The Trade Union Congress (TUC) has revealed that Aliko Dangote’s 650,000 barrels per day refinery faced challenges in securing crude oil supply from the Nigerian National Petroleum Company Limited (NNPCL) and International Oil Producers (IOCs) because the billionaire businessman failed to plan.
TUC President, Comrade Festus Osifo, disclosed this during a recent media briefing in Lagos, where he spoke on the recent tensions between Dangote and the Nigerian National Petroleum Company.
Osifo said an oversight on Dangote’s part to initiate discussions with NNPCL about crude supply ahead of the refinery’s completion led to complications when the facility was ready to begin operations.
According to the TUC president, such negotiations should have started at least five years prior to the refinery’s intended launch date and not six months to the refinery’s commencement of operations.
Osifo’s explanation comes in the wake of Dangote’s recent interview with Bloomberg, where he likened the Nigerian oil and gas industry to a drug cartel.
Osifo countered this assertion, explaining that the industry is highly regulated and that crude oil production and distribution involve multiple international oil companies (IOCs) operating under various contractual agreements with the Nigerian government
Osifo further explained the complexities of crude oil allocation, noting that many IOCs have long-term contracts with off-takers that were established years ago.
This, he said, makes it challenging for new entities like the Dangote Refinery to secure immediate supply without paying premium.
Quoting Osifo, “Regarding Dangote granting an interview saying that there is a cartel in the oil and gas industry. First, we must understand where Dangote is coming from. Dangote is a business person. Dangote did not invest almost $20bn in the refinery to placate Nigerians. He did not invest such an amount of money in the refinery because it’s a charity organisation. I can tell you that the $20bn that Dangote invested in the refinery, maybe most of the funds, was borrowed, right?What that means is that he will be paying interest on the funds.
“We have very robust insights into what is happening today, into the price war that is going on between the Dangote Refinery as well as the government, represented by NNPC, in this case. And maybe I can share very few of them with us. What clearly happened was that Dangote built his refinery. They started discussing crude supply. The first thing is that in the oil and gas industry, it’s a highly regulated industry,” he noted.
Osifo explained, “What those companies (IOCs) said is if Dangote Refinery wants them to supply them immediately, it should pay some premium. So the issue of premium was what led to the initial conversation around the Dangote Refinery and the allegation that they were not supplying the refinery crude.
“Coming to that of the NNPC Ltd, it has its own crude. Some years ago, the Buhari government borrowed money from Afreximbank. Some of the crude was tied to paying back the crude.
“So literally, what Dangote should have done is that he should have started discussing crude supply five years ago. You do not start discussing crude supply six months into production.
“This is the honest truth. But people may not come to the public to tell you all this. So, that opportunity was initially missed. And as for Nigeria, some of its crude are already tied up for paying back some of its loans. So, for example, they may go to Afrexim and collect $3bn. This $3bn can be tied to 100,000 barrels production of crude per day that will be supplied.
“So, some of them have been tied, and this was done between 2015 and today.”
Osifo explained that in line with the Petroleum Industry Act, 2021, the IOCs are at liberty to sell on a ‘willing buyer, willing seller’ basis.
“They are at liberty to sell the crude to the highest bidder. They invested in it. I can tell you that one of the platforms owned by Total FPSO, it costs $16bn to build it. The Egina FPSO is $16bn,” he said.
The TUC president stressed that IOCs like Total Energies, Chevron, and Exonmobil have trading companies that have entered into long-term contracts with financiers, which Dangote should have negotiated with before the commencement of production from his refinery.
“They have trading company, locked in contracts for years. What that means is this. So, in 2020, for example, ExxonMobil may have locked down all their production in Nigeria. They may have had off-takers since 2020. They may have had off-takers for five years. In 2022, Chevron may have had off-takers for five years that will take all the crude production in Nigeria. So they may have side contracts with those people.
“So, the government literally today can not come and say, you must take this and give it to Dangote. It’s a bit tricky and a bit difficult because if they also fail to meet the obligations of their contractors, it will become a problem.
“So, what most of these companies have said is that, okay, in those of their contracts, they looked at it. There is always a premium that they could play with. Because they are investors, they are also looking for profit.”
According to Osifo, the reason for the initial disagreement between the Dangote Refinery and IOCs was because Dangote refused to pay the premium, which they requested in order to allocate some crude to the refinery.
“So, they said if you want to supply you immediately, you pay some premium. So, that issue of premium was what led to the initial conversation around Dangote saying ‘they are not supplying me crude, they are supply me crude’,” he said.