Nigeria’s Dangote refinery embroiled in billionaire’s feud with government

Welcome back to Energy Source, coming to you today from Houston and Lagos.

Earnings season is in full swing, and we will be watching closely to see what second-quarter numbers this week say about the health of the industry’s supermajors. BP beat expectations thanks to a lower tax bill this morning. Shell will report on Thursday, while America’s oil giants, ExxonMobil and Chevron, follow on Friday.

Weak refining margins are set to be a central theme: both TotalEnergies and BP took hits in this area and Exxon has flagged that it expects to as well.

Exxon and Chevron, meanwhile, will face questions about their stand-off over a lucrative Guyanese oil find, though any near-term resolution seems unlikely.

Another high-profile clash — in a very different part of the world — is the subject of today’s newsletter.

Aliko Dangote, Africa’s richest man, has ambitious plans for his huge new refinery in Nigeria. But the project has become embroiled in an impasse with regulators over allegations Dangote is trying to monopolise the market for refined products. My colleague Aanu Adeoye, the FT’s west Africa correspondent, has more.

In non-oil news, my colleague Amanda Chu travelled to Ohio to report on efforts to establish next generation solar technology in the US as part of a push to compete with China’s dominance in photovoltaics. Check out her dispatch here.

As ever, thanks for reading. — Myles

Nigeria’s Dangote refinery embroiled in billionaire’s spat with regulators

Aliko Dangote’s $20bn oil refinery was supposed to be a “game-changer” for Nigeria.

The eponymous project, first conceived a decade ago and completed last year after delays and cost overruns, was billed as the defining plant that could wean Nigeria off its dependence on imported refined petroleum products. Despite its status as Africa’s largest oil producer, Nigeria is unable to refine its crude locally and spends billions of dollars annually importing finished products.

But little is going to plan. The normally taciturn Dangote has spent the past few weeks briefing the press on developments at his 650,000 barrel a day refinery after an industry regulator accused him of being a monopolist, an accusation he denies. The long-running suspicions of tensions between the well-connected billionaire and the administration of President Bola Tinubu also refuse to go away.

The refinery has been beset by various problems. The plant, which now produces diesel, aviation fuel and naphtha, has struggled to secure sufficient crude to increase manufacturing, forcing it to turn to far-flung locales such as Brazil and the US for its supplies.

“We want to buy directly from Nigerian producers,” Aliyu Suleiman, Dangote Group’s chief strategy officer, told Energy Source. “But the Nigerian producers transfer to their international trading arms and they add their margins and sell to us.”

“Given that the crude is produced here by companies that are registered in Nigeria and is being sold to a refinery in Nigeria, we believe that it would be more efficient for the transaction to be done between the two entities directly rather than through an international middleman who in this case we don’t see as adding any value,” he said.

The monopolisation allegation from the head of the Nigerian Midstream and Downstream Regulatory Authority, has worsened ties between the billionaire and the state.

Farouk Ahmed, the agency head, claimed Dangote had asked Nigeria to block the importation of diesel and aviation fuel to hand his refinery an advantage. Ahmed also alleged that Dangote’s diesel was “inferior to the imported quality. Dangote insists his diesel is the “best diesel in Nigeria”.

Dangote has since abandoned a planned steel plant that was announced earlier this year, saying he wanted to avoid being dubbed a monopolist.

There’s also a spat with NNPC, Nigeria’s state-owned oil company, which three years ago paid $2.7bn for a 20 per cent stake in the Dangote refinery. NNPC recently had its share whittled down to 7.2 per cent after Dangote said it failed to pay the balance of what it owed — largely crude supplies of 300,000 bpd over several years. NNPC refuted Dangote’s assertion, claiming it had capped its equity in the project as part of a periodic assessment of its investment portfolio to ensure alignment with its “strategic goals”.

Allegations of monopolistic practices have followed Dangote throughout his career. In the cement industry, where he controls more than 60 per cent of the Nigerian market, critics have accused him of setting excessively high prices and receiving favourable incentives from previous governments, allegations he denied in an interview with the FT last year.

Suleiman said the monopoly accusations were weightier because they came from a regulator. “If the regulator himself is making that statement, it can be seen almost as a statement that has come from the government and that’s what makes this different,” he said, while insisting that Dangote Group maintained a “very good relationship with the government on many facets”.

A presidential spokesperson said on Monday that Tinubu had ordered the NNPC to sell crude to Dangote in the local naira currency. Details of the supposed deal are unknown.

Now people in the Dangote camp and other Nigerian billionaires are warning of forces wanting to stymie the refinery. Dangote himself hinted at a business summit in June that an oil “mafia” was behind efforts to “sabotage” the refinery because his fully-functional plant would disrupt the importation value chain. A senior politician in the ruling All Progressives Congress told Energy Source there was a “cabal” that would rather see imports flowing because of the profit margins they enjoy rather than encourage local production.

“There is a concerted effort against the refinery,” said Suleiman. 

“There is a value chain that has existed for many years that supplies petroleum products into Nigeria. That value chain is being somewhat disrupted.”

Suleiman said the value chain included foreign refineries, Nigerian traders and others involved in the importation of fuel into the country. “As a result there is pushback from various players that perceive — rightly or wrongly — that the economics of their operations will now be negatively impacted,” he said. (Aanu Adeoye)

Your feedback

In last Tuesday’s newsletter, we explored how the repurposing of South Africa’s Komati coal plant offers a cautionary tale on the “just energy transition” in developing countries.

Nick Hedley, a South Africa-based journalist and editor of The Progress Playbook, raised some nuanced points in response. Here’s what he had to say:

The new head of the country’s power utility Eskom is quoted as saying a coal plant repurposing project had created an “atomic bomb scenario” for local jobs, and it is implied that this was a result of South Africa’s just energy transition partnership with wealthy countries. This is not the case.

In fact, the decommissioning process at the Komati coal-fired power plant began as far back as 2017, when a decision was taken to no longer invest in the ageing plant’s upkeep. This was years before South Africa agreed to an $8.5bn climate finance deal.

Eskom says none of its workers at Komati were laid off — many were redeployed elsewhere. But the interim period between the plant’s shutdown and the switch to clean energy has made life tough for the local community, with guesthouses and Eskom suppliers seeing their revenues all but dry up.

However, in the past, when Eskom decommissioned coal plants, it simply walked away and left local communities stranded. This time around, it decided — albeit far too late — to use Komati as a test bed for future repurposing activities. Local community leaders say they support the vision for the site, even as pro-coal politicians twist the narrative to fuel a backlash against the project and the broader just energy transition programme.

To have your say on this or any other topic we cover, drop us a line at energysource@ft.com.

Power Points

• Unlike many of its private equity rivals Carlyle still has an appetite for fossil fuels.

• Azerbaijan is set to host this year’s COP29 climate summit. But flaring in the country hit a decade high last year.

• Equinor has warned that UK government plans to increase taxes on oil and gas could hurt efforts to electrify North Sea operations.

Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu, Tom Wilson and Malcolm Moore, with support from the FT’s global team of reporters. Reach us at energy.source@ft.com and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.