Blue skies
According to the CBN governor, Godwin Emefiele, the Dangote Refinery has paid down over 70 percent of the debt, $18.5 billion, acquired to…
According to the CBN governor, Godwin Emefiele, the Dangote Refinery has paid down over 70 percent of the debt, $18.5 billion, acquired to build it as the first refined products will hit the market by the end of July and early August. It was partly financed by Access and Zenith Banks’ debts and Dangote’s equity. The refinery has an outstanding debt of around $2.75 billion. Nigeria spent $23.3 billion last year on petroleum product imports and consumes around 33 million litres of petrol daily. The refinery plans to produce 53 million litres daily and has a 435-megawatt power station, deep seaport and fertiliser unit.
Recently, good news has been hard to come by, but the commissioning of Dangote Oil Refinery has been almost unanimously accepted as good news. The plant faced significant construction delays, which came at a cost, so it is positive news that the debt has already been substantially paid down. We hope the plant’s testing starts this year and production can kick off soon. Only then can we know the true impact of the plant on Nigeria’s economy. At full capacity, Dangote’s 650,000 barrels per day refinery would produce 53 million litres a day, and Nigeria’s daily consumption quantity of 33 million litres means there are 20 million litres to be exported. The combination of reduced demand for foreign exchange for the import of petroleum products and increased supply of foreign exchange from the export of petroleum products would greatly improve the foreign exchange rates that have made inflation much worse and depleted the economy. If Nigeria can sort out its power supply situation, it could free up 1.5 billion litres of diesel and petrol for generators annually. This is because 75% of Nigeria’s electricity supply is estimated to come from fuel-powered generators that consume an average of 4.1 million litres daily, which would be freed for exports if Nigeria works out its electricity situation. There have been speculations that the Dangote refinery will have products in the market by July, which is an extremely optimistic prediction considering the number of steps the refinery has to go through to ship products. What is likelier is sometime in early 2024; we believe it will commence production and then ramp up to capacity over the course of the year. Nevertheless, it is positive that the refinery is finally nearing completion. The Central Bank of Nigeria (CBN) governor’s announcement concerning the debt repayment is puzzling — the refinery is yet to make revenues, yet much of its debt is already paid down. This would suggest that other sources of repayment have been explored, perhaps with the equity the Nigeria National Petroleum Corporation (NNPC) has taken and/or the claims that the refinery has been granted preferential Foreign Exchange (FX) access in a market where FX is restricted for many. As we have consistently pointed out, the refinery will largely provide the capacity for Nigeria to solve its supply problems that lead to periodic scarcities finally. However, it will have little impact on the price of the products, meaning it will not remove the need to remove the humongous petrol subsidies and the urgent need to liberalise the FX market.