrical and monitor the processes.

“After six months of testing wet production, they issue them with a provisional acceptance certificate for a license to operate. After 12 months, they issue them with a final acceptance certificate for license to operate — that test is currently nearly 180 days for PAC,” Emmanuel said.

He added, “Wet production test for pre-commissioning doesn’t mean the refinery is not already in production; it means the refinery is not yet functioning at full capacity utilisation yet,” he explained.

“The very fact that the condensation distillation unit has not fully gone into effect is the reason his diesel is currently producing 150-200 parts per million in terms of sulphur content—that will drop to below 50 ppm when all the centrifuges come into operation. It’s utterly disappointing that the NMDPRA chief, in trying to sell a narrative, will attempt to de-market the refinery and mislead the public,” Emmanuel said.

Jide Pratt, country manager at Trade Grid and an energy analyst, said: “Didn’t this same agency give a waiver? Why did the agency allow sales into the open market then? Or they are unaware the refinery is selling?”

He added, “Why is the Port Harcourt refinery that is technically complete not selling and a 45 percent refinery is selling? Until the president decides to sort out the anomalies in this sector, nothing will change.”

Valued at over $15bn, according to Bloomberg, Dangote has enjoyed cozy relationships with Nigerian leaders. They consider him a champion of domestic industry as the country’s largest employer outside of the Federal Government and one of the country’s highest taxpayers.

Read also: Explainer: Separating fact from fiction in NMDPRA’s claims against Dangote refinery

A special investigator appointed by President Bola Tinubu in May 2023 to look into Godwin Emefiele’s nine-year tenure as governor of the Central Bank of Nigeria (CBN) has alleged that a contentious multiple exchange rate operated by the former bank chief benefited certain industries. Emefiele, who was removed from his post in June 2023, has denied the allegations.

Under Emefiele, the central bank kept the naira artificially overvalued against the dollar and restricted access to the greenback on official channels, doling out forex to favoured individuals and corporations.

The idea, in theory, was to provide cheap forex to critical industries to boost domestic production. The EFCC has asked 52 companies to provide documents from 2014 on their forex allocations, but only Dangote’s enterprise has been publicly raided in relation to the probe.

The Dangote Group has said it was not aware of any “accusations of wrongdoing” against any of its constituent companies.