Why we are buying 20% equity in Dangote Refineries – GMD NNPC

The Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mele Kyari, has confirmed that the Corporation is set to acquire a 20% stake in Dangote Refinery which is expected to commence production in 2022 with an installed capacity of 650,000 barrels per day.

This follows an announcement first made in May this year that the Corporation has plans to acquire equity stake in the company owned by billionaire business Aliko Dangote.

The GMD spoke as a guest on Channel Television’s Sunrise Daily programme on Tuesday where he explained the objective behind the decision to acquire equity stake in Dangote Refineries.

“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.”

He also clarified that the Corporation is not relying on funding from the lean purse of the Federal Government to acquire the equity stakes.

“For the Dangote refinery, we are not taking government money to buy it, which is the mistake that people are making,” he said. “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 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,” he said.

Kyari, who admitted that the country has not done well in managing its refineries in the past 20 – 25 years, explained that the government is working to get its refineries back into full operation.

“Dangote refinery will come into production by 2022. And what that will do is to deliver over 50 million litres of gasoline into, to be specific, 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. We will award EPC (Engineering, Procurement and Construction) contracts in a few weeks to deal with these refineries.

An EPC (Engineering, Procurement, and Construction) is a contract-based project delivery model. Oil and gas companies often rely on EPC contractors for large-scale and long-term projects that require skilled labor and fine-tuned project management. (Source: Matrix NAC)

“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 is bordering on energy security and has implications for fiscal security of the country, and you don’t have a say. And 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 also 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 have a say, except you have a seat on the board of these institutions. And 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,” he explained.

In response to another question on the dividend of buying equity stake in Dangote Refineries, Mallam Kyari said:

“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 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,” he said.