The Dangote Refinery which the Nigerian government calls a ‘game changer’ has been described by reknowned Economist and the Chief Executive Officer of Financial Derivatives Company, Bismark Rewane, as a source of foreign exchange for Nigeria.
Rewane said that the $19bn refinery will not solve Nigeria’s problem and will not make much difference when it comes to boosting the naira through foreign exchange earnings.
The CEO made the comment during the 2023 Economic Outlook organised by the Nigerian-British Chamber of Commerce monitored by THE WHISTLER.
Africa’s richest man, Aliko Dangote will commission his 650,000 barrels refinery this year and the Nigerian National Petroleum Company Ltd which owns 20 per cent stake will sell crude to the refinery in naira.
But the big concern for the government is how the refinery will help save the forex spent in importation of petroleum products.
Rewane said, “I think first and foremost, there is a complete misunderstanding about these things. First, the oil that is sent out to be refined for us is the oil that we would have earned dollars on. They refine it and bring it back so it is box and cox. You sent it out and you bring it in. It doesn’t change anything. You have saved the refining and transportation cost. It is marginal.
“As they say, it is better to travel hopefully than to arrive. So, you are there thinking that because the Dangote Refinery is open, all of Nigeria’s problems will be solved, sorry. That’s not the answer and it’s not going to happen.
“But we will gain because Dangote is doing 600,000 barrels. May at best you use 300,000 barrels locally and export all of those things and earn dollars from them. You will get more from exporting a refined product than exporting crude.
“The benefits will not be much. We are not importing a lot, it is our crude that goes out through swap arrangements (Direct-Sale-Direct-Purchase, DSDP). There is a land and swap, which is a joint venture, there is offshore and then you have the deep water which are all production sharing contracts. The oil you are sending out for swaps is the oil from the more lucrative fields which is the JVs.”
The Central Bank of Nigeria Governor, Godwin Emefiele had said that the refinery would save Nigeria billions of dollars in forex.
“By the time the Dangote Refinery begins operation, it would be a major FX saving source for Nigeria,” he said at the International Monetary Fund (IMF) and World Bank annual meetings in Washington DC.
“Right now, the overall forex we spend on imported items, the importation of petroleum products consumes close to 30 percent (by the time you add diesel, aviation fuel, petrol and the rest of that).”
But Rewane explained that many of the petroleum products are not bought but are received through crude oil swaps.
He admitted that the refinery will save Nigeria the cost of shipping the crude and as well help the country earn more dollars when the refined products are exported abroad.
Rewane said, “When we swap we lose proceeds from crude which would have given us dollars. But the picture doesn’t change. It is good to make people feel at least temporarily happy. It is like giving a patient who is in pain morphine to calm the pain until it goes.