It was hailed as the best thing to happen in the oil and gas
sector especially in Nigeria – a serial importer of crude products. The year
was 2013 and in September of that year, Aliko Dangote, Africa’s richest man,
announced yet another of his gargantuan projects – the construction of the
biggest single train refinery in the world with production expected to begin in
2016. Many delays and postponements later, the project has been bogged down by
barely serviceable debts, poor planning, lack of centralized project
management, mismanagement and has now become a huge albatross on Nigeria’s neck
costing the country lots of FX and creating huge problems in return.
VALUATION
A project that started as a 9billion dollars project is now being valued at
over 16 billion dollars, albeit incorrectly. Sampling expert opinion from
leading players in the oil & Gas industry, it is estimated that a refinery
of that size should ideally cost within the range of 11 to 12 billion dollars
to build in Nigeria. Notwithstanding the conflicting figures, it was recently
announced that the Nigerian National Petroleum Corporation, NNPC, will be
taking a 20% stake in the uncompleted, non-functional Dangote Refinery at the
cost of 3.8billion dollars. Whilst this baffled many, NNPC’s actions
effectively over-valued the yet to be completed refinery to 19billion dollars.
PROJECT DELAYS OR PROJECT DELAY-ED
As at last count, the completion of the refinery had been moved eight times.
Whilst some might say this is in character for Dangote Industries and their
numerous projects across different sectors, the problem is deeper rooted. A
contractor at the delayed refinery project, speaking under the condition of
anonymity said that poor planning, underpayment of contractors, and a lack of
proper project management with over 40 contractors on site has led to most of
the delays. He also added that of the 40, none is willing to commission as
there is no clear delegation of duty and over-decentralization leading to
absolute chaos.
With these incessant delays, Banks are already calling in their loans. At the
announcement of the project in 2013, Mr. Dangote said he had secured financing
of 3.3billion dollars. This debt burden has now risen to 7billion dollars with
debt servicing of almost 700million dollars per annum. Whilst Mr. Dangote has
been able to restructure the facilities from various local and international
banks twice so far, most banks have totally refused to restructure for the
third time with principal repayment also falling due - as well as the annual
interest payments.
Things have gotten so bad for the billionaire that even income from his other
businesses are barely enough to cover the interest rates talk less of the
principal. This has led Mr. Dangote to seek innovative ways, including state capture,
to prop up his business now that the refinery project has been consistently
delayed and he has run out of money to repay. Enter the NNPC Connection,
Nigeria’s controversial PIB Amendment and the Crude Swap Saga.
THE NNPC CONNECTION – BAILING OUT THE UNBAILABLE
After taking FX at concessionary rates from the CBN, Nigeria is inexplicably
tied at the apron strings to Mr. Dangote’s now-threatened refinery. Estimates
by professional industry analysts and those close to the project put its
completion date in 2024 or 2025.
Recently, the NNPC announced, under some obscure arrangement, that it was
taking a 20% equity in the Dangote refinery at 3.8billion dollars. The NNPC was
later to explain that it was giving only 1 billion in cash and the balance in
crude.
Whilst this is a welcome development, Mr. Dangote will have a hard time doing
anything tangible with the 1billion dollars cash which is barely enough to
cover one years’ interest. With some principal payments falling due and the
banks’ unwillingness to restructure in the face of an estimated completion
timeline of 2024 at the earliest, Messrs. Dangote will need at least 3 to 4
billion to complete the project over the next few years even with this bailout.
Both the way the refinery project has been carried out, and this subsequent
NNPC bailout for Dangote refinery has turned Nigeria into a laughingstock on
the global stage.
As for the controversial PIB bill currently before the Nigerian National
Assembly, it is now clear to keen watchers that the reason the government wants
to give a monopoly of importation for petroleum products into the country to
Messrs. Dangote is so he can make the excessive and extra profits he needs to
manage his rising debt profile for the refinery (under the guise of ongoing refinery
projects). Guess who will bear the brunt of the higher costs in petroleum
products at a time when subsidies are being reduced? The Nigerian people.
With his refinery project costs way overboard, banks breathing down his neck
and NNPC’s strange bailout seemingly meagre to take care of the principal and
interest payments for his debts, is the Dangote Refinery a dead project even
before it is completed, or will time be kind and permit the completion of this
project to which Nigeria has mortgaged huge FX from its treasury to see it kick
off in good time? The chicken has come home to roost, it may seem.
Finally, with the one billion dollars going towards the repayment of principal
and interests which are falling due in August, the manipulations by NNPC and
politicians at the National Assembly has now become clear for all to see… As it
stands, some government agencies and politicians are more than willing to
mortgage the interests of the nation and masses to bail out the unbailable
refinery project. Welcome to the Republic of Dangote!
David Bako is a seasoned Economist writing from Abuja
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