Nigerian National Petroleum Corporation (NNPC) says the decision to take a loan of $1 billion for equity investment in Dangote Refinery is to guarantee the country’s energy security.
Group Managing Director of the corporation, Mele Kyari, disclosed this in a feature on Arise TV Good Morning Show on Wednesday.
He said the corporation is borrowing $1 billion from a syndicate being coordinated by AFREXIM for that purpose, to be repaid from the yields from the investment.
“…and I’m sure you know that no one is going to give you $1 billion if they do not see a pathway to the recovery of that cash and I’m happy to say that we are not going to use any government money to pay that back, we will pay from the cash flow from the refinery. It means that the bank will see that this refinery will make money and pay dividends that will enable us to pay.”
Kyari explained that the corporation took the decision to expand its portfolio and spread its risks and this included acquiring equity in private-owned companies.
“Three years ago, we decided that we have to expand our portfolio as a company, we need to spread our risks, we cannot depend on the refineries that are owned solely by us, we need to spread the location of these refineries and their ownership in such a way that at any point in time, we can guarantee energy security for our country. We have multiple sources of supply and controls that are very different from what you do alone. We decided that we were going to take equity in many other assets and today, NNPC has equity in ammonia plants, ethanol plants, and fertilizer plants so that we can spread our risks and portfolio, particularly in terms of petroleum refining.
“We believe that taking equity in any refinery that is producing more than 100,000 or even 50,000 barrels per day is the right thing to do. The key reason is that you do not allow entities of this nature in a resource dependent country that relies hugely on revenues and resources from petroleum for its wellbeing, in the private sector only to have such control. No country does it, it is not done anywhere. Those who tried it failed and paid the price for it,” he stated.
He also clarified that the decision to invest in the refinery was not at the behest of its owner, Aliko Dangote and that the company was not keen about the deal but is also aware that it is the right thing to do.
“I can confirm to you that it is not what they want to do but he is also aware that we are a resource dependent country and it is a policy of the government that we take interest in this.”
Even though he was not specific about the percentage of NNPC’s stake in the Dangote Refinery, Kyari explained that to have a seat on the board as the NNPC would, no less than 20% equity was required.
“Overall, what will happen is that NNPC will have a seat on the board of this refinery… 20% equity will give you a seat on the board of any company. We have not closed the deal yet, there are conversations going on to clear issues around governance, to make sure that the time sheet we have signed with them becomes material. So it is not a closed deal but a deal we are very hopeful will happen. There are some steps including getting the approval of the federal executive council for the very obvious reason that we are buying these shares on behalf of the federation and this federation deserves a say in this as a matter of process.
“What they want is for us to take less, but we are very experienced about what refineries do, what returns come from refinery operations. We have seen that this refinery, whatever you invest, you can cash out your investment in a maximum five years. So it is a very valuable investment that we have seen and in terms of scale, you have a very huge refinery that can produce up to 50 million litres of petrol alone and that means that if you do not have a say, an instrument that guarantees you some level of the supply that will come from this refinery, you could run into trouble. Therefore, we insisted that it has to be 20% of the equity in this plan and obviously this is not what they want but this is what we want and we are negotiating because in any case, you cannot force yourself into a private business. The process has been on since December 2020 and it is a very elaborate process that we have to go through,” he explained.
