In May, Dangote Petroleum Refinery returned to court in Lagos. It asked the Federal High Court to strike down petrol import licences that Nigeria’s downstream regulator had just granted to the state oil company and six private marketers, allowing 720,000 tonnes of petrol into a country that now has Africa’s largest single-train refinery on its own coast.
The dispute is about the meaning of one clause. Section 317(9) of Nigeria’s Petroleum Industry Act, 2021 requires the regulator to promote local refining and allows it to license imports only where domestic supply falls short.
Dangote reads that as an obligation: once it can supply the market, imports must stop.
The regulator and the state oil company read it as a discretion: imports remain lawful whenever they are needed to keep the country supplied. The state oil company went further, telling the court that the refinery’s prices were high and unstable, and that imports had to continue to keep a monopoly at bay. The case is due for hearing on October 7.
On Monday this week, a different court gave a different answer. Three of the marketers had sued the regulator, complaining that it had issued their import licences irregularly, and had at times refused to renew them. The court in Abuja agreed, held that the refusal was in direct breach of the Act and ordered the regulator to keep issuing them once the statutory conditions are met.
So Nigeria now has one court asked to cancel import licences and another ordering that they be issued. A third case, over whether the regulator may even inspect a refinery sitting in a free zone, waits on another judge.
Two legitimate principles are in conflict. The first says once a local refinery can supply the market, the market should be left to reward efficiency.
The second says a strategic national investment should not be undone by cheaper cargo from abroad. Nigeria’s law does not say which one wins, or when, so the courts must decide.
Every regulator in East Africa will read the Lagos judgment, because it will be among the first in Africa to say if a local-refining clause gives a refiner the right to exclude imports. Pure protection would create a private monopoly with the blessing of the state.
Pure laissez-faire might starve a strategic plant. The sound answer lies between; protection conditional on best value for the consumer. Kenya faces the same choice, and sooner than many suppose. Ground is to be broken in Lamu today for a 700,000-barrel-a-day Dangote refinery costed about $16 billion, with 30 percent of it offered to Kenya and two of its neighbours.
The plant deserves our support. However, the investor has asked for protection against cheap refined imports, while the rules on pricing, offtake and the rights of state shareholders are still to be written. Support must come through law, not litigation.
There is a harder question beneath that one. A state that has put public money into a plant will be expected to buy from it, and the government has indicated that it would stand behind any shortfall in the offtake commitments of the region.
But what happens on the day an imported cargo lands in Mombasa cheaper than the product refined in Lamu? Does Kenya buy the dearer barrel to protect its investment, or the cheaper one to protect motorists? President Yoweri Museveni put that question to the region two weeks ago, though from the other end. He said Uganda had for years bought fuel through middlemen in Kenya at prices it should never have paid, and cut its costs the moment it began sourcing for itself.
Whatever one makes of the exchange that followed, the principle is the right one: no state should pay more for fuel out of loyalty to an arrangement, and a refinery that is a partner in one decade can become the middleman of the next. The answer is to write the trade-off down before the money goes in.
Every shareholder state’s offtake commitment should be capped in volume, priced at no more than import parity and reviewed on a fixed cycle. If the refinery beats the world price, the commitment costs nothing. If it cannot, the shortfall is a subsidy, and a subsidy must be voted by Parliament and shown in the budget, not buried in a shareholders’ agreement.
The timing makes the matter more pressing. Kenya’s government-to-government fuel arrangement with the Gulf suppliers, brought in as a stop-gap in 2023 and extended year by year since, is running to the end of this year, and the country must decide what follows it.
That decision cannot be taken in isolation. Kenya cannot bind itself to buy Gulf product on long credit terms and, at the same time, promise the same barrels to Lamu; nor should it revert to the Open Tender System (OTS) without asking how a domestic refinery fits within it.
Expiry of the arrangement presents an opportunity. The rules that replace it should be written with the refinery in view, so that Kenya does not find itself paying twice for the same product, or bound to one supplier just as it acquires another.
Nigeria also shows how the loading gantry can be turned into an instrument of control. In late August, the Lekki refinery stopped selling petrol to the six marketers who hold import licences and turned instead to those who do not import.
The plant that competes with imports can also decide who may buy its product. Kenya’s downstream sector is built on many oil marketing companies trading under the OTS, most without large depots. If Lamu may choose its customers, the independents become second-tier buyers paying a second margin, and the motorist never sees the benefit of local refining.
An open door at the port with a closed gate at the gantry is still protection. None of this can be done by agreement alone. Kenya’s energy laws were written for a country that imports every litre it burns, and they must now be realigned to a country that will refine its own. The Energy Act, 2019 gives the Energy and Petroleum Regulatory Authority its powers over the petroleum business, but says nothing about how a dominant local refinery is to be licensed, priced or held to open access.
The pricing regulations under it fix the pump price from an imported landed cost; that formula has no meaning once the product is made in Lamu. The OTS will need a place for local product without shutting the door to a cheaper cargo. The Special Economic Zones Act, 2015 must be read, and if need be amended, so that its incentives never displace the powers of the safety standards and environmental regulators.
The Competition Act, 2010 must reach a plant that will hold most of the region’s refining capacity. The Public Finance Management Act, 2012 must govern any offtake guarantee the republic gives. Because refined products are taxed at the border under the East African Community customs law, any protection Kenya promises must be squared with its partners before it is promised.
The measure for every one of these changes is the same: not what the investor asks for, nor what the market would prefer, but the national energy security interest of Kenya. That means a secure supply, at the lowest sustainable price, from more than one source, under a regulator whose powers run everywhere the product does.
A refinery serves that interest when it is one pillar of supply. It undermines it when it becomes the only one. The task, then, is to legislate what Nigeria is now litigating.
Five terms belong in the host government agreement, and in law, before any final investment decision. First, open and non-discriminatory access to the refinery gantry, at a published price, for every licensed oil marketing company that meets safety and credit criteria.
Second, a pricing rule anchored on best value for the consumer, perhaps crude cost plus a regulated and audited refining margin. Any protection must depend on the refinery beating import parity.
Third is structural separation. Kenya Pipeline Company must remain an independent, regulated carrier and the refinery should not own the pipeline and a dominant retail network. Fourth, a strategic import window of 10 to 15 per cent kept open after commissioning, to cover maintenance shutdowns, maintain price stability and give the shareholder states a measured route to cheaper product when Lamu cannot match it.
Fifth is full regulatory reach. Whatever special economic zone status the plant enjoys, the energy, standards and environmental regulators must keep their full powers to inspect, sample and enforce.
The lesson from Lagos is not that Nigeria failed. It is that when the law leaves a question open, the courts must answer it, and they answer it one case at a time. Nigeria built first and is now settling the rules through litigation.
Kenya still has time to settle them before it builds. If we anchor those rules on the national energy security interest and best value for the consumer, Lamu can be what it promises. If we do not, we shall find ourselves asking the same questions, in our own courts.