The goings-on at the Dangote Refinery under construction is becoming increasingly complex. From construction to construction management, managing people, financing and budgeting, quite a number of persons interviewed by The Alvin Report are expressing worry about the much-touted salvation the Dangote Refinery would bring on the Nigerian economy, which spends as much as 40 percent of her foreign exchange on the importation of petroleum products.
Concerns people are having are true, well-founded. Already, the cost of constructing the refinery has increased by 211 percent, from an initial $9 billion to currently $19 billion.
“Our CAPEX will almost go to $19 billion by the time we finish,” Devakumar Edwin, group executive director of Dangote Industries Ltd. said recently.
The group is currently in a frantic search for more loans for a cash injection, sources say.
Construction deadlines have been shifted at least 5 times, leaving Nigerians with bated breath. But the more important concern about the delay and cost of building that complex is the reality that it has not started producing yet, but borrowed funds are already due, with costs of debt already mounting. Essentially, the delay is already costing the project millions of dollars in debt servicing before production begins.
Although the Asset Management Company of Nigeria (AMCON) has debunked information making the rounds that the Dangote Refinery might be heading into a deep debt conundrum already in the neighborhood of $7 billion, some ‘I’s beg for dotting and some Tees for crossing.
Professional structural engineers should be knowledgeable enough to put a cost on a project like the Dangote Refinery and predict the duration of construction with reasonable accuracy.
The initial date of completion of the refinery was 2016. Five years after that date, the refinery is still in its construction phase. Moreover, the refinery was projected to cost $9 billion when construction started. As of date, the cost of building the refinery has gone up by 211 percent to $19 billion.
And considering the fact that the production date has been shifted 5 times already, it is becoming increasingly hard even among industry aficionados to say with certainty that the refinery’s completion will beat its newest deadline, the first quarter of 2022. Some publications are already predicting 2025 as a new date.
And, talking about finance, some economists who have spoken to The Alvin Report on the issue express being at a loss about the company’s decision to allow the NNPC a 20 percent stake in the project, coupled with the sudden announcement of an increased cost of setting up the complex.
Then some have expressed concern about the design of the project being a single train facility; actually, the largest single-train refinery in the world. There are concerns that in the eventuality of a technical breakdown or sabotage, the entire plant might be non-operational until appropriate repairs are carried out.
Experts say a three-train refinery would be a better construction design to serve as a form of backup in the eventuality of the breakdown of one or two.
All of the issues dogging the construction of the Dangote refinery seem to have informed the 22.3 percent of Nigerians who, in an Alvin Report survey two months ago said the Dangote Report is a white elephant project.
But that may be far from the truth. While mistakes may have been made and estimations may have been missed during this journey of getting a viable alternative to the perennial fuel importation, even though sitting on billions of barrels of crude oil, the project is one of necessity with a certain market, which makes it too viable to fail.
Nigeria’s Petroleum Industry Act, which came into existence last month after nearly 20 years of political wrangling, has added fuel-import license requirements that experts fear will give Dangote an effective monopoly.
Under the new laws, the regulator will prioritize local refiners for import licenses and volumes would be based on production capacity or market share.
While Nigeria will remain open in theory to international trading houses, a partnership with Dangote would be the only way to guarantee a foothold in Africa’s biggest economy.
Despite being Africa’s biggest oil producer and exporter, Nigeria depends almost entirely on fuel imports after allowing its refining capacity of 445,000 barrels-per-day, to become dilapidated over several decades.
So, even at a cost of $19 billion, the Dangote Refinery project is worth it. However, it is bad business to be servicing huge debt even before the project begins to generate income. The group has already had to reschedule debt payments in the past. It would even be a worse situation if it got to a point where the group would be borrowing to service debt.
Therefore, time is of the essence. The faster construction work is completed at the site, the better for business, the better for the government, which is bleeding in terms of valuable foreign exchange, and the economy at large.
Dangote Refinery is the veritable future savior of the Nigerian economy. It is imperative that the refinery begins to produce fuels and on schedule.