The Implications of Siting the Dangote Refinery at the Export Free Zone (EFZ)

Recently there is trending argument about the implications of siting the Dangote Refinery at the EFZ. The crux of this argument is that the location of the Refinery at the EFZ will in reality have the same effect just like any other Refinery outside the country. And that the expectations that the coming on stream of the Refinery will impact pump price might not be realized. We should therefore be prepared for possible backlash from a generality of our population. It was then advised that we must continue to keep our focus on getting refineries outside the FTZ functional to control any fallouts from this development. But I think that is a shallow reading of the situation. As a matter of fact I disagree with this perspective.

I now invite you to come along with me so we can explore the trends of my thoughts on the matter. The Refinery is within Nigeria for shouting out loud and that would automatically knock off the costs of Freight, insurance, handling and demurrage charges due to port activities and even land transportation costs not forgetting the bridging costs which the country now unwisely bears as it imports refined products. Why should that not impact on pump price of fuel if such costs are no longer incurred?

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If the Refinery sources all its crude from Nigeria, then substantial add on costs due to the falling exchange rate will be removed. Even if the Refinery insists on selling to Nigeria in dollars because of its location, then Nigeria will in turn ask for its crude to be paid for in dollars and automatically there will be a canceling out effect from the perspectives of the rate of exchange impact on the extant price levels.

Then we must remember that fuel importation has a priority claim on available supply of foreign exchange to the extent of about 30%! If that demand pressure is off, we should expect a firming up of the the foreign exchange rates which will contribute substantially to the attainment of hitherto elusive micro economic stability which no doubt must have an effect on pump prices of fuel. It is also expected that such a development would positively impact the inflationary spiral to moderate the unprecedented escalation in prices of almost all products and services across all sectors in the economy.

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We must also recall that we were told that as should be expected that the country has taken equity position of the equivalent of 20% in the Refinery and therefore will be entitled to board room seat to ensure that the interest of the country is not undermined and this will be in addition to the returns expected to accrue to the treasury as dividends are declared and paid.

There will also be tremendous opportunity to hire Nigerians as part of the workforce. Such a development would contribute to dousing social tension in the land with consequential positive effects on the level of crimes and tendency to criminality. Therefore in summary I cannot envisage how the Refinery can come on stream without it making considerable positive impact on our fiscal space in the country. I appreciate and understand the need not to exaggerate expectations but it is incorrect to push the arguments as is done currently because it simply does not reflect informed reality. We however are impatient for the Dangote Refinery to come on stream in the shortest possible time before frustration sets in. Shalom.

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~ Boniface Chizea


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