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THE FT Try full access for 1 € Nigeria Add to myFT Bold refinery plan aims to transform Nigerian oil
Billionaire Aliko Dangote’s big gamble seeks to change the economics of the sector Under
construction: workers at Dangote Industries’ refinery project outside Lagos © Bloomberg Share on
Twitter (opens new window) Share on Facebook (opens new window) Share on LinkedIn (opens new
window) Save Neil Munshi NOVEMBER 21 2018 0 Print this page When the ship BBC Naples docked
at a jetty outside Lagos in late September, it marked a milestone for Nigerian billionaire Aliko
Dangote: the vessel was the first to land at the port he had built for a $12bn oil refinery that some
say could transform his country’s economy. Mr Dangote has never lacked ambition. He has made his
money selling cement, flour, sugar and salt to Africa’s largest economy — often, critics charge, with a
government-assisted advantage — and beyond. But the Dangote refinery takes this ambition to
another level. There is a range of estimates about when it will be operational: in 2020, according to
the company, the year after that at the earliest, according to most analysts, and 2022, according to a
Reuters report in August. Never, according to sceptics. But once operational, it will process 650,000
barrels of oil a day, a third of Nigeria’s daily production and more than that consumed by its citizens.
It will also be the biggest refinery of its type in the world. Last month at the Financial Times’ Africa
Summit in London, Mr Dangote was understated. “We have achieved a lot — we’ve ordered all our
equipment, and it has started coming,” he said. “There are quite a lot of challenges of doing this kind
of gigantic project in Africa.” The challenges are clear in the refinery’s staggering numbers. It will be
built on 2,500ha of swampland that requires the sinking of 120,000 piles, on average 25 metres long.
The Lagos jetty extends for 230 metres and was built because no port in Nigeria is big enough to
handle all the equipment it will take to build and run the refinery — including a distillation tower
that will be the height of a 30-storey building. It involves the dredging of 65m cubic metres of
seabed sand and the building of a 1km breakwater. It requires more concrete than the capacity of
the country, so the business magnate has established his own quarries. The fuel subsidy will have to
go because at N145 Dangote won’t make a profit Temilade Aduroja, energy analyst at Renaissance
Capital in Lagos Nigeria does not produce industrial gas, trucks or power, so he is building all of those
as well: his own gas plant, trucks in a joint venture with a Chinese company and a power plant able
to produce the 480MW the refinery will need to run. By the time the project is completed, 138km of
road and 180km of drainage will have been built.  At full steam, the site is also expected to produce
enough plastic for all of Nigeria, along with 3m tonnes of fertiliser every year. The fertiliser plant had
been expected to begin production in November, but Mr Dangote said in London it would not start
until January. The refinery is expected to create 9,500 direct and 25,000 indirect jobs. The
businessman has spent $6bn of his own cash on the project, and raised a reported $4.5bn. If it fails,
it may also bankrupt the man who has said his reward for completing the project will be buying his
favourite football team, Arsenal. The refinery will transform Nigeria’s refining industry. Its

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650,000b/d capacity outstrips the country’s current total of 455,000b/d from four state-run
refineries that often run at less than 10 per cent utilisation. The decrepit state-run refineries
“haven’t been able to justify all the investment in them for years”, says Jubril Kareem, energy analyst
for Ecobank. After Mr Dangote’s refinery begins production, he says, “they could easily die a natural
death because there won’t be any need for them any more — which actually a lot of people have
been pushing for in recent years. Those refineries are not operating at any level that [justifies the
view that] government should still fund them”. But even when Mr Dangote produces more fuel than
Nigeria needs, he may not be able to sell it at home. The country’s subsidy regime involves the state-
run National Nigerian Petroleum Company importing more than $7bn of fuel each year and selling it
to retailers, who must sell it to the public at the subsidised rate of N145 (40 cents) a litre. Selling
refined products at that price would be untenable for Mr Dangote, says Temilade Aduroja, energy
analyst at Renaissance Capital in Lagos. “Our assumption is that the subsidy will have to go because,
obviously, at N145 Dangote won’t make a profit,” she says. “The cost to produce at the refinery is
more expensive than N145 — however, it’s cheaper than importing.” Ms Aduroja says she expects
the government to scrap or change the politically sensitive subsidy after February’s presidential
elections. “People will adjust — a couple of years ago it was N87 and they increased it to N145,” she
says. Or the government and the company could decide on a flat rate at which the state will sell
crude.  The project will have fiscal implications, too. By turning Nigeria into a net exporter of refined
oil it should reduce demand for foreign exchange, which is 40 per cent driven by fuel imports. And
then there are taxes. “When it comes to government revenue, just imagine the amount of tax that
refinery is going to be paying,” says Ms Aduroja. Get alerts on Nigeria when a new story is published
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