After a couple of shifts in date for the commencement of operations of Dangote Refinery, Nigeria’s prospective economic savior, engineers of the plant are tipping December 2021 for the take-off of operations.
It is at this last lap of construction work that the Nigerian National Petroleum Corporation (NNPC) has indicated an interest in equity participation in Dangote, and a number of private refineries in the country in line with a federal government policy directive, which stipulates the mandatory participation of the corporation in any privately-owned refinery that exceeds 50,000 barrels per day capacity in keeping with its statutory role of safeguarding national energy security.
Various interested parties, including the Nigerian public, have expressed resentment about the NNPC’s interest in the novel Dangote project based on that corporation’s antecedents of bad management, as have been the case over the decades of four refineries under its management. The refineries are virtual drainpipes.
The Corporation’s spokesperson, Dr. Kennie Obateru, explained that NNPC, as the National Oil Company of Nigeria, primarily has a dual role of providing stewardship for the nation’s hydrocarbon resources and adding value to the resources for the benefit of all Nigerians and other stakeholders. These roles enable it to achieve the twin objectives of providing energy security for the country and stimulating the nation’s economic development and growth.
If the NNPC equity participation sails through, it is expected that a significant crude oil market capable of generating annual revenue of about $11 billion would be unlocked. The profitable examples of the federal government’s stake holding in the Nigerian Liquified Natural Gas (NLNG) and Indorama Eleme Petrochemicals nudges a similar move with Dangote Refinery.
It is noteworthy that the Federal Government of Nigeria, through the NNPC holds a 49 percent stake in the Nigeria Liquefied Natural Gas (NLNG). That venture, being a majority private sector driven entity has been profitable over the years, much to the benefit of the federal government, and by extension, the Nigerian public.
It is plausible that in embarking on this investment trajectory, the NNPC is anticipating the provisions of the Petroleum Industry Bill (PIB) which, when passed, will enable the conglomerate to transit from a parastatal to a private company owned by Nigerians. Then, the new NNPC will go to the capital market to source for capital to fund its investments and will have to deliver adequate returns to sustain its operations.
And since buying shares in privately-owned refineries like Dangote’s, is backed by policy, it is fair to say that the management of that parastatal is thinking in the right direction, as opposed to perennially sinking money into the never functional four government-owned refineries.
It is worth mentioning also, that aside from the NNPC proposal, three other oil firms have approached Dangote Industries to acquire a stake in the refinery. The firms from Western and Middle East countries are involved in crude production and trading and are looking to secure crude supply agreements, a similar objective being pursued by the NNPC.
To finance this acquisition, the NNPC is already having discussions with African Export-Import Bank (Afreximbank) on the possibility of accessing a $2.5 billion facility.
But there are pertinent questions that come to mind. Will a possible NNPC stake in Dangote and other refineries producing above 50,000 barrels per day distort private sector participation? Will government participation slow down refining activities? Will this policy discourage prospective foreign investors in the downstream sector in the future? Is the government policy to acquire shares in privately-owned refineries a proactive move to avoid monopoly?
On the other hand, who benefits more from a prospective NNPC stake in Dangote Refinery? Might the NNPC shareholding be an assurance of uninterrupted and better bargained supply of crude oil for Dangote? Remember, the transaction would be tantamount to NNPC selling to itself.
Who determines what a 20 percent stake in the refinery costs? That is left for Mr. Dangote to decide because he knows the value of his assets. So, might he be substantially recouping his investments even before commencing operations?
Whatever the case, drawing from the NLNG experience, the movie promises to be a win-win for all, including the Nigerian public whose taxes will likely be saved from the old refineries drainpipe and stands the prospect of getting dividends from investment in a likely profitable venture like Dangote Refinery.
