The management of Dangote Industries Limited has maintained that the foreign oil corporations continue to obstruct the refinery’s ability to deliver crude with a capacity of 650,000.
The management made these remarks while also applauding the Nigerian Upstream Petroleum Regulatory Commission for publishing the Domestic Crude Supply Obligation guidelines to promote transparency in the oil industry and for its numerous interventions in the oil companies’ requests for crude supply from IOCs.
The IOCs allegedly insisted on selling crude oil to the refinery through their international agents, claiming in a statement released on Wednesday that the local price of crude will keep rising because the trading arms provide cargoes at $2 to $4 per barrel, which is more than the NUPRC official pricing.
The group also alleged that the foreign oil producers seemed to be prioritising Asian countries in selling the crude they produced in Nigeria.
The Vice President, Oil & Gas, Dangote Industries Limited, Mr DVG Edwin, said, “If the Domestic Crude Supply Obligation guidelines are diligently implemented, this will ensure that we deal directly with the companies producing the crude oil in Nigeria as stipulated by the Petroleum Industry Act.”
Edwin insisted that IOCs operating in Nigeria had consistently frustrated the company’s requests for locally-produced crude as feedstock for its refining process.
IOCs trading arms
He stated that when cargoes were offered to the oil company by the trading arms, it was sometimes at a $2 to $4 (per barrel) premium above the official price set by the NUPRC.
“As an example, we paid $96.23 per barrel for a cargo of Bonga crude grade in April (excluding transport). The price consisted of a $90.15 dated Brent price plus a $5.08 NNPC premium plus a $1 trader premium. In the same month, we were able to buy WTI at a dated Brent price of $90.15 + $0.93 trader premium including transport. When the Nigerian National Petroleum Company Limited subsequently lowered its premium based on market feedback that it was too high, some traders then started asking us for a premium of up to $4m over and above the NSP for a cargo of Bonny Light.
“Data on platforms like Platts and Argus shows that the price offered to us is way higher than the market prices tracked by these platforms. We recently had to escalate this to NUPRC,” Edwin said, urging the commission to take a second look at the issue of pricing.
“It is ‘erroneous’ for one to say that the International Oil Companies are refusing to make crude oil available to domestic refiners, as the Petroleum Industry Act has a stipulation that calls for a willing-buyer, willing-seller relationship,” said Gbenga Komolafe, Chief Executive of the NUPRC, in an interview on national television. Edwin was responding to this statement.
Edwin asserted that the NUPRC head may have been misquoted by some, which would explain his claim that IOCs did not refuse to sell to us, even though he acknowledged that the commission had been very supportive of the Dangote refinery and had stepped in multiple times to help ensure crude supplies.
“To set the records straight, we would like to recap the facts below. Aside from the NNPCL, to date, we have only purchased crude directly from only one local producer, Sapetro. All other producers refer us to their international trading arms. These international trading arms are non-value-adding middlemen who sit abroad and earn a margin from crude being produced and consumed in Nigeria. They are not bound by Nigerian laws and do not pay taxes in Nigeria on the unjustifiable margin they earn.
“The trading arm of one of the IOCs refused to sell to us directly and asked us to find a middleman who would buy from them and then sell to us at a margin. We dialogued with them for nine months and in the end, we had to escalate to NUPRC who helped resolve the situation,” Edwin stated.
He spoke further, “When we entered the market to purchase our crude requirement for August, the international trading arms told us that they had entered their Nigerian cargoes into a Pertamina (the Indonesia National Oil Company) tender, and we had to wait for the tender to conclude to see what is still available. This is not the first time. In many cases, particular crude grades we wish to buy are sold to Indian or other Asian refiners even before the cargoes are formally allocated in the curtailment meeting chaired by NUPRC.”
He urged the NUPRC to take a second look at the issue of pricing, having severally asserted that transactions should be on a willing-seller, willing-buyer basis.
For this to work, he said that there must be market liquidity (many sellers/many buyers in the market at the same time) unlike where a refinery needs a particular crude grade loading at a particular time then there is typically only one participant on either side of the market.
“It is to avoid the problem of price gouging in an illiquid market that the domestic gas supply obligation specifies volume obligation per producer and a formula for transparently determining pricing. The fact that the domestic crude supply obligation as defined in the PIA has gaps is no reason for wisdom not to prevail,” Edwin stated.
During a tour of the refinery, Alhaji Aliko Dangote, the president of the Dangote Group, informed editors that the refinery was scheduled to begin producing gasoline in August 2024. This came about after it had worked out its problems with the supply of crude oil with the assistance of the Federal Government and the Nigeria National Petroleum Company Limited.
Dangote’s statement was made a few days after the NUPRC claimed that Nigerian crude oil producers had promised to work toward a long-term supply of crude oil to Dangote and other nearby refineries at a price set by the market.
According to both sides, the pledge was made to make sure refineries would not run out of feedstock while operators, or crude oil producers, carried out their business as efficiently as possible. Meanwhile, the Crude Oil Refiners Association of Nigeria has also alleged that IOCs in the country have been selling crude to CORAN members through their trading agents in Europe instead of engaging in direct sales to local refineries.
CORAN, while expressing optimism that the recent intervention of the Federal Government would help in stopping the practice, described it as an illegal act that requires immediate government attention.
In an interview, CORAN Publicity Secretary, Eche Idoko, stated that the oil companies engaged in the act despite the regulations of the Nigerian Upstream Petroleum Regulatory Commission on the Domestic Crude Supply Obligation.
“To be fair to the Federal Government, the NUPRC has set up the Domestic Crude Supply Obligation that is meant to mandate the crude producers to supply to the Nigerian market.
“But as I speak to you, the IOCs are still kicking to see how they can whittle down the effect of the DCSO guideline, which said they should sell crude to Nigeria on a willing-buyer, willing-seller basis, but under a favourable term to Nigerians.
“What the IOCs are pushing for is that the agreement is signed between the refineries and their trading agencies instead of themselves, but the Petroleum Industry Act says it should be with them. Why they want us to sign with their trading agencies or partners is that most of their trading agencies are in Europe,” Idoko stated.
The oil refiners’ spokesperson added, “So, it means we are buying crude from a European country while the producer is in Nigeria. This is the same thing the Dangote refinery was complaining about. We will be buying our crude oil like it is from an international market. Those are the issues we’ve been grappling with.” Idoko added that the IOCs want to be paid through the A-rated banks, meaning the cost could only be paid in dollars.
“Another issue is that the IOCs want us to pay with an A-rated bank and no Nigerian bank is A-rated, so we have to buy with dollars. The clauses they are trying to smuggle into this trade agreement will make it more difficult for us to buy from them under a domestic trade term. This technically places us at a disadvantage,” he said.
NUPRC recently announced that it had resolved the controversies between oil producers and local refineries, a development that was re-echoed by the Dangote Petroleum Refinery at the time it said the plant would release petrol to the market in August.
However, CORAN called for concerted efforts to prevent a situation whereby the Dangote refinery would resort to the importation of its crude due to an unfavourable Nigerian market.
Colin expressed concern that the Federal Government was finding it difficult to enforce its regulations, saying the IOCs want to retain Africa as their market for imported petroleum products.
“If local refineries sell their products outside Nigeria, it will bring an inflow of foreign exchange and reduce the pressure on the naira. But our question is, why is it so difficult for the Nigerian government to see through the gimmicks of these oil merchants who continue to hold us to ransom? They want to guarantee supply to their refineries outside Nigeria.
“If Nigerian refineries continue to get crude supply, it means they can only get crude after the Nigerian refineries are satisfied; they might go out of market. The second reason is that they want a continuous market in Africa for their products, and Nigeria is the largest consumer of refined products in Africa. The Nigerian government should wake up.
“The refining industry in Nigeria has the propensity to create 20 million direct and indirect jobs. It can solve 60 percent of the current forex issue with a direct impact on inflation. We have been pleading with the Coordinating Minister of the Economy to sit with us to see how we can partner together, but the trade merchants have presented themselves as the saviour and we as the enemy,” he claimed.
