By Aduragbemi Omiyale
Nigeria’s economic recovery may suffer a setback if urgent steps are not taken by the government to resolve the crude oil supply crisis the Dangote Petroleum Refinery and Petrochemicals in Lagos is facing, the Economist Intelligence Unit (EIU) of The Economist has warned.
The Dangote Refinery has encountered setbacks in petrol production due to a shortage of crude oil feedstock. The private oil facility commenced operations in January 2024 and has started the production of diesel, but has yet to begin producing premium motor spirit (PMS), also known as petrol.
This is because it is not getting enough supply of crude oil from the local market, as the Nigerian National Petroleum Company (NNPC) Limited is producing below what is required to meet its demand.
In its latest report, EIU advised the government to resolve this issue to avert putting additional pressure on the Naira and forcing the Central Bank of Nigeria (CBN) to revert to stronger management of the currency.
It emphasised that producing fuel locally would significantly benefit Nigeria’s fiscal position and currency, given that petroleum products account for 15 per cent to 20 per cent of the country’s goods import bill.
The Dangote refinery, hailed as a transformative development, is expected to resolve the paradox of Nigeria being a major crude oil producer yet still dependent on fuel imports.
With a capacity of 650,000 barrels per day (b/d), the refinery could potentially eliminate the need for fuel imports and shield local fuel prices from exchange-rate fluctuations.
“The Dangote fuel refinery is potentially transformational for Nigeria, which has always been an oil exporter and fuel importer. This fact is often regarded as a failure and an embarrassment by politicians, businesses, and the media alike, but the new refinery has the ability to change this,” it said.
The report noted that the delay in supplying the refinery with crude oil has significant economic repercussions for Nigeria, potentially worsening the already strained relationship between public finances and the management of the country’s currency.
It said that though the government had previously scrapped the official petrol subsidy in June 2023, the practice of unofficially subsidising petrol continues, with substantial implications for the national budget.
The EIU pointed out that this has led to increased currency losses, contributing to a widening budget deficit that has become increasingly difficult to manage.
“As the federal government unofficially subsidises petrol (the official subsidy was scrapped in June 2023), currency losses feed into a widening budget deficit that is becoming more challenging to finance. This provides extra incentive for the central bank to revert to stronger management of the currency, as we already expect, but the degree of market intervention could become heavier.
“Meanwhile, ongoing fuel imports would reduce the current-account surplus from the 1.9% of GDP that we currently project for 2025, potentially leading to lower foreign reserves and the return to a more rigid and unstable foreign-exchange system,” it said.
