Causes and implications of NNPCL'S failed 20% stake acquisition in Dangote Refinery

 


 Dangote and his Dangote Refinery are again in the headlines as they have often been of recent. This time around, Africa's richest man has come out to disclose the true picture of NNPCL'S stake in his refinery.


The disclosure by Dangote that NNPCL has only paid for 7% stake in his refinery as against the 20% many Nigerians believe seems to confirm the belief in many quarters about the frustration he is facing with getting his refinery fully operational. You can recall that Dangote Refinery earlier alleged that some highly placed international oil companies and foreign media are out to frustrate it.


NNPCL has since come out to explain that it decided to cap it's acquisition in Dangote's refinery at 7.2% after a review. This looks more like a face-saving explanation after Dangote's revelation. Let's explore the reasons and implications of this development.


The most obvious reason is NNPCL'S financial incapability. The finances of NNPCL has been strained of recent by the oil-backed loans the previous administration and the present one have taken. This means that there is not enough revenue accruing to NNPCL after the loans are serviced with crude oil. The fact that NNPCL unsuccessfully tried to secure an oil-backed loan to pay the balance corroborates this.


What could have put NNPCL in such a bad position financially? Recall that the present administration removed Subsidy from the very first day in office. The real truth however is that subsidy is still being paid- probably more this time around. Subsidy payment has gulped a lot of NNPCL'S resources that it can't afford to raise enough capital to offset the balance payment for twenty percent stake in Dangote Refinery.


Another angle to look at is the fact that Dangote is finding it difficult to get enough crude oil to feed his refinery. With NNPCL unable to supply enough barrels to meet the refinery's need, NNPCL knows it will be tasking for the refinery to operate profitably for some time to come. It may be a way of NNPCL not tying down it's scarce resources by refusing to go ahead with the agreed stake. 


The implications of this reduced stake is that NNPCL'S influence will be reduced. Considering the strategic importance of the refinery, NNPCL having a 20% stake would have guaranteed that the interest of Nigeria and Nigerians are well protected in the refinery. With the reduced stake, it means NNPCL( or Nigeria) will not have much say in the decision making process.


Reduced stake means reduced dividend. This means the future earnings of NNPCL (and Nigeria consequently) is reduced. Going by the fact that a refinery is a highly profitable investment, Nigeria is losing a huge chunk of future revenue by reducing the stake it has in Dangote refinery.


Another point to consider is what NNPCL'S disposition will be towards other refineries that are due to come on board in the country. Will NNPCL make sure it acquires significant stakes in the other refineries the same way it did in Dangote Refinery? Will there be a level playing ground for other refineries to compete with Dangote Refinery?


What is your opinion on this issue? Should NNPCL go ahead to take a loan to secure 20% stake in Dangote Refinery? Kindly drop your comment in comment section.

Comments

  1. Myka AsuzuJuly 21, 2024 at 11:48 PM

    Is it not a huge shame, that a big country like Nigeria, a major oil producing country, cannot refine her own oil & sell it properly? It cannot ALSO have SEVERAL, not just ONE of her many competent & capable citizens owning & COMPETITIVELY running such refineries? This is the obvious result of absolute corruption!. Let all those taking part in this mammoth corruption take heed. Justice FOR the people is coming SOON, surely!

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