May 27, 2022

NNPC Is Not Bailing Out Dangote Refinery

4 min read

A recent article titled “Dangote Refinery: Bailing Out The Unbailable” written by one David Bako got the NNPC 20% equity in the Dangote refinery entirely wrong.

It will be recalled that the Group Managing Director (GMD) of the Nigerian National Petroleum Corporation (NNPC), Mele Kyari in his explanation said that the NNPC 20% equity in the Dangote refinery was driven by the profit potential of the refinery business and the need to have a say in a business of this magnitude, which borders on energy security for Nigeria and Africa, with huge implications for fiscal security of the country.

Against the insinuation that “the government wants to give a monopoly of importation for petroleum products into the country to Messrs Dangote so that he can make the excessive and extra profits he needs to manage his rising debt profile for the refinery,” the Dangote oil refinery is being funded with $3bn equity and $6bn loan capital. A consortium of local and international banks led by the Standard Chartered Bank provided a $3.3bn loan facility.

The United States Trade and Development Agency offered N251.3bn training grant to develop human resources for operating the refinery.

There is no Bank or Auditor that has declared Dangote Refinery in the red, so one wondered where David Bako got his information that Dangote want to “make excessive and extra profits he needs to manage his rising debt profile for the refinery.”

Concerning the NNPC 20% equity, Mallam Kyari has said that NNPC is not using government money to buy stakes in the 650,000 barrels per day Dangote Refinery, which is expected to start production in 2022.

He said rather, they are borrowing money from banks on the back of viability, workability and cash flow of the business in addition to guaranteed dividends.

Kyari said, “Dangote refinery will come into production by 2022. And what that will do is to deliver over 50 million litres of gasoline into, to be specific, our markets. We are also working on our refineries, to ensure that we fix them. We have awarded the contract for Port Harcourt refinery rehabilitation. And ultimately we are going to close that of Warri and Kaduna very soon in July so that all of them will work contemporaneously.

“The net effect is that you are going to have an environment where Nigeria becomes the hub of petroleum products and supplies. It’s going to change the dynamics of petroleum supply globally in the sense that the flow is coming from Europe today and it is going to be reversed to some other direction. We will be the supplier for West Africa legitimately and also many other parts of the world.

“So the meaning of this is, there is an opportunity that has been thrown at us. And I’m not sure Mr Dangote wants to sell his equity in the refinery. I can confirm that it was at our instance that we started this engagement. He did not want to sell his shares in this refinery.

“There is no resource-dependent country that will watch a business of this scale, which has bordered on energy security and has implications for fiscal security of the country, and you don’t have a say. And for us, as a strategy, we started this process long before Dangote started his refinery project.
“We take equity in very significant businesses that are anchored on the oil and gas operations: fertiliser, methanol plants, modular refineries and some other businesses that we are dealing with.

“For the Dangote refinery, we are not taking government money to buy it, which is the mistake that people are making. We are borrowing on the back of the cash flow of this business. We know that this business is viable, it will work and it will return dividends.

“It has a cash flow that is sustainable because refinery business, in the short term, will continue to be sustainable. That’s why banks have come forward to lend to us, so we can take equity in this.

“It is to expand our portfolio and also because we are the national oil company, we have the responsibility to guarantee energy security for our country. And there is no way you can have a say, except you have a seat on the board of these institutions. And that’s why anyone that is going to construct a refinery that is in the excess of 50,000 barrels per day, we will talk to them, take equity in it, as long as we have the money to pay for it.’’

Dangote Refinery is an integrated refinery and petrochemical project under construction in the Lekki Free Zone in Lagos, Nigeria and is owned by the Dangote Group.

From the explanation by the Group Managing Director of the Nigerian National Petroleum Corporation, Mal Mele Kyari, the Corporation is in no way manipulating the Dangote Refinery with any bailout.

The NNPC is not mortgaging the interests of the nation and masses to bail out the “unbailable” Dangote refinery project but rather expanding its portfolio and also guarantying the energy security for the country.

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