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NNPC to Borrow $3.8 Billion to Acquire Dangote Refinery Shares

The Nigerian National Petroleum Corporation (NNPC) is planning to borrow $3.8 billion to actualise its agenda of acquiring a 20 per cent stake in Dangote Refinery.

NNPC Group Managing Director, Mallam Mele Kyari, said yesterday that the money would be borrowed from financial institutions.

He said some financial institutions had already agreed to fund the acquisition, while the debts would be paid back from the NNPC’s earnings from dividends and profits accruing from its investment in the fuel plant.

The 650,000 barrels per day refinery, located in Lagos State, which Kyari said had been tentatively valued at about $19 billion, is expected to come on stream in 2022 and will produce 50 million litres of petrol per day.

Kyari spoke just as the Organisation of Petroleum Exporting Countries (OPEC) Secretary-General, Dr. Sanusi Barkindo, expressed optimism over the overall conditions of the oil market as the cartel and its allies yesterday began a meeting to herald a resolution on whether to further ease crude oil production curbs.

According to Kyari, there is no underhand dealings concerning the extant transaction, as the federal government’s presence on the board of the Dangote Refinery will not only secure its energy needs, but give it a strong voice in the running of the asset to guarantee the country’s security.

Kyari, in two separate interviews with two television stations, which was monitored in Abuja, stated that all the borrowing institutions, including Afrexim Bank, are comfortable with the deal, adding that the federal government will not invest a dime in the deal.

He said: “I am not sure Mr (Aliko) Dangote wants to sell his equity in the refinery. I can confirm that it was at our instance that we started this engagement and he did not want to sell these shares.

“There’s no resource-dependent country in the world that will watch a business of this scale, bordering on energy security which also has implications for even physical security of our country, and you watch it and you don’t have a say.

“We started this process long before Dangote started his refinery project. We are going to take equities in very significant businesses anchored on the oil and gas operations, for example, fertiliser plants, methanol plants, small condensate refineries and so many other businesses that we are dealing with, so that we can expand our portfolio.”

Kyari added that the NNPC has a responsibility to ensure a constant flow of fuel, and as a policy, it will continue to acquire stakes in any refinery in excess of 50,000 barrels per day.

“Even for this Dangote Refinery, we are not going to take government money to buy it. That is the mistake that people are making because they think that we are going to take federation money to pay for these refineries.

“We are going to borrow on the back of the cash flow from this business because we know that it is viable and it will work and return dividends and it has a cash flow that is sustainable,” he said.

Kyari also reiterated that work had begun on the Port Harcourt refinery rehabilitation, while the Engineering, Procurement and Construction (EPC) contracts for Warri and Kaduna will be awarded in July.

According to him, the net effect is to have an environment where Nigeria becomes the hub for petroleum products supply to change the current dynamics of petrol supply even globally, where the inflow of products from Europe will be reversed.

“We will award the EPC contract for the Warri and Kaduna refineries within the next two to three weeks, maximum by the end of July, so that these two processes will run concurrently, so that at the end of the day we will have all the refineries working,” he said.

Kyari stated that with the current arrangement, petrol will be delivered commercially, adding that part of the requirements of the lenders is that NNPC must not operate the refineries.

“We must have an operation and maintenance contractor. That means that practically, these refineries will be run by the lenders and the cash flow will be able to support the payments because the bankers have seen that the cash flow will support it,” he added.

He stated that five similar initiatives were currently in the offing, of which decisions will be taken within three months, with about 200,000 barrels per day combined capacity of condensates.

Kyari said: “We have signed term sheets with the owners of the refineries. I am not sure Dangote will be very happy with this. We are taking 20 per cent equity of the Dangote Refinery. There’s a valuation process because this business is very regulated and very international. No bank will lend money to you to buy equity in any business of this scale if you have not followed the best valuation process.

“The reality today is that we have a valuation of this refinery. I am not sure, but it’s about ($)19 billion. I do not have an exact figure. We haven’t closed on this, there’s an ongoing engagement. There’s governance around this that we need to conclude and that includes seeking the authority of the Federal Executive Council.”

He said discussions on acquiring a stake in the refinery started as far back as December 2020, adding that no bank with have anything to do with an asset that is over-valued, because they know that costs won’t be recovered.

Kyari assured the public of openness on NNPC’s relationship with the Dangote Refinery, adding that while crude oil will be sold to the company in naira, the Central Bank of Nigeria (CBN) will sort out at what value it will come.

He said the Dangote Refinery would take off spending of freight of about N21, ensure proximity to supply where it can reach anywhere within the country in one day, while dividends will be shared to Nigerians, who are the owners of the corporation.

On the landing price of petrol, he stated that as of two days ago, it was N256 per litre but added that pump price of fuel will not be increased in the next two months as engagement with the organised labour has not been concluded.

He said while the subsidy regime wasn’t sustainable, President Muhammadu Buhari was not also keen on taking the product out of the reach of Nigerians.

He added that the president had directed that current volumes which are unaccounted for must be contained to bring down spending on subsidy.

Kyari explained that while there’s an expectation in the Appropriation Act that NNPC will make a monthly remittance of at least N120 billion, only one leg of the NNPC’s funding of the Federation Account has been affected by its non-remittance of funds, like royalties and taxes are still being generated.

He stated that discussions were being rounded off on the Petroleum Industry Bill (PIB), to see that the passage of the legislation is done within the next two weeks.

Barkindo Optimistic as OPEC+ Decides on Production Easing

The Organisation of Petroleum Exporting Countries (OPEC) Secretary-General, Dr. Sanusi Barkindo, expressed optimism over the overall conditions of the oil market as the Joint Technical Committee (JTC) of the cartel and OPEC allies yesterday began a meeting to herald a resolution on whether to further ease crude oil production curbs.

OPEC stated that the fundamentals have significantly improved in recent months, a hint that a resolution to allow member countries pump more oil may be in the offing tomorrow during the OPEC+ ministerial meeting.

“The overall brighter picture in relation to the pandemic recovery efforts has led to the significantly improved oil market conditions and prospects for future growth,” Barkindo said at the JTC conference.

The 53rd meeting of the body, which held via videoconference to review the latest oil market developments and discuss future prospects, was convened in preparation for the 31st meeting of the Joint Ministerial Monitoring Committee (JMMC) and the 18th OPEC and non-OPEC ministerial meeting planned for between today and tomorrow.

Barkindo underscored the vital role carried out by the JTC in providing high-quality technical analyses of the latest oil market developments, adding that the research and assessments conducted by the committee will serve as a crucial input to the decision-making process of the cartel.

He stated that the discussions will build on the successful deliberations of the last meeting and lauded the unwavering commitment and tireless efforts demonstrated by the participating countries.

“The Declaration of Cooperation (DoC) participants clearly continue to play an important and valuable role in accelerating the oil market rebalancing process,” he stated.

In the last edition of the OPEC’s Monthly Oil Market Report (MOMR), OPEC projected global oil demand to rise by six million barrels per day in 2021, while world economic growth was forecast at a rate of 5.5 per cent in the same period.

Usually, the DoC ministerial meetings are supported by the JMMC, which is tasked to analyse oil market developments, monitor the conformity of the DoC voluntary production adjustments and recommend further actions.

“A combination of improving market indicators and the ongoing commitment of DoC countries to restore stability to the global oil market suggests that we are on the right path to recovery from the Covid-19 pandemic, despite lingering uncertainties,” Barkindo added.

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