Page 6 - AfrOil Week 32 2021

AfrOil COMMENTARY AfrOil
NNPC gets go-ahead for Dangote deal as its losses are laid bare
During a week in which the state oil firm announced its losses from idled refineries, it has also been given the green light to acquire a stake in what will be the continent’s largest refinery
WHAT:
NNPC appears to be strong-arming its way into the largest down- stream project ever planned in Nigeria.
WHY:
Dangote did not request the investment, and reading between the lines suggests that the state firm is leveraging its position to ensure the deal goes through without explicitly saying so.
WHAT NEXT:
NNPC has a woeful
track record in refin-
ing, as demonstrated
by its recent financial results, which outline the continued operating costs at facilities that have not processed crude since 2019.
LAST week, Nigeria’s cabinet gave its approval for the country’s national oil company (NOC) to proceed with the acquisition of a stake in a refin- ery that promises to change the downstream landscape across West Africa.
On August 4, Minister of State for Petroleum Resources Timipre Sylva said that Nigerian National Petroleum Corp. (NNPC) had received the green light to acquire a 20% in the Dangote refinery project for a total of $2.76bn, valuing the total project at around $14bn. The refinery will have a throughput capacity of 650,000 bar- rels per day (bpd) when it comes on stream early next year.
The announcement follows the signing of term sheets by NNPC and Dangote Group, with talks understood to be ongoing regarding the financing of the acquisition.
Strong hand
For NNPC, the deal is an important part of its new strategy for the downstream sector, follow- ing decades of poor performance. However, the company admits that Dangote Group’s Presi- dent and CEO Aliko Dangote was not keen on NNPC’s involvement.
Speaking to This Day in mid-July, NNPC managing director Mele Kyari said of the invest- ment: “He didn’t ask for it. It’s our decision to take equity. We made this decision three years ago much earlier. It’s not what he wants, but they are also aware that they operate in a resource-de- pendent country. We made a request, and it’s the policy of government that we take interest in this refinery.”
The stance of both parties is hardly surpris- ing when we consider that by its own admis- sion, NNPC has failed to carry out satisfactory turnaround maintenance (TAM) on its four state-owned refineries at Port Harcourt (two), Kaduna and Warri.
However, the state firm has embarked on a multi-billion dollar project to rehabilitate these facilities under a strategy that will see it take a backseat role in the country’s refining sector, outsourcing the maintenance and day-to-day running of operations.
Dangote has said previously that NNPC was one of four companies to make approaches to
acquire equity in the refinery in order to secure crude supply deals.
Funding the deal
Abuja needed a $1bn loan arranged by Cai- ro-based Afreximbank to kick off its refinery overhaul project and there has been speculation that the lender may be involved in supporting the acquisition of the stake in the Dangote unit.
During negotiations for the first loan, the bank insisted that NNPC hire a “professional operations and maintenance company” to run the Port Harcourt units, and the company announced soon after it would no longer oper- ate the facility nor its other refineries at Kaduna and Warri.
While NNPC is understood to have been considering restructuring its approach to refin- ing for some time, Nigerian industry sources told NewsBase that this was sped up by the pres- sure from Afreximbank.
With this in mind, it may come as some sur- prise that Afreximbank would consider support NNPC’s involvement in a private sector facility just a few months later.
However, the bank already has a deep rela- tionship with Dangote, having provided a sev- en-year, $650mn loan in 2018 for the refinery’s development.
Speaking in July that year, President and CEO Aliko Dangote said that lenders would provide around $3.15bn of the roughly $15bn cost of building the refinery, including $150mn from the World Bank’s private sector arm.
The deal with Afreximbank had been signed a week or so earlier and followed a memoran- dum of understanding (MoU) signed between the parties in June 2017. That document pro- vided for credit facilities of up to $1bn to be extended to Dangote Industries and its subsid- iaries, and for broader fund-raising collabora- tion on the basis that the proposed plant would “boost intra-African trade volumes, enhance continental value chains, and increase produc- tion and export of goods and services across Africa.”
Dangote Group also became a shareholder in Afreximbank in 2016 after making a “substantial investment” to acquire equity.
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w w w . N E W S B A S E . c o m Week 32 11•August•2021