Africa’s biggest oil refinery and the world’s largest single-train facility, Dangote Oil Refinery may run into a deep financial crisis from rapidly increasing interests amounting to millions of dollars indicating a possible takeover of the project by the Assets Management Corporation of Nigeria (AMCON).
Hope Of Nigeria’s Oil Sector Hangs In The Balance?
After many years of exporting crude oil abroad to be refined with refineries in the country in a comatose state, a latest development greeted Nigerians with so much displeasure as the expected game changer in the oil and gas sector is faced with a daunting challenge.
According to the management of Dangote group Africa’s largest oil refinery will not be finished until the end of 2020 due to problems importing steel and other equipment.
8 months into 2021 the story hasn’t changed much, reports say the world’s largest single-train facility, Dangote oil refinery may run into a deep financial crisis from rapidly increasing interests amounting to millions of dollars indicating a possible takeover of the project by the assets management corporation of Nigeria (AMCON).
Dangote Oil Refinery, a 650,000 barrels per day (BPD) integrated refinery project under construction in the Lekki Free Zone, Lagos, Nigeria, was expected to commence production in 2016 with $3.3billion financing secured in 2013.
With the refinery now projected to commence operations in 2025, Dangote Group’s indebtedness to the financial institutions is estimated to hit $8.4billion by 2025. Presently, this debt burden has risen to 7billion dollars with debt servicing of almost 700million dollars per annum.
The completion date of the refinery had been moved eight times. Whilst some might say this is not in the character for Dangote Industries and their numerous projects across different sectors, the problem is deeply rooted.
A contractor at the delayed refinery project, speaking under the condition of anonymity, said that poor planning, underpayment of contractors, and a lack of proper project management with over 40 contractors on site has led to most of the delays. He also added that of the 40, none is willing to commission as there is no clear delegation of duty and over-decentralization leading to absolute chaos.
With these incessant delays, some financing banks are already calling in their loans amid fears of liquidity crisis, while others are elated by the guarantee of huge interests to be recouped as soon as the refinery comes on stream.
In July 2017, major structural construction began, and Dangote estimated that the refinery would be mechanically complete in late 2019 and commissioned in early 2020. Experts, however, posit that the construction would likely take at least twice as long as Dangote publicly stated, with refining capability not likely to be achieved until 2025.
Meanwhile, last week the Minister of State for Petroleum Resources, Timipre Sylva, reiterated that Federal Executive Council (FEC) approved the acquisition of 20 per cent minority stakes by the NNPC in the Dangote Petroleum and Petro-Chemical Refinery.
Sylva, while briefing State House correspondents after the virtual FEC meeting presided by Vice President Yemi Osinbajo on Wednesday at the Presidential Villa, said that the acquisition was in the sum of $2.76 billion.
“The Executive Council also approved the acquisition of 20 percent minority stakes by the NNPC in the Dangote Petroleum and Petro-Chemical Refineries in the sum of $2.76 billion,” he said.
This development has been described by industry observers as strange because $2.76 billion falls short of 20 percent of the Dangote project valued by the sponsor at $16 billion. Using the $16billion value, 20 percent should be $3.2billion and analysts have expressed dissatisfaction at the disparity in the project’s value and NNPC’s funding.
