Opinion
Investigating Nigeria’s Subsidy Removal and the Dangote Refinery Debacle
By Sylvester Audu
In the midst of dwindling revenues and skyrocketing subsidy costs, Nigeria has taken a bold step by removing fuel subsidies, igniting controversy and unrest among its population.
Despite the opposition’s claims that subsidy removal will disproportionately affect the poor, the government’s redirection of funds towards crucial sectors such as health and education paints a promising picture for Nigeria’s future. The recent World Bank loan of almost a billion dollars for palliative measures may provide temporary relief, but it is not seen as a sustainable solution.
However, the fate of the much-anticipated Dangote Refinery, meant to reduce Nigeria’s reliance on imported petroleum products, remains uncertain as unforeseen technical difficulties delay its completion.
The Dangote Refinery, announced in 2013 with an initial $3.3bn loan deal with local and foreign banks to fund the construction, was expected to transform Nigeria’s reliance on imported petroleum products and boost the country’s economy. With an initial completion date of 2018, the refinery was planned to produce enough refined petroleum to meet domestic needs and provide a surplus for export. However, the project has been plagued by continuous delays, attributed to factors such as lack of technical expertise, financial constraints, and poor project scoping.
Reports suggest that the Dangote Group is lobbying for an additional $3 billion cash injection, which could add to Nigeria’s debt burden and divert funds from more immediate solutions to the subsidy removal. Adding to the concerns surrounding the Dangote Refinery is the agreement between the Nigerian government and the Dangote Group. The Nigerian government in 2021 agreed to provide $2.7billion in cash-and-crude to the Dangote Group to fund the construction of the refinery in return for 20% equity. On December 1, 2021, the Federal Government through NNPC made a payment of $1.038billion in two tranches of $519.5million each to Lekki Refinery Funding Limited account with the beneficiary bank, representing the first cash portion of the deal, with the balance to be paid by the government upon completion of the project. This money was a loan from one of the international finance institutions to NNPC.
With the company missing out on interest payments due January 2023 of 750million dollars which is still yet to be paid despite being structured by the banks almost three times, the project is faced with a big dilemma – and with it, Nigeria’s hopes for the refinery.
As it stands, there is evidence to suggest that the Company has exceeded its single obligor limit with local Nigerian banks and no international bank is willing to extend funds to it. In addition, the company will need at least 3 billion dollars in addition to its annual interest payments of about 700million dollars to complete the project by 2025. Whilst there are already talks for a backdoor arrangement being proposed with the CBN to enable a commercial bank circumvent its single obligor limit to the company in order for it to raise further cash for it to pay its interest obligation of 750million dollars which have fallen due, such a move has been viewed cautiously by supporters and critics of the project alike.
These reports also suggest that the company unsuccessfully approached the outgoing president Muhammadu Buhari administration to release the remainder cash sum of 1.7billion dollars which was to have been paid upon completion of the project. According to these reports, President Buhari backtracked after further due diligence was done on the project which revealed that the project would not be completed before 2025 unlike the December 2022 date the company had promised at the time of signing the agreement.
As a result, intense pressure is now being mounted on the incoming government of Bola Tinubu to pay the remainder sum of $1.7billion dollars upon taking office as well as approve a new cash injection of 3billion dollars and crude for additional 20% equity in the project so the company can raise sufficient cash in the short term to pay outstanding interest costs and complete the project. This is premised on the fact that the new government has declared it wants to plug revenue gaps by removing the subsidy but the company has now given them the impression that the project will be completed by mid-2024 – which is far from the case. The incoming government must therefore be wary of yet another such lofty promise by the project owners as sources close to the Chinese company brought in to salvage the refinery project say a 2024 date is not feasible.
Should the incoming government go this route, it does nothing to solve the problems with the completion of the refinery, adds further unnecessary debt burden to the country and its citizens, and takes away money from critical and immediate solutions to the subsidy removal. Nigeria is already over-leveraged to the Dangote refinery project.
Many commentators believe that rather than relying on the uncertain completion of the Dangote Refinery, the Nigerian government should focus on the ongoing refurbishing exercise of its existing refineries. This strategy would not only provide a more reliable short-term palliative solution but also pave the way for a smoother transition from imported petroleum products. They should also encourage the modular refineries to ramp up production.
In addition, the Nigerian government should explore alternative strategies, such as investing in renewable energy sources, to reduce the nation’s reliance on imported petroleum products. This approach would provide long-term benefits to Nigeria’s economy and environment, while also fostering self-sufficiency in fuel production.
The removal of fuel subsidies offers Nigeria a unique opportunity to reassess its priorities and invest in a more sustainable future. By rejecting the new investment proposal for the Dangote refinery which has become an albatross whilst focusing on feasible alternative strategies, Nigeria can emerge stronger and more resilient in the face of global challenges. Can the incoming government afford to mortgage Nigeria’s scarce resources on a false hope? With billions of dollars and the country’s economy at stake, Nigeria cannot afford to pin all its hopes on the Dangote Refinery and even if the new government were to invest further in the project, there must be proper due diligence done before any investment is considered.
Audu is a Writer and Social Justice Advocate writing from Abuja
Ken Nnamani, a former president of the senate, says he did not beg Elisha Abbo, a former senator representing Adamawa north, on behalf of any judge after the ex-lawmaker lost his election case in court.
In October 2023, the court of appeal sacked Abbo and declared Amos Yohanna, candidate of the Peoples Democratic Party (PDP), as the winner of the Adamawa north senatorial election.
Appearing on Channels Television on Wednesday, Abbo said he was a victim of “miscarriage of justice”.
The former senator said Nnamani pleaded with him on behalf of a judge after he lost his election case in 2023.
Reacting in a statement, the former senate president described Abbo’s claim as “blatant lies”.
“My greatest surprise was to hear him state that Senator Ken Nnamani visited him to plead with him on behalf of a judge for the miscarriage of justice. This statement is a blatant lie. I do not know how Senator Abbo can boldly fabricate an event that never happened to buttress his allegation of judicial miscarriage against him,” he said.
“For the avoidance of doubt, I have never visited Senator Elisha Abbo at his house or anywhere. Up to this moment, I do not know where he lives. I have never discussed with him about his case, or any case pending or decided by any court of law in Nigeria.
“The only time I met with him was when he visited me in my house. It was more of a social visit by him. At this meeting, we never discussed his case or any case. I recall that when the matter of his political career came up, I advised him to avoid controversies as a young politician.
“The statements Senator Abbo made regarding me and his case are all fabrications. I believe I have had a sterling and distinguished public service career. I am determined to maintain my integrity and commitment to excellence till the end of my life.”
Heineken Lokpobiri, minister of state for petroleum resources, says the federal government plans to commence implementing the drill-or-drop provisions of the Petroleum Industry Act (PIA).
Section 94 of the PIA gives operators a period of three years to begin oil production or relinquish the assets to the federal government.
Speaking during the Cross Industry Group (CIG) meeting held on Tuesday in Florence, Italy, Lokpobiri said it is in the best interest of the country that all inactive wells go to work.
He said the federal government, under the leadership of President Bola Tinubu, has provided every necessary incentive to ensure international oil companies (IOCs) in Nigeria run smoothly and profitably.
“Now, it is imperative for these industry players to match the government’s efforts with increased investment by announcing final investment decisions (FIDs),” he said.
Furthermore, Lokpobiri discussed “the challenges, expectations, and measures to enhance the sector’s contributions towards domestic energy needs and regional expansion across Sub-Saharan Africa”.
He emphasised that while IOCs have highlighted engineering, procurement, and construction (EPC) contractors as a challenge, “EPCs will not come unless they see strong commitments from industry players”.
“The government has done its part to provide the requisite and investment-friendly fiscals, the ball is now in the court of the IOCs and other operators to make strategic investment decisions that will drive increased production and sustainability in the sector,” he said.
“We must also recognise that domestic crude supply is essential to national energy security. The best solution to this challenge lies in increasing production, which will ensure a balance between domestic supply obligations and external commitments.”
The minister further urged industry players to explore collaborative measures, such as shared resources for contiguous assets and the release of underutilised assets to operators ready to invest in production.
The Progressive Students Movement (PSM), a leading Pan-African student body, has commended the leadership of the Nigeria Police Force (NPF) in Ogun State under Commissioner of Police (CP) Lanre Ogunlowo, PhD, for its commitment to security and community engagement.
In a statement released on Thursday, the President of PSM Nigeria, Comrade Ambassador Okereafor Bestman, highlighted the CP’s efforts in strengthening collaboration between the police, stakeholders, and other security agencies to maintain peace and stability in the state.
“It is worthy of note that CP Lanre Ogunlowo, PhD, has further fostered a harmonious working synergy between the police, stakeholders, and other security agents aimed at ensuring peace and tranquility in Ogun State,” Okereafor said.
The student leader expressed confidence in CP Ogunlowo’s leadership, stating that Ogun State is on track to becoming one of the most peaceful states in Nigeria under his administration.
He also praised the professionalism and dedication of the Ogun State Police Command in tackling crime, regardless of its scale.
Additionally, PSM acknowledged the Ogun State government’s continued support for security agencies, particularly in providing mobility and logistics to enhance their operational efficiency.
The commendation comes at a time when security remains a top priority for residents and authorities in the state, with ongoing efforts to curb crime and ensure public safety.