Nigerians question NNPC’s $2.8bn deal with Dangote Refinery

NIGERIANS are raising some questions regarding the deal between the Nigerian National Petroleum Company (NNPC) Limited and Dangote Refinery, which is costing a total of $2.8 billion.

NNPC Limited acquired a 20 percent stake in Dangote Refinery in 2021, paying $1 billion to the group owned by Africa’s richest man, Mr Aliko Dangote, through a lender, Lekki Refinery Funding Limited.

The total cost of the acquisition is $2.76 billion, and the national oil company is looking to pay the $1.76 billion balance to conclude the transactions through cash and crude oil supply.

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But Nigerians are now probing into the deal, raising questions that the NNPC will need to clear as it plans the completion of the 20 percent acquisition from February 2024.

The NNPC Limited has moved away from being a corporation to currently being a limited liability company, but it is still owned by the government and is accountable to the Nigerian public.

Valuation

Based on interviews, Economy Post found that one major question raised by Nigerians is the valuation of the deal, which has not been explained by the national oil company.

The NNPC is paying $2.76 billion for 20 percent equity. This means the total value of Dangote Refinery is $13.8 billion, according to Economy Post‘s calculations.

In the 2022 financial statement released by NNPC Limited in January 2024, there was no explanation as to who valuated Dangote Refinery and the processes involved in it. Up till now, no one knows the details of the valuation and why the NNPC Limited is paying over N3.6 trillion for a 20 percent stake in the company despite owning three other refineries across Nigeria.

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Apart from that, some industry sources claimed that the $1 billion paid to Dangote Refinery by NNPC Limited amounted to only 7 percent equity in the refinery, insisting that the national oil company could lose that stake if it failed to pay the full amount in both cash and crude. However, this claim does not add up as it appears mathematically incomprehensible.

“Nigerians deserve to know who did the valuation, the assets that formed part of this valuation and all the details in this transaction. It is a mark of transparency that the 2022 financial result lacks,” said a financial analyst in a Lagos-based company, Mr Edwin Okoroafor.

He however explained that he was sure the NNPC Limited did its own diligence before investing in Dangote Refinery, but noted that the public had a right to demand how the valuation occurred.

Dangote Refinery Source: Arise TV

Currency depreciation

The second question that is being raised by Nigerians is why the deal was done in dollar rather than naira. The NNPC’s financial statement shows that the national oil company borrowed $1 billion from Lekki Refinery Funding Limited and used $36 million to fund “transaction costs.”

With naira depreciation and the local currency trending at over N1,450 on the official and parallel markets on January 30 2024, the loan now amounts to over N1.5 trillion from less than N400 billion in 2021 ( when the deal was struck). As at the time this deal was struck, the official dollar exchange rate to naira was N360/$, meaning that the cost of the loan has quadrupled within the three years of the transaction.

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Worse still, Economy Post found that the NNPC is yet to start repaying the debt. In fact, those familiar with the deal said the national will begin to repay the loan with crude oil from mid-February 2024 when, perhaps, naira may have weakened further. This means the cost will further rise, with the naira getting increasingly weaker.

But one oil and gas expert said oil is an international commodity that should be priced in dollar, not naira. She said pricing the deal in naira would hurt Dangote’s capacity to purchase crude in dollar, noting that the company would seek to convert naira to dollar – which would cost the company dearly due to naira depreciation.

However, finance experts believe repaying loans or paying for the equity in dollar is expensive and could affect NNPC’s liquidity.

Cost of the transaction

Some experts are raising questions about the cost of the deal generally. For instance, apart from the additional costs arising from naira depreciation, the NNPC Limited is going to supply 35,000 barrels of oil per day to Lekki Refinery Funding Limited and pay an interest rate of 6.125 percent plus 3-month libor. The crude oil supply will continue until the debt of $1.036 billion (loan plus transaction costs) is settled. The NNPC did not state in the financial statement how long the supply of crude would last.

The question is whether the NNPC has enough crude to supply to the creditor – Lekki Refinery Funding Limited- and to Dangote Refinery at the same time.

“Assuming that the NNPC Limited has the crude with which to repay the debt, what is the forward price that will be used? It is going to be priced at $45 per barrel or $70? We do not know. Right now, the NNPC is struggling to supply crude to Dangote Refinery and has forced them to move outside Nigeria in search of crude. So, how are we sure they will not renege on the whole agreement?” an informed industry source, who pleaded anonymity due to his position in the oil industry, asked.

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The 650,000-capacity Dangote Refinery is buying 2 million barrels of WTI Midland from Trafigura Group, according to Bloomberg. This will be supplied by end of February 2024. Bloomberg said the decision was down to low price of WTI Midland as opposed to higher price of Nigeria’s Brent. WTI Midland was priced at $75.89 per barrel while Brent cost $81.74 on the evening of Wednesday, January 31, 2024

But some experts believe it is also down to adequacy of supply. Reliable sources said Dangote Refinery does not trust that the NNPC Limited has the capacity to meet its 650,000 barrels per day supply due to Nigeria’s low oil production.

Nigeria’s daily oil production was 1.418 million barrels per day in December 2023, which is higher than the needs of both Dangote Refinery and Lekki Refinery Funding Limited. However, the NNPC Limited is also involved in some crude-for-cash deals, with the latest being the $3.3 billion loan from African Export-Import Bank.

In the $3.3 billion loan, NNPC Limited is repaying with 90,000 barrels per day and will supply a total of 164.25 million barrels of crude oil. The crude swap deals may scupper NNPC’s crude supply to Dangote Refinery, analysts say.

Complicated deal

Economy Post was also told that NNPC Limited would pay 25 percent of the entire deal – $900 million – to Dangote Refinery if it reneges on the entire agreement but wants to remain in the deal. This means that should NNPC Limited fail to supply crude to Dangote Refinery as agreed in the transaction, it would pay an extra $900 million or risk losing its stake.

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Economy Post, however, could not confirm the veracity of this. The NNPC Limited’s spokesman, Mr Olufemi Soneye, did not reply to the messages which were meant to provide clarification on the deal.

Stella Odiche
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