Saving Downstream Africa through Dangote's Refinery

Saving downstream Africa through Dangote's Refinery

If Dangote’s 4,000 bpd capacity oil refinery with his fertilizer and petrochemical plant in Ondo State, Nigeria springs into production in 2016, then Aliko Dangote, Africa’s richest man would have uplifted downstream Africa on a higher pedestal. Dangote’s current investment will also be energizing Nigeria’s economic wheel tremendously and reduce the epileptic scarcity of fuel that has buffeted Africa’s number one producer of crude oil. Ironically, Nigeria’s fuel scarcity upheaval with the concomitant corruption has always being like the proverbial case of a man that is a river but is looking for spit of saliva to wash his face.

Downstream Africa has been developing on a snail speed when compared to huge leaps made in Africa’s upstream sector which to good extent empowered local economies and created a new band of wealthy class. Africa has about 48 refineries which were built in the past 59 years and within the past ten years only but one refinery has been built in the region. Most of the refineries are dilapidated, not well maintained, operates under capacity , inefficiently managed, lacks effectiveness, incapable of ensuring stable operations, and abnormally riddled with high level corruption.

A report from KMPG, South Africa on: Downstream Oil Business in Africa emphasized that industry experts have declared that the “Golden Age” of refining is over as global refining margins are weak and volatile, and likely to remain so far many years. This reason according to report shows why many new refineries might not be built in Africa soon.

Ecobank, Africa’s largest bank with many footprints in the continent also viewed the difficulty of running refinery on a profitable level by submitting in their opinion that the success of Dangote’s refinery and petrochemical projects getting the financial backing from the local banks was not because of any major improvement in the economics of operating refinery which has remained on the downside, but by the proven track records of Dangote in running successful businesses.

Dangote’s refinery if successfully managed by the man who has proved to have strong business acumen and Mildas touch will show that refineries and certain ventures are better managed by the private sectors. Many critics of the Nigerian business environment have opined that the proposed refinery and petrochemical plant might be muddled by government bureaucracy and buried if deregulation of the downstream sector is not quickly executed.

Aliko Dangote whose conglomerate maintains about 30% of equities in Nigeria’s stock market, second largest in Africa has remained very respectable in the country’s business and political sector. The chairman of Dangote group has good relation with various administrations in the country and by virtue of his groups’ operation in the most populated African country, the Dangote group is synonymous with the “too big to fail” enterprises which government may not want to suffocate with its bureaucratic bottlenecks or allowed to be hunted by the serious cartel of petroleum marketers.

The biggest challenge facing the refinery will be the source of the feedstock which will be from the fields in the southern Niger Delta. Ondo State, where the refinery and petrochemical plant will be located is one of the Niger Delta States, but only produces very little oil which incidentally is heavy oils that would cost more to refine. The southern Niger Delta where the feed stocks will be sourced from carries most of Nigeria’s oil reserves and produces mainly light sweet crude. Unfortunately, that is the hot bed of oil geopolitics in Nigeria. Failure of the Dangote group to carry the people along and have meaningful understanding with them might disrupt the supply of feed stocks to the refinery. This could lead to another sordid episode or regeneration of the ugly woes of Nigeria’s refineries, the ordeals of fuel scarcity and the macabre dance of corruption.

Energy & Corporate Africa

Saving downstream Africa through Dangote's Refinery