Babatunji Wusu –
The Dangote Petroleum Refinery is actively seeking substantial funding to facilitate crude oil imports and boost its production capacity. Despite initiating a naira-for-crude agreement last month, which allowed for the delivery of four cargoes, the refinery still faces significant financial challenges in reaching its full operational potential.
According to a Financial Times report, Aliko Dangote, Chairman of the Dangote Group, is currently in negotiations with commercial banks, development lenders, oil traders, and other stakeholders to secure the necessary funds. Insiders estimate that approximately $2 billion will be needed every 90 days to maintain a steady supply of 300,000 barrels of crude per day (b/d). With a maximum capacity of 650,000 b/d, the refinery requires additional crude to achieve its targeted output.
Earlier this year, Devakumar Edwin, a senior executive at Dangote Group, confirmed that the refinery has sourced crude from the U.S. and Brazil and is in discussions with African producers such as Libya and Angola. Furthermore, the refinery has recently entered into an off-take agreement with the Independent Petroleum Marketers Association of Nigeria (IPMAN) to distribute refined products directly from the plant, including jet fuel, naphtha, and petrol, which is expected to reduce Nigeria’s reliance on imported fuel.
Concerns Over Funding and Currency Volatility
Despite these advances, financial backers remain wary of the refinery’s ability to secure a reliable and consistent supply of crude oil. One banker involved in the fundraising noted concerns about the volatility of Nigeria’s naira, which has devalued significantly following two recent currency adjustments. This poses a major risk to the refinery’s profitability, with the banker commenting, “The refinery may never make a profit in real terms. It was built over-budget, and the naira, which is a major currency of future revenue, has devalued massively.”
The Africa Finance Corporation (AFC), an investor in the project, is among the entities engaged in the funding discussions. Last December, the AFC led a financing round aimed at operationalizing the refinery.
Naira-for-Crude Agreement and Challenges Ahead
As part of efforts to secure a steady supply of crude, the Nigerian government, through the Technical Sub-Committee on Domestic Sales of Crude Oil in Local Currency, agreed last month to provide crude to the refinery in naira for an initial six-month period. However, challenges remain concerning the Nigerian National Petroleum Corporation (NNPC)’s ability to meet the refinery’s crude needs, given existing forward contracts. Even if NNPC fulfills its commitments, the refinery will still require an additional 185,000 b/d—over 5 million barrels monthly—to meet its target of 550,000 b/d by January 2024.
Notably, NNPC’s equity stake in the refinery has been reduced from 20% to 7.2%, following its failure to pay the outstanding balance of a $2.7 billion deal, having initially contributed $1 billion in 2021.
Looking Ahead
While the Dangote Refinery shows promise in reducing Nigeria’s dependency on imported fuel, its future success hinges on securing reliable crude supplies and addressing the financial and currency challenges that continue to pose significant risks to its profitability and long-term sustainability.
