We’ll take a loan to buy 20% stake in Dangote Refinery for energy and fiscal security – NNPC GMD

Melee Kyari – GMD, NNPC

Mele Kyari said on June 29 that NNPC is in talks with banks to borrow on the back of its cash flow to buy the stake in the 650,000 barrel per day (bpd) refinery. He declined to put a dollar figure on the stake but said the refinery is worth an estimated $19 billion.

Meanwhile, NNPC has signed term sheets with Dangote Group to buy a 20% stake in the company’s oil refinery under construction in Lagos state. Dangote Group had previously said that NNPC and three other firms had approached it regarding a stake purchase.

Brimming optimism, Kyari said NNPC still needs cabinet approval for the plan but said the value of having a stake in what would be the largest oil refinery in Africa was worth the cost. NNPC’s cash flow however is constrained by petrol price caps that have made it the sole importer of the fuel and forced it to sell at a loss.

Kyari said he had warned the government that NNPC its remittances to the government could drop to zero due to those costs – though they had not yet done so. Union groups in Nigeria have fought against any price increases, but Kyari said he was hopeful of a deal to shed the subsidy costs within the coming months.

“The reality is that we can’t afford it,” he said. “But if you don’t do something smart, you could end up with prices that Nigerians can’t afford.”

Dangote Refinery, Lagos

According to Kyari in an interview on Channels Television recently,  “There is no resource-dependent country that will watch a business of this scale, which borders on energy security and has implications for fiscal security of the country, and you don’t have a say.’’ “We know that this business is viable, it will work and it will return dividends. It has a cash flow that is sustainable because the refinery business, in the short term, will continue to be sustainable. That’s why banks have come forward to lend to us, so we can take equity in this.”

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Kyari continued: “Dangote refinery will come into production by 2022. And what that will do is to deliver over 50 million litres of gasoline, to be specific, into our markets. We are also working on our refineries, to ensure that we fix them. ‘’We have awarded the contract for Port Harcourt refinery rehabilitation. And ultimately, we are going to close that of Warri and Kaduna very soon in July, so that all of them will work contemporaneously. ‘’The net effect is that you are going to have an environment where Nigeria becomes the hub of petroleum products and supply.

‘’It’s going to change the dynamics of petroleum supply globally in the sense that the flow is coming from Europe today and it is going to be reversed to some other direction. We will be the supplier for West Africa legitimately and also many other parts of the world.

“So the meaning of this is, there is an opportunity that has been thrown at us. And I’m not sure Mr. Dangote wants to sell his equity in the refinery. I can confirm that it was at our instance that we started this engagement. ‘’He did not want to sell his shares in this refinery.  There is no resource-dependent country that will watch a business of this scale, which borders on energy security and has implications for fiscal security of the country, and you don’t have a say.”

‘’For us, as a strategy, we started this process long before Dangote started his refinery project. We take equity in very significant businesses that are anchored on the oil and gas operations: fertiliser, methanol plants, modular refineries and some other businesses that we are dealing with.

“It is to expand our portfolio and because we are the national oil company, we have the responsibility to guarantee energy security for our country. And there is no way you can do that except you have a seat on the board of these institutions.” ‘’That’s why anyone that is going to construct a refinery that is in the excess of 50,000 barrels per day, we will talk to them, take equity in it, as long as we have the money to pay for it.

“For the Dangote refinery, we are not taking government money to buy it, which is the mistake that people are making. We are borrowing on the back of the cash flow of this business. ‘’We know that this business is viable, it will work and it will return dividends. It has a cash flow that is sustainable because the refinery business, in the short term, will continue to be sustainable.

‘’That’s why banks have come forward to lend to us, so we can take equity in this.  We are very proud that we did this. This is good for our shareholders, which includes all 200 Nigerians who will also be happily buying shares from this company if they had the opportunity. But now we have done on their behalf so that ultimately the value will come to all of us.

“But there is no way you can watch a business of this magnitude, of this sensitivity, to run without the involvement of the national oil company. No country does this.”


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