NNPC’s proposed 20% stake in Dangote refinery, way to go
EnergyDay Editorial Board
Last weekend, Nigerians were greeted with the news of the national oil firm, the Nigerian National Petroleum Corporation, NNPC, proclamation of interest to buy stake in Dangote Refinery. Although, some industry analysts have expressed concerns over the development but for us at EnergyDay we’re of the opinion that the move should be seen as a step in the right direction.
This is so because we consider the initiative as one of the best, well-thought out business decisions by the national oil company, given the fact that the day-to-day running of company will be left in the hands of competent management who are bound to produce results without sentiment.
Thus, apart from the guarantee of making profits from such venture, the assurance of availability of certain percentage of the products being sold to NNPC’s marketing subsidiary, Petroleum Products Marketing Company, PPMC, would be guaranteed.
That way the huge cost incurred in the transportation of imported white products would be reduced and help bring down the price in the local market. Undoubtedly, this will enable government push the concept of deregulation of the downstream sector to a logical conclusion.
The move is equally perceived by us as the boldest testament to the verity that government can successfully do business without getting involved in the day to day running of such venture, thereby reducing cost and other variables that has proven to be hindering the Corporation from operating its own four refineries.
Drawing experience from a similar venture, the Nigeria Liquefied Natural Gas, NLNG, a successful joint venture of no mean repute, the NLNG has shown that with good management, government owned ventures can partner such firm to deliver value to all stakeholders including itself.
NLNG’s structure is unique in many ways, this includes the shareholding and governance structure.
The NLNG, is an Incorporated Joint Venture owned in the following proportions: Nigerian National Petroleum Corporation (NNPC) (49%), Shell Gas B.V. (25.6%), Total Gaz Electricite Holdings France (15%), and Eni International N.A. N.V. S.àr.l (10.4%).
The company’s structure guarantees an independent Board of Directors at the pinnacle of its governance structure, which enables effective business decision making for the company. This structure has supported the achievement of the company’s vision of being a global company, helping to build a better Nigeria, as well as other critical success factors such as funding, transparency, accountability, sustainability, reliability and growth in the company, making NLNG arguably the most efficiently run Nigerian business in the industry.
It’s pertinent to point out here that although the NLNG remains one of the most successful ventures the Nigerians can point to in terms of government participation in the oil and gas industry, the business has not moved as fast as it ought to be because of the huge ownership portion of government.
As it’s natural in every business venture, the more your shareholding, the greater your portion of investment when the need arises. Available data shows that the delay experienced by NLNG in terms of further investments which should have helped the country make better progress vis-a-vis returns on investment were caused by government’s inability to provide counterpart funding when the need arises.
At EnergyDay, while we welcome NNPC’s decision to invest in the Dangote Refinery and as well advocate for the adoption of NLNG model as in our view, is the international best practices, we charge both parties to take into consideration every aspect of the concept that can hinder future growth and expansion seriously.
However, it is heartening to hear that other suitors are also interested in Dangote Refinery. As it was reported during the weekend that some other foreign companies have also indicated interested in purchasing stakes in the refinery.
Bloomberg had in one of its report published three years ago, quoted Edwin Devakumar, group executive director, Dangote Industries Limited, as saying that the company had been in talks with oil traders including Royal Dutch Shell Plc, Vitol Group and Trafigura Group Pte about supplying its 650,000 barrels of crude a day refinery with crude and buying refined products.
“We are establishing a rapport with them, but there’s been nothing specific so far,” he said.
A similar report credited to Reuters publish at the weekend re-echoed the claims of other oil firms approaching Dangote Industries to acquire a stake in Africa’s largest oil refinery.
The report which again quoted Mr. Devakumar as its source, described the interested firms as coming from Western and Middle East countries involved in trading and crude production. He said the firms were looking to secure crude supply agreements, a similar objective to that pursued by the Nigerian National Petroleum Corporation, NNPC.
“They are seeking to have 20% minority stake in Dangote refinery as part of collaboration … so that they can sell their crude,” Edwin told Reuters by telephone.
For EnergyDay, the development is cheery, but we urge NNPC to involve knowledgeable experts who have the interest of the country at heart to do a thorough due diligence before signing any agreement.
Such should take cognizance of investigating without bias to Dangote’s claims of capacity, current status, expected commission date, prospect of selling white products in the local market at no additional cost and the general state of the refinery before committing to the investment.
Nigeria, Africa’s biggest crude oil exporter, imports virtually all of its fuel due to moribund state refineries, which has prompted the state oil company’s interest in the 650,000 barrel per day (bpd) Dangote refinery.
We are also persuaded to advise NNPC to build into the agreement specific demand on Dangote to allow NNPC to sell a certain percentage of the refined products to local demands.
EnergyDay is elated like other stakeholders and Nigerians at large, that Dangote’s Refinery (when completed) will have added enormous value. We’re however uncomfortable with the political turn of the project’s completion timeline and the government’s inability to urgently revive it’s moribund refineries even, when it’s aware of the huge potential it has in growing the nation’s economy as well as aiding its diversification.
Finally, we do sincerely hope that the January 2022 commissioning timeline now proposed will not be shifted as it was in the past.
We only hope that this initiative will help reduce the inefficiency in the sector and ensure that Nigerians enjoy the benefits of being an oil producing nation.