A new report has it that Africa’s richest man, Aliko Dangote, may not really have the kind of money needed to complete his much-vaunted refinery by the proposed date of 2023. This lays credence to one statement by the CBN governor, Godwin Emefiele when he commented in what was supposed to be a commendation that Dangote’s refinery project was actually one that should have been embarked upon by government as it is too huge for an individual no matter how rich.
The take-off of the much anticipated $15 billion refinery is expected to help Nigeria save about 41% of its foreign exchange that is being expended on the importation of refined petroleum products.
Emefiele had said: ”Based on agreement and discussions with the Nigerian National Petroleum Corporation and the oil companies, the Dangote Refinery can buy its crude in naira, refine it, and produce it for Nigerians’ use in naira.
“That is the element where foreign exchange is saved for the country becomes very clear. We are also very optimistic that by refining this product here in Nigeria, all those costs associated with either demurrage from import, costs associated with the freight will be totally eliminated.”
“This will make the price of our petroleum products cheaper in naira. If we are lucky that what the refinery produces is more than we need locally you will see Nigerian businessmen buying small vessels to take them to our West African neighbours to sell to them in naira,” the CBN governor had enthused.
Undoubtedly, these were and still are the fantastic promises of the Dangote refinery which the latest report threatens to dampen.
The report published by Fitch, the world’s biggest global rating agency, alleges that the Nigerian billionaire required an additional $1.1 billion (900 billion) to complete the refinery but has invested all his cash and even borrowed to finance the refinery project.
According to the report, “the Dangote refinery project is still on track to be completed by 2023 and requires an additional USD1.1 billion capex in 2022 to be partly funded by the new bond.”
The report added that Dangote Industries Limited (DIL) is planning to establish a local bond programme amounting to USD750 million to partially finance the completion of its refinery and petrochemical plant. DIL’s subsidiaries – Dangote Oil Refining Company Limited (DORC) and Dangote Fertiliser Limited (DFL) – will be co-obligors under the proposed programme.
Fitch said: “Funding for the completion of the refinery project is expected to be partly covered by proceeds of the new bond. If the transaction is not successful, or should completion costs overrun or market conditions in the cement or urea sector deteriorate materially, we do not believe that DIL’s existing creditors would have further lending capacity. We believe that further asset sales, either in cement or stakes in the projects, would be the more likely options to address funding of the refinery.”
It also noted that Dangote Industries suffers from weak corporate governance, adding that it’s a risk for Dangote, who already has a lot of power over operations, to remain the largest shareholder and CEO of the project.
In the report, Fitch said, “DIL has a complex group structure with a large amount of related-party transactions, with a negative effect on operational and financial transparency. We also view the dominance of Aliko Dangote, as CEO and the main shareholder, in operations as an additional risk.”
Fitch concluded its report by expressing hope that the refinery project was expected to sustain strong margins and yield solid cash generation, diversification to DIL’s profile and allowing rapid deleveraging.
“Once operational, we expect this project to contribute around USD1 billion to EBITDA annually when ramped up from 2024,” it concluded.