Nigerian business tycoon Aliko Dangote, the richest person in Africa, is negotiating to obtain billions of dollars in further investment to expand operations at his $20 billion oil refinery outside of Lagos.
One of the most ambitious infrastructure projects on the continent, the refinery aims to transform Nigeria’s energy landscape and lessen its need for foreign petroleum products.
“Dangote is negotiating with a variety of commercial lenders, development banks, oil traders, and other important industry players to raise the necessary funds to ensure a stable and sustained crude oil supply for the refinery, which can process up to 650,000 barrels per day (bpd) once fully operational,” according to reports from the Financial Times.Â
In order to fulfil its increasing demand, Dangote Industries has already purchased petroleum from outside suppliers in the US and Brazil and is looking into agreements with African countries like Libya and Angola.
The refinery, which began production earlier this year, is now generating 420,000 bpd, but Dangote has set ambitious plans to reach full capacity by mid-2025 despite delays in fulfilling previous milestones.
Nigeria’s long-standing dependence on gasoline imports was finally expected to end when the plant began producing jet fuel, naphtha, and petrol in September and October.
However, some issues have hindered Dangote’s efforts to ensure a consistent supply of petroleum, including disagreements with the Nigerian National Petroleum Company Limited (NNPC), the nation’s state-owned oil firm expected to provide a sizable amount of the required crude.
In recent meetings, Dangote asked Mele Kyari, the CEO of NNPC, and President Bola Tinubu to guarantee a steady supply of 365,000 barrels per day of crude to be paid for in Nigeria’s steadily declining naira.
The Africa Finance Corporation (AFC), a pan-African development bank that had previously invested in the refinery, spearheaded a financing round in December to launch the project.
But as the refinery’s output increases, Dangote must now find more money to pay for the purchase of crude and the refinery’s operating expenses, which may amount to almost $2 billion every ninety days for a minimum supply of 300,000 barrels per day.
The instability of the naira, which has depreciated dramatically in recent months, has alarmed some lenders, raising the cost of financing and importing crude. Because of these continuous financial strains, some analysts even doubt that the refinery can make a true profit.
“The refinery was built over budget, and the naira, which is a major currency of future revenue, has devalued massively,” a source told the Financial Times.
Additionally, after NNPC missed the payment deadline for a $2.7 billion contract, its refinery ownership was lowered to 7.2 percent. The remaining $1.76 billion, which was supposed to be paid in crude supplies, has not been able to be covered by NNPC, despite having paid an initial $1 billion in 2021.
Analysts have questioned whether NNPC can satisfy its responsibilities given the substantial amounts of crude it has committed to forward contracts, raising doubts about the national oil company’s capacity to meet Dangote’s demands.
Despite these obstacles, Dangote is nevertheless determined to use the refinery to supply all of Nigeria’s petrol needs, which he estimates to be between 30 and 35 million litres per day.
The refinery would significantly reduce the requirement for imported fuel once it is fully operating, saving the Nigerian government billions of dollars annually.
According to a report by the geopolitical intelligence company Knightsbridge Strategic Group (KSG), Dangote’s refinery may eventually contribute to lower fuel prices in Nigeria and more competition in the European fuel market.
When operating at full capacity, Nigeria might become a major exporter of refined oil products, providing a substitute source for European countries hoping to lessen their reliance on Russian oil.
KSG cautions, meanwhile, that ongoing crude shortages and the depreciating value of the naira may make it more difficult for the refinery to operate at full capacity.
The report states, “The refinery is more likely to experience financial difficulties due to its substantial debt commitments the longer the NNPC delays its supply of crude.”
According to the project, the refinery could not be able to operate at full capacity until at least the second quarter of 2025. This could result in a continuous dependency on pricey imports of foreign crude, worsening Nigeria’s economic problems.
The KSG also highlights Nigeria’s refinery problems’ wider political ramifications. Rising inflation, higher fuel prices, and maybe societal unrest could result from the government’s failure to address fuel supply challenges. Protests have already been triggered by the elimination of fuel subsidies earlier this year, and there are concerns that ongoing issues with the Dangote refinery may make the public even more irate.
