FG’s $4b stake in Dangote refinery raises dust

• Why NNPC is borrowing to buy 20% equity
• Rehabilitation of Kaduna, Warri refineries to begin in July 
• Finance, energy experts pick holes

As the Federal Government seeks to commence the rehabilitation of Kaduna and Warri refineries latest next month, indications emerged yesterday that the Nigerian National Petroleum Corporation (NNPC) might end up paying at least $4 billion for the 20 per cent stake it seeks in the Dangote refinery, which has the capacity to produce 650,000 bpd per day.
At an estimated valuation of $19 billion, the Group Managing Director of NNPC, Mele Kyari, yesterday, said that discussions are ongoing and the 20 per cent stake will be acquired once the final valuation is announced. Kyari, while responding to questions during a Channels Television programme, noted that the oil company would source the fund from international lenders.

For close to 50 years that the country has been exploring crude oil, it still relies basically on foreign countries for import of the product while spending heavily on fossil fuel subsidies. But Kyari, yesterday, admitted that the corporation had made mistakes in how the refineries were managed.

In terms of management, the nation’s refineries have been poorly managed, as they have remained the highest loss-making entities of the national oil firm while failing to work despite series of turnaround maintenance.

According to Kyari, the African billionaire and business magnate, Aliko Dangote, does not want to sell shares in his refinery and petrochemical project under construction in the Lekki Free Zone of Lagos, “but it is important that the NNPC, as the national oil company, guarantee energy security for the country by having a say in the board of the refinery.”

Last year, a total of N81.41 billion was expended on the four refineries in Kaduna, Port Harcourt and Warri between January and August, even though the facilities never refined a drop of crude oil all through the period, while the public continues to bear the brunt of government’s inability to make its refineries functional.

Petrol sells for between N163 and N165 per litre in the country, which is short of its landing cost estimated at N232 per litre.

The development, coming amid a plan by the state-oil-firm to award the rehabilitation of Kaduna and Warri refineries latest by end of July, may also be followed by another five condensate refineries.

“We have about five initiatives that are going on. We are going to take final investment decisions (FIDs) on two of them between now and three months. The combined capacity is about 200 million per day condensate refineries. Dangote refinery will come to work by 2022, delivering 50 million litres of gasoline into the market.

“We are also working on our refineries to make sure we fix them. We have awarded Port Harcourt refinery rehabilitation and we are going to close that of Kaduna and Warri refinery in July so that very soon all of them will work concurrently. Then Nigeria will become a hub for petroleum supply.

“It is 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 another direction. We will be the supplier for West Africa legitimately and many other parts of the world,” he added.

Kyari, who said the worth of the Dangote refinery is being valued at about $19 billion, said government decision was necessary to guarantee energy security, adding that the country plans to become a net exporter of petroleum products and change the dynamics in the global petroleum product supply market.
 
“We have a valuation of the refinery, about $19 billion, I don’t have the exact figure but I think about $19 billion. There is an ongoing engagement. There is a governance issue around this that we need to conclude. That governance issues include seeking the authority of the Federal Executive Council to close the deal.”
 
According to him, the government had started the engagement in December last year and has taken time before reaching the decision, adding further that the valuation process was bankable given the interest of international lenders and other global regulators in the sector.  
Kyari said the fund needed to rehabilitate the other refineries would come from lenders, noting that the lenders had attached a clause to the terms of the agreement that would make the borrowing entity run the facilities profitably.

With the 650,000bpd Dangote refinery, Nigeria’s 445,000 bpd combined refineries in Port Harcourt, Warri and Kaduna as well as additional five condensate refineries and other modular refineries, Kyari believes that the country would stand at an advantage supplying petroleum products legitimately across Africa and other parts of the world.

He said producing the product in the country would take off the cost of freight, stating that supply challenges, as well as dividends, are gains awaiting Nigeria from the efforts on the refineries.

Former Chairman, Chartered Institute of Bankers of Nigeria (CIBN) and professor of economics at Bowen University, Segun Ajibola, was uncertain about projected gains from the development while raising concerns over political uncertainties in the country and the elusive state of the governance framework of the sector.
Although Ajibola did not see anything wrong in acquiring those stakes and fixing the nation’s refineries, he warned that attempts to interfere in the management of the Dangote refinery or run the refineries being rehabilitated would be an indication that the plans would eventually collapse.

Ajibola said: “There may be a need for government to have a hold of such a sector provided that government has no business in the day to day management of the refinery. Government can just be a shareholder waiting for whatever comes back in terms of return on investment.

“Government should not have any hand in the management because the history of government-managed entity is sad, from refineries to petrochemical, iron and steel and others. Another is, why can’t the government invest in building its own refineries with such money?”

He equally raised concerns on a competitive environment, noting that the market could be monopolistic as the government would somewhat be competing with itself.  

Energy Economist at the University of Ibadan, Prof. Adeola Adenikinju, said if based primarily on the commercial proposition, the move by the NNPC should be a good decision. “It is consistent with the expectation of the PIB for NNPC to be a purely commercial enterprise that will make an investment based on purely commercial purposes. If the valuation was done right, then I have no problem with the decision of the NNPC,” he noted.

The Chairman of the International Energy Services Limited (IESL), Dr. Diran Fawibe, did not see a sense in the move by the corporation, adding that energy security does not translate into acquiring a stake in a private refinery, which could further subject the private entity to political risk. He stressed that the government would have sold out shares in the four national refineries and hold a level of stake to allow the refineries to be efficiently managed.

Fawibe, a former management staff of NNPC, stated that the challenges with some of the government-owned refineries started when the government took over the management, adding that government may eventually mess up the private refineries.
“When unscrupulous politicians get to power, NNPC will lose control. It is not NNPC that will dictate what will be done. I don’t think we should allow politicians to get into private refineries. They will mess it up,” Fawibe said.

Executive Director, Centre for Transparency Advocacy (CTA), Faith Nwadishi, equally condemned the plan, stating that the NNPC that has no investment capacity to sustain the sector should focus on other aspects instead of moving into private businesses. 

Nwadishi said: “I don’t think it is a wise investment for Nigeria. For me, the implication for the country is that we always have misplaced priorities, especially on issues relating to infrastructure. So if we put $4 billion in Dangote refinery and we have four refineries that are not working, what is the return on investment.”

She noted that there was a need for NNPC to vividly articulate to Nigerians the investment, projected gains, terms of the contract and other critical details that justify the decision.

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