Dangote Seeking Bank Funding to Boost Crude Supplies to Refinery – Financial Times

*Minimum supply of 300,000 bpd costs $2bn in 3 months, says report UK,

*US  experts project refinery to hit full capacity in Q2, raise competition in Europe

Africa’s richest person and Nigerian business tycoon, Aliko Dangote, is seeking to raise billions of dollars to step up production at his $20 billion oil refinery on the outskirts of Lagos, the Financial Times, reported yesterday.

The industrialist is in talks with commercial lenders, development banks, oil traders and other industry participants to raise funds for crude supplies to turn into refined products, people familiar with the matter told FT.

The Africa Finance Corporation (AFC), a pan-African development lender based in Nigeria that is already an investor in the project, is one of the institutions involved in the talks to raise money, the report added.

The AFC led a financing round in December for funds to source the initial capital to get the refinery up and running as a commercial operation. The AFC declined to comment on the discussions over fundraising.

Dangote Industries has bought crude from the US and Brazil, and in July was in talks with African suppliers such as Libya and Angola, according to Devakumar Edwin, a senior executive at the group.

According to the report, Dangote needs to secure more crude oil to reach the refinery’s capacity of 650,000 barrels per day for a project he has said is a “game changer” for the country.

The billionaire told the Financial Times last month that he expected the refinery to be at capacity by the second quarter of next year, although previous targets have often slipped.

Dangote added that Nigeria’s biggest infrastructure project in decades and the largest of its kind in the world is already producing 420,000 bpd, the FT said.

He wants to resolve what he described as an “absurd” situation in which Africa’s biggest oil producer imported all of its refined petroleum products because of a lack of refining capacity.

The plant began producing jet fuel and naphtha at the start of the year and petrol in September, raising hopes that Nigeria could finally end decades of reliance on imported fuel.

It would cost about $2 billion every 90 days to secure a minimum supply of 300,000 bpd, people familiar with the matter said.

Investors have expressed frustration at Dangote’s inability to gain a steady supply of crude, FT quoted one banker involved in the fundraising as saying. Another added that there was also a major concern among potential financiers over exposure to Nigeria’s currency, the naira, which has fallen sharply following two devaluations over the past year.

“The refinery may never make a profit in real terms,” said the second banker. “It was built over-budget and the naira, which is a major currency of future revenue, has devalued massively.”

Dangote last month attended an emergency meeting with President Bola Tinubu and Mele Kyari, head of Nigeria’s state oil company, the Nigerian National Petroleum Company Limited (NNPC), to talk about crude supplies.

The billionaire told the FT the meeting was to discuss “the modalities” by which NNPC would supply 365,000 bpd of crude to his plant to be paid for in naira.

Dangote Industries declined to comment further on the fundraising or the industrialist’s talks with the president. NNPC did not also respond to requests for comment on the fundraising or meeting.

NNPC has a 7.2 per cent stake in the refinery, which was watered down from 20 per cent after it failed to pay the balance of a deal worth $2.7 billion. NNPC paid $1 billion upfront in cash in 2021 and the other $1.76 billion was supposed to be paid for in crude supplies.

Many, including Dangote, have questioned NNPC’s ability to supply the crude the refinery needs because it has sold significant quantities of oil on forward contracts.

Even if NNPC comes through with the crude, Dangote would need another 185,000 bpd, or more than 5 million barrels a month, to meet his target of 550,000 bpd by January and more still once the refinery reaches full capacity.

Dangote plans to use the refinery to meet the country’s entire petrol demand, which he estimates at 30 million litres to 35 million litres a day. Some critics have accused him of seeking to replicate a quasi-monopoly he already enjoys in cement.
Refineries make money on the spread or difference between the price of crude and the money they make on the refined products they produce.

Meanwhile, the Knightsbridge Strategic Group (KSG), a group of experts from US and UK, providing geopolitical intelligence, has projected that the Dangote refinery will hit full capacity in Q2,2025.

The KSG team is made up of regional and thematic experts, including: former members of the UK and US national security communities, former members of various Armed Forces, former diplomats, experts in global technology, finance and energy, among others.

“Assuming full capacity is eventually reached at the Dangote Refinery, KSG assesses that there will be long-term reductions in local fuel costs and increased market competition in Europe as Nigeria becomes a new fuel exporter.

“KSG assesses that Nigeria’s transition to reliance on domestic refined oil will likely allow European nations to further de-risk their oil supply chains from Russia, given the freed-up supply Nigerian refined oil demand will leave countries like Belgium, the Netherlands and Norway with an oversupply,”  a report by the group stated.

However, it argued that the Dangote refinery will still be operating below full capacity, as NNPC fails to provide adequate crude supply, forcing continued reliance on expensive foreign crude imports.
“Persistent crude shortages and a weak Naira are driving up import costs, worsening inflation and economic stagnation. Fuel prices have spiked.

“Once the refinery reaches full capacity, long-term reductions in local fuel costs and increased competition in Europe’s fuel market are expected. The government’s failure to address refinery issues may trigger political unrest, including violent protests, as the removal of fuel subsidies exacerbates the crisis,” it added.

According to the group,  Dangote has utilised US crude to offset shortages, with potential future imports from Libya, Angola, Saudi Arabia, or Brazil under consideration.

The longer the NNPC takes to supply the Dangote refinery, allowing it to operate at full capacity, the KSG team said, the more the refinery is likely to run into financial trouble ‘given its massive debt commitments to local banks’.

“KSG assesses that the NNPC will likely not supply the refinery with its needed capacity for at least the next four to six months and that the Dangote refinery will not reach full operational capacity until at least Q2, 2025.

“The Dangote refinery will likely need to continue importing its crude shortfall, which will be increasingly expensive as the Naira continues to decline.

“KSG assesses that the Nigerian government’s inability to meet domestic fuel demand will lead to an extended depreciation in the Naira relative to the US dollar and the Euro,” the report added.

(Thisday)