The Nigerian National Petroleum Company Limited (NNPC) is reportedly facing challenges in meeting its obligation to supply crude oil worth $1 billion to the Dangote refinery, part of its payment for the acquisition of a 20 percent equity stake in the refinery.
According to a report by BusinessDay, quoting sources at the Ministry of Petroleum Resources in Abuja, Nigeria is currently at risk of losing a substantial portion of its equity in the Dangote refinery due to its failure to fulfill the obligations outlined in the agreement for the equity acquisition.
Against this backdrop, the report notes that the NNPC is urgently seeking to source crude oil from domestic producers, raising concerns among investors in the industry.
Since the 650,000 barrels-a-day Dangote refinery was commissioned in May, it has remained inactive, awaiting the supply of crude oil. The NNPC must fulfill its crude supply obligation to avoid the risk of losing part of its equity in the refinery.
The Nigerian government’s equity in the refinery is valued at $2.7 billion, with a payment mechanism that includes both cash and crude oil supply. As part payment, the government has paid $1 billion in cash, guaranteeing about seven percent of the equity.
The agreement also stipulated that the NNPC would provide crude oil worth $1 billion to the refinery upon completion, with the remaining $700 million to be paid through earned dividends from the plant’s operations, according to findings by BusinessDay.
The NNPC’s strategy to source crude oil from domestic producers has raised alarms, with concerns that it could deter investors from the industry. The government’s failure to meet its obligations under the equity acquisition agreement puts a significant portion of its equity in the Dangote refinery at risk.
It was recently reported that the NNPC plans to supply the Dangote refinery with up to six cargoes of crude oil in December for test runs. However, challenges in meeting the crude supply obligation raise uncertainties about the timeline for the refinery’s full commercial operations.
The Dangote refinery, built in Lekki, Lagos, by Africa’s wealthiest billionaire Aliko Dangote, was commissioned in May and is expected to play a crucial role in meeting Nigeria’s refined products needs and catering to the African and global market demand. However, the refinery has repeatedly failed to meet its operation commencement deadline, signaling underlying hindrances not known by the public.
The Nigerian government and the NNPC have kept details of the transaction private, contributing to concerns about transparency in the equity acquisition and payment process. Opposition from domestic producers and the potential loss of equity further complicate the aftermath of the long-anticipated Dangote refinery’s entry into operation.
Last Thursday, Bloomberg, citing analysts monitoring the plant’s progress, reported that the complete ramp-up of the refinery—a pivotal development for both regional and global crude and fuel markets—will require several months.
“The refinery is likely to be started up in a phased fashion, with the crude distillation unit being the first unit,” Ronan Hodgson, an analyst at Facts Global Energy, was quoted as saying.
Citing two NNPC officials who asked not to be named, BusinessDay reports that the facility is accumulating crude stocks for test runs, but the commencement of commercial production remains uncertain.
