Dangote seeks billions to boost crude supplies at new Nigerian refinery

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Nigerian business tycoon Aliko Dangote is seeking to raise billions of dollars to step up production at his $20bn oil refinery on the outskirts of Lagos.

The industrialist is in talks with commercial lenders, development banks, oil traders and other industry participants to raise funds for crude supplies to turn into refined products, according to people familiar with the matter.

His company Dangote Industries has bought crude from the US and Brazil, and in July was in talks with African suppliers such as Libya and Angola, according to Devakumar Edwin, a senior executive at the group.

Africa’s richest man needs to secure more crude to reach the refinery’s capacity of 650,000 barrels per day for a project he has said is a “game changer” for the country.

The billionaire told the Financial Times last month that he expected the refinery to be at capacity by the second quarter of next year, although previous targets have often slipped.

Dangote added that Nigeria’s biggest infrastructure project in decades and the largest of its kind in the world is already producing 420,000 b/d.

He wants to resolve what he describes as an “absurd” situation in which Africa’s biggest oil producer imported all of its refined petroleum products because of a lack of refining capacity.

The plant began producing jet fuel and naphtha at the start of the year and petrol in September, raising hopes that Nigeria could finally end decades of reliance on imported fuel.

It would cost about $2bn every 90 days to secure a minimum supply of 300,000 b/d, people familiar with the matter say.

Investors have expressed frustration at Dangote’s inability to gain a steady supply of crude, according to one banker involved in the fundraising. Another added that there was also a major concern among potential financiers over exposure to Nigeria’s currency, the naira, which has fallen sharply following two devaluations over the past year.

“The refinery may never make a profit in real terms,” said the second banker. “It was built over-budget and the naira, which is a major currency of future revenue, has devalued massively.”

Dangote last month attended an emergency meeting with President Bola Tinubu and Mele Kyari, head of Nigeria’s state oil company NNPC, to talk about crude supplies.

The billionaire told the FT the meeting was to discuss “the modalities” by which NNPC would supply 365,000 b/d of crude to his plant to be paid for in naira.

Dangote Industries declined to comment further on the fundraising or the industrialist’s talks with the president.

NNPC did not respond to requests for comment on the fundraising or meeting.

NNPC has a 7.2 per cent stake in the refinery, which was watered down from 20 per cent after it failed to pay the balance of a deal worth $2.7bn. NNPC paid $1bn upfront in cash in 2021 and the other $1.76bn was supposed to be paid for in crude supplies. 

Many, including Dangote, have questioned NNPC’s ability to supply the crude the refinery needs because it has sold significant quantities of oil on forward contracts.

Even if NNPC comes through with the crude, Dangote would need another 185,000 b/d, or more than 5mn barrels a month, to meet his target of 550,000 b/d by January and more still once the refinery reaches full capacity. 

The Africa Finance Corporation, a pan-African development lender based in Nigeria that is already an investor in the project, is one of the institutions involved in the talks to raise money.

The AFC led a financing round in December for funds to source the initial capital to get the refinery up and running as a commercial operation.

The AFC declined to comment on the discussions over fundraising.

Dangote plans to use the refinery to meet the country’s entire petrol demand, which he estimates at 30mn-35mn litres a day. Some critics have accused him of seeking to replicate a quasi-monopoly he already enjoys in cement.

Refineries make money on the spread or difference between the price of crude and the money they make on the refined products they produce.