Dangote Commends NUPRC for Crude Supply Interventions
…Urges Closer Scrutiny of Pricing Practices
By Patience Ikpeme
The Management of Dangote Industries Limited (DIL) has lauded the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) for its interventions in addressing the company’s crude supply requests from International Oil Companies (IOCs).
The company also praised the NUPRC for publishing the Domestic Crude Supply Obligation (DCSO) guidelines, aimed at fostering transparency within the oil industry.
Mr. Devakumar Edwin, Vice President, Oil & Gas, Dangote Industries Limited, emphasized the significance of these guidelines, stating, “If the Domestic Crude Supply Obligation (DCSO) guidelines are diligently implemented, this will ensure that we deal directly with the companies producing the crude oil in Nigeria as stipulated by the PIA.”
Edwin highlighted persistent challenges faced by Dangote Industries, noting that IOCs operating in Nigeria have consistently hindered the company’s requests for locally produced crude as feedstock for its refining processes. He elaborated on the financial impact of this issue, explaining that when crude is offered by trading arms, it often comes at a premium above the official price set by NUPRC.
“As an example, we paid $96.23 per barrel for a cargo of Bonga crude grade in April (excluding transport). The price consisted of $90.15 dated Brent price + $5.08 NNPC premium (NSP) + $1 trader premium. In the same month, we were able to buy WTI at a dated Brent price of $90.15 + $0.93 trader premium including transport. When NNPC subsequently lowered its premium based on market feedback that it was too high, some traders then started asking us for a premium of up to $4m over and above the NSP for a cargo of Bonny Light,” Edwin explained.
Edwin pointed out that data from platforms like Platts and Argus showed the prices offered to Dangote Industries were significantly higher than market prices tracked by these platforms. “We recently had to escalate this to NUPRC,” he stated, urging the regulatory commission to re-examine the issue of pricing.
This response came in light of comments made by the Chief Executive Officer of NUPRC, Engr. Gbenga Komolafe, during an interview on ARISE News TV. Komolafe had stated that it was “erroneous” to claim that IOCs were refusing to supply crude to domestic refiners, citing the Petroleum Industry Act (PIA) which promotes a willing buyer-willing seller relationship.
Edwin responded by clarifying the situation from Dangote’s perspective, “The NUPRC has been very supportive to the Dangote Refinery as they have intervened several times to help us secure crude supply. However, the NUPRC Chief Executive was probably misquoted by some people, hence his statement that IOCs did not refuse to sell to us. To set the records straight, we would like to recap the facts.”
He continued, “Aside from the Nigerian National Petroleum Corporation Limited (NNPCL), to date, we have only purchased crude directly from one other local producer (Sapetro). All other producers refer us to their international trading arms. These international trading arms are non-value adding middlemen who sit abroad and earn margin from crude being produced and consumed in Nigeria. They are not bound by Nigerian laws and do not pay tax in Nigeria on the unjustifiable margin they earn.”
Edwin detailed a specific incident involving an IOC’s trading arm, which refused to sell directly to Dangote Industries and insisted on involving a middleman. “We dialogued with them for nine months and in the end, we had to escalate to NUPRC who helped resolve the situation,” he said.
He further highlighted ongoing challenges in securing crude supplies, stating, “When we entered the market to purchase our crude requirement for August, the international trading arms told us that they had entered their Nigerian cargoes into a Pertamina (the Indonesia National Oil Company) tender, and we had to wait for the tender to conclude to see what is still available.”
Edwin noted that this issue was not isolated, with particular crude grades often being sold to Asian refiners before formal allocations were made in curtailment meetings chaired by NUPRC. He urged NUPRC to take a second look at pricing issues, stating, “NUPRC has severally asserted that transactions should be on a willing seller/willing buyer basis. The challenge, however, is that market liquidity (many sellers/many buyers in the market at the same time) is a precondition for this. Where a refinery needs a particular crude grade loading at a particular time, there is typically only one participant on either side of the market.”
Edwin concluded by stressing the importance of preventing price gouging in an illiquid market and called for the wisdom to prevail in addressing gaps in the domestic crude supply obligation as defined in the PIA.