Ending Nigeria’s refining woes: can Dangote do it?
When Aliko Dangote, business mogul and Africa’s richest man, in April disclosed his intention to build a 400,000 barrels-per-day refinery in Nigeria, it was greeted with mixed reactions. While some Nigerians saw it as a welcome initiative that would help in putting an end to the country’s legendary dependence on fuel importation, it was taken with a pinch of salt in some quarters, given the enormity of the project and the non-deregulation of the downstream sector of the oil and gas industry.
The skepticism over Dangote’s proposed refinery may not be misplaced. Over the years, the government has made public its proposal to build several refineries, but none has come on stream. Some interested private investors have backed out on their plans to build refineries for reasons bordering on lack of an enabling environment.
Those who see the project as doable by Dangote base their optimism on the fact that Dangote has a history of being a transformer of most industries he chooses to play in, like cement, sugar, and flour, adding that Dangote’s foray into the oil sector has the prospect of shaking up Nigeria’s stagnant oil and gas industry. Dangote Group has in the last five years increased 10-fold to a market capitalisation of $22 billion and today accounts for over 30 percent of the total market capitalisation of the Nigerian Stock Exchange.
The Group has chosen to walk a path where others have been unable to thread, and analysts said they expect the refinery to help cut Nigeria’s oil import volumes significantly while also helping to deal a blow on the opaqueness around the subsidy management system.
In what could be the single largest contribution to the Nigerian government’s economic transformation agenda, Dangote Group plans to invest $9 billion to build the largest refinery/petrochemical/fertiliser complex in Africa at the Olokola Liquefied Natural Gas (OKLNG) Free Trade Zone.
Just last week, a significant milestone towards the construction of what would be Nigeria’s first private and Africa’s largest petroleum refinery was reached, with the signing of a term loan between Dangote Group and a consortium of local and foreign banks for the financing of the project. Dangote Industries clinched a $3.3 billion syndicated loan from the banks, which will augment its equity contribution of $3.50 billion.
Nigeria is Africa’s top oil producer and the continent’s second-biggest economy, but still relies heavily on imported refined petroleum products for the servicing of its economy, creating a lucrative market for European refiners and oil traders at the expense of the Nigerian masses.
The country has four refineries (Port Harcourt Refining Company I and II, Warri Refining and Petrochemical Company Limited, and Kaduna Refining and Petrochemical Company) with a combined capacity of around 445,000 bpd) or 70.75 million litres per day, but they operate well below full capacity owing to decades of mismanagement and corruption.
Dangote said that the country’s ability to import fuel would soon be challenged. “In five years, when our population is over 200 million, we won’t have the infrastructure to receive the amount of fuel we use. It has to be done,” a recent Reuters report quoted him as saying.
The proposed refinery would double Nigeria’s refining capacity and reduce dependence on NNPC decrepit refineries as well as cut imports from refiners owned by the IOCs by up to 50 percent.
As a result, several African nations will be less reliant on importing fuel and fertiliser from foreign markets, reducing the negative impact of negotiating terms within increasingly turbulent international markets, Dangote said last week at the signing ceremony of the loan in Abuja.
The refinery is expected to come on stream by 2016, but only time will tell if Dangote can wave the magic wand to put an end to Nigeria’s refining woes.
By: Femi Asu