After years of delays, Lack of Funds Threatens Early Completion of Dangote Refinery


Africa’s richest man, Aliko Dangote, is in talks with financial institutions to raise additional funds for his mega oil refinery project that is nearing completion, according to BusinessDay’s findings.

The expectation of the government and many Nigerians is that the world’s biggest single-train refinery, being built in Lagos, will help in bringing an end to the country’s dependence on importation for its fuel needs.

At least $1.1 billion is required to complete the facility, according to Fitch Ratings, a global credit rating agency.

The refinery project was initially scheduled for completion in 2019, but fund-related complications and the COVID-19 pandemic threw a spanner in the works and the completion period was pushed forward to 2023.

A company overview by Fitch Ratings revealed Dangote planned to raise $750 million from the Nigerian bond market, with Dangote Oil Refining Company Limited and Dangote Fertiliser Limited, Dangote Industries Limited’s subsidiaries, to be used as co-obligors under the proposed programme.

According to Fitch, part of the funds will be disbursed to finance the $1.1 billion extra cost for the completion of the refinery project, while the rest of the capital will be sourced from either asset sale in Dangote Cement or the refinery project itself in a bid to avoid another extension, and complete the refinery project next year.

“If the transaction is not successful, or should completion costs overrun or market conditions in the cement or urea sector deteriorate materially, we do not believe that DIL’s existing creditors would have further lending capacity,” Fitch said.

“We believe that further asset sales, either in cement, or stakes in the projects, would be the more likely options to address funding of the refinery.”

Concerning the proposed bond, Sesan Adeyeye, analyst at CSL Stockbrokers Limited, a subsidiary of FCMB Group Plc, said Nigeria’s yield environment is currently unattractive for companies willing to tap into the bond market.

“But we believe for a good company like Dangote, in which investors have confidence, we believe that it will be subscribed to, if not oversubscribed,” Adeyeye said.

After years of delays, BusinessDay’s findings showed Dangote refinery may start with a processing capacity of 540,000 barrels per day (bpd) between August and September 2022, and hit full capacity 0f 650,000 bpd at the beginning of 2023.

Industry players who spoke to BusinessDay are, however, more conservative when it comes to the prospects of whether the refinery can put Nigeria out of its petrol subsidy misery, which cost the economy over N12 trillion in the last 10 years.

“There is nothing like an opportunity for buying things at a cheaper price; it will be based on the international standard,” Bello Rabiu, formerly the chief operating officer, upstream at Nigerian National Petroleum Company, said.

The estimates of economic impact by a leading multilateral agency assume that if the refinery starts this year, it will produce only 10 percent of its capacity, and 20 percent next year, and will only achieve full capacity after 2025. Under these assumptions, the refinery’s addition to growth measured by GDP is more likely to be 0.1 and 0.4 percent in 2022 and 2023 respectively.

Economists at the agency add that the impact of domestic refining of petrol will have a muted effect on the cost of the petrol consumed in Nigeria, given that only the cost of freight will be eliminated.

This appears to run counter to the message being put out by senior government officials about the $15 billion refinery complex, which is designed to produce about 50 million litres of petrol.

“The Dangote Refinery will not solve the myriad of challenges bedevilling Nigeria’s downstream sector such as lack of transparency, accountability, the domineering stature,” Biodun Adedipe, an economist and chief consultant, BAA Consult said.

At a recent foreign investors’ meeting in New York, Godwin Emefiele, the Central Bank of Nigeria governor, said Nigeria’s import of petroleum products that accounted for 30 percent of its foreign exchange could be reversed by the successful commencement of operations at the Dangote Refinery.

“The Dangote Refinery once it begins production would be a major FX saving source for Nigeria,” the governor said, adding that “if the 650,000 daily barrels that will be produced from the refinery will be sold in naira, it would be a major FX saver for Nigeria.”

The CEO of Financial Derivatives Company, Bismarck Rewane, is not as optimistic. He says whatever Nigeria gains in not using dollars to buy refined petrol is almost equivalent to what it will forfeit by giving up 650,000 barrels of crude daily that it can no longer sell and earn dollars from.


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