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September 13, 2013
Analysis


An X-ray into Dangotes US$9bn Investment in
Refinery/Petrochemical/Fertiliser Plants.
The bane of energy and power sector in Nigeria may soon come to an end as the US$9 billion investment is coming into the
industry via Dangote Industries. The US$9 billion investment for the construction of a Petroleum refinery/petrochemical plant as
well as a fertilizer plant that is to be partly financed by both equity and banks loan in the proportion of 33% to 67% heralding a
threshold of greater opportunities and succumb for the oil and gas sector as well as the Nigerian economy as a whole. Upon
completion, the refinery will be the largest refinery in Africa with a production capacity of approximately 400,000 barrel of crude
oil per day, thus making Nigeria less reliant on imported petroleum and petrochemical products and a net-exporter of fertilizer.
A quick insight into the foray of oil and gas sector in Nigeria, the challenges and what the future holds given the multi-billion dollar
investment by Dangote is critical for the socio-economic development of the country. The Petroleum industry in Nigeria became
alive in 1956 when crude oil was discovered in commercial quantities in Oloibiri, in River state which afterwards ushered in
investment opportunities in infrastructure in four (4) refineries with a total combined capacity of 445,000 barrel per day. Since,
the upgrade and completion of the last refinery in 1989, there has not been any investment in new refinery given the exigencies
of rising demand for energy spur by rising population and urbanisation, the decadence and unstable electricity supply and the
likes in the country. Consequently, Nigeria being the largest producer of crude oil in Africa which is expected to be an exporter of
refined petroleum products ironically has been a high importer of refined petroleum products importing approximately 80
percent of its energy need. The resultant effects had many varied negative implications for the sustainable even growth and
development of the nation ranging from the neglect of Agriculture sector and other sectors of the economy, high level of
corruption among others. In short, the discovery of crude oil has been a curse rather than a blessing to the country.
With the construction of the first ever private petroleum refinery in Nigeria, relief is much more nearer for Nigerians, despite the
fact that 26 firms were granted license to build refineries more than ten years ago none has taken-off. The project is expected to
generate about 10,000 employment opportunities directly and another 25,000 indirectly for Nigerias economy which has an
unemployment rate of about 24 percent that is about 40 million unemployed people. Also, the refinery will reduce the burden of
perennial petrol scarcity, reduce fuel importation into the country, moderate the vagaries associated with price volatility in the
international oil market on the country, save the country some extra foreign earning and indirectly stable currency. In like
manner, the investment would certainly trigger more investments and prodding by private investors in building more refineries as
well as other ancillary services consequently upon the threat by government to revoke all refinery licenses that are not operative.
However, there is need for full deregulation of the sector (subsidy removal) and the passage of the petroleum Industry Bill (PIB) in
order to reposition the sector for further investment and reduce the associated inefficiencies such as deterrence to private
investment and reduction in profitability, crowding out of growth-enhancing public spending, incentives for smuggling and less
competition among others. For instance according to IMF staff, fuel subsidy declined from 4.7% of GDP in 2011 to 3.6% in 2012
which translated to N298.68 billion savings, one overriding motivation for private investors like Dangote to invest in the sector.
In addition, the fertilizer plant is another investment that would resuscitate the agricultural sector with far more reaching impacts
on the populace as the sector contributes about 40% to the GDP and employment approximately 65% of the population. With the
Agricultural Transformation Agenda (ATA) and the keen willingness of the banks to lend to the sector, the Agricultural sector may
be set to regain its lost glory and start to contribute meaningful to foreign exchange earnings given that about 80% of foreign
exchange revenue comes from the oil sector which put the economy at risk to any adverse shock in international oil market.

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