Who wins when Nigeria’s richest man takes on the ‘oil mafia’?

Aliko Dangote’s $20 billion oil refinery, set to be Africa’s largest, promises to be a game-changer for Nigeria. However, many Nigerians remain skeptical, wondering if it will finally lead to cheaper fuel and less time spent waiting in long queues. The success of Dangote’s ambitious refinery project, which has been heralded as a potential boon for the country, will partly depend on how it navigates the powerful forces of Nigeria’s entrenched oil sector, often referred to as the “oil mafia.”

The Nigerian oil industry has been plagued by inefficiencies and corruption for decades. Since oil was discovered in Nigeria in 1956, the downstream sector—where crude oil is refined into petrol—has been rife with shady deals, often involving the government. In 2016, it was reported that Nigeria’s state-owned oil company, the Nigerian National Petroleum Company (NNPC), failed to pay $16 billion in oil revenues. Transparency has been a long-standing issue, and it is only in recent years that NNPC has started publishing its accounts.

Amaka Anku, Africa head at the Eurasia Group, calls the Dangote refinery a “very significant moment” for Nigeria, as it offers a chance to create a competitive, efficient downstream sector. “What the local refinery allows you to do is have a truly competitive sector with multiple players,” she says. This could break the monopoly held by a few influential players and improve efficiency, benefiting the country’s economy and generating tax revenue.

Historically, Nigeria’s oil wealth has been concentrated in the hands of a few, while the public has borne the brunt of inefficiency. Despite being Africa’s largest oil producer, Nigeria’s oil refineries, built in the 1960s and 1980s, have fallen into disrepair. The government spent a staggering $25 billion over the last decade attempting and failing to fix them. This has led to Nigeria exporting crude oil, which is then refined abroad and brought back as expensive fuel. Meanwhile, some well-connected traders have profited handsomely from these “oil swaps.”

The situation has been further complicated by the NNPC’s subsidies on petrol prices, which started in the 1970s. These subsidies, meant to cushion Nigerians from global price hikes, became a huge burden on the government’s finances. In 2022, the subsidy cost Nigeria’s government $10 billion, or more than 40% of its total tax revenues. The subsidies, often inflated, were a major factor in the ongoing financial strain.

When President Bola Tinubu took office in 2023, he declared that the subsidy was unsustainable and cut it immediately, causing petrol prices to triple overnight. This abrupt change, along with the naira’s depreciation, has sent shockwaves through the economy. Nigerians now face higher fuel prices and a currency in freefall, alongside persistent fuel shortages. The government’s response has been to sell fuel at slightly below market prices, but these subsidies are no longer sustainable in the long term.

In this volatile context, Dangote’s refinery offers some hope. By refining oil domestically, Dangote could reduce Nigeria’s reliance on imported fuel and bring more dollars into the local economy. However, the refinery’s ability to deliver cheaper fuel remains uncertain, as the price of crude on international markets still dictates the price Nigerians pay at the pump. Additionally, the refinery will not be immune to Nigeria’s economic challenges. Dangote will still need to import some crude oil, and the NNPC, despite its new commitment to transparency, has been slow to deliver on its promises of adequate supply.

Dangote, known for his successful ventures in cement and sugar, is no stranger to controversy. His refinery project has already stirred tensions with some powerful players in Nigeria’s oil sector. Dangote himself has acknowledged that he underestimated the resistance he would face from the “oil mafia.” He’s described these entrenched interests as stronger than even drug cartels, and it’s clear they have a lot to lose if his refinery succeeds.

The refinery, which has a capacity of 650,000 barrels per day, has faced supply issues from the NNPC, which has been unable to meet Dangote’s demands. Additionally, a dispute over crude pricing has led Dangote to buy oil from other countries, such as Brazil. This friction highlights the difficulties of disrupting Nigeria’s long-standing oil sector, where entrenched corruption and opaque deals have flourished for decades.

The challenges don’t end there. There’s ongoing conflict between Dangote and the regulators over fuel pricing and distribution. The Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) has expressed concerns over Dangote’s pricing tactics, and local traders have resisted buying from the new refinery. Some traders have even been accused of blending substandard fuel from Russia into the Nigerian market, further muddying the waters.

Despite these setbacks, experts like Anku believe the refinery can succeed in the long term. “There are losers, and they lash out. But there’s no chance they’ll stop the refinery from selling to the Nigerian market,” she says. With Dangote’s refinery, Nigeria has an opportunity to improve the quality of its fuel, reduce reliance on imports, and bring some much-needed transparency to the oil sector. However, the road to success will be rocky, and the country’s economic woes will likely persist as the oil mafia continues to fight to maintain its grip on power.

In the end, whether Nigeria’s richest man can disrupt the oil cartel may depend on how much support he receives from the government and whether he can outmaneuver the entrenched interests that have held the country’s oil sector captive for decades. The battle is far from over, but the Dangote refinery could be the first real attempt to change the system.