Dangote Refinery Facing Financial Troubles, Needs $3 Billion Working Capital | #Politicsnigeria

Dangote Refinery is currently battling to stay afloat amidst failure to secure Letters of Credit(LC).

Politics Nigeria has gathered that the Refinery owned by Africa’s richest man, Alhaji Aliko Dangote needs at least $3 Billion working capital to secure crude feedstock supply.

It can be recalled that Dangote has been in a running battle with Petroleum Authorities in Nigeria over their refusal to stop issuing fuel importation licenses and the quality of product produced by his refinery.

According to Reuters, BP, Trafigura, and Vitol had discussions with Dangote earlier this year in Lagos and London to negotiate loans amounting to $3 billion.

However, despite the oil traders proposing that the loans be repaid through fuel exports, no agreements have been finalized yet. Dangote has also explored options with state-backed firms for financial support, but no results have achieved.

Refineries typically have considerable working capital demands, which create a substantial drain on liquidity. Moreover, due to the misalignment between crude payment schedules and customer payments for products, intra-month fluctuations in working capital requirements can be significant.

Difficulty acquiring Letters of Credit

A Letter of Credit is a financial agreement between a bank, its customer, and a beneficiary, often issued by the importer’s bank to ensure the beneficiary receives payment once all conditions are fulfilled.

Dangote Refinery is facing challenges due to currency weakness and limited access to U.S. dollars, which have complicated efforts to secure Letters of Credit (LCs) necessary for funding crude oil purchases. Due to these difficulties, the refinery has tried to barter refined products in exchange for crude oil.

However, this approach has been rejected by some suppliers, causing delays in crude deliveries to the refinery due to alleged payment disputes.

For instance, two tankers carrying WTI Midland crude oil reportedly had to wait over a month before offloading at the refinery in May. Chinese supplier PetroChina was said to have refused payment in refined products for its crude cargo, according to S&P Global.

Further complicating the situation, a trader noted that a ‘Domestic Crude Oil Supply Obligation’ does not impose an “absolute requirement” to supply crude to the domestic market if it is not considered commercially viable, contributing to an apparent reluctance to supply the refinery.

NUPRC/Crude Oil Supply

For the portion of feedstock that Dangote Refinery can secure domestically, sources reveal that the Nigerian government is supplying it at a margin of $0.5 per barrel. However, a contentious issue has emerged as Dangote attempts to persuade the regulator to encourage International Oil Companies (IOCs) to supply crude oil to the refinery. The challenge lies in the fact that the IOCs have limited spare capacity due to their Production Sharing Contracts (PSCs) with the Nigerian government.

The Petroleum Industry Act (PIA) operates on a “willing buyer, willing seller” principle, meaning that both parties must agree on the price, and the product must be available as stipulated in Section 109 of the PIA, which governs the National Crude Oil Requirement for refineries.

Despite these challenges, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has managed to facilitate the supply of 29 million barrels of crude oil to the Dangote Petroleum Refinery. The NUPRC, emphasizing its commitment to enforcing Section 109 of the PIA, highlighted that it has ensured that nine refineries are supplied with crude oil, despite the challenges of low crude oil production.

Fitch Downgrade

According to S&P Global Ratings, an oil refining and marketing company is typically considered “strong” if it meets several key criteria: a large refining capacity of at least 500,000 barrels per day (bpd), ownership of at least three refineries to avoid over-reliance on a single asset, a geographically diverse asset base, a complex and value-added product mix, and downstream integration through an established midstream or retail network.

By these standards, Dangote Refinery only meets the scale criterion, as noted by a second oil trader in a conversation with MoneyCentral.

Last week, Fitch Ratings downgraded Dangote Industries Limited (DIL) due to significant liquidity challenges, financial underperformance relative to prior expectations, local currency devaluation, and the lack of secured backup funding to refinance maturing debt associated with the syndicated loan raised for the construction of Dangote Oil Refining Company (DORC).

Fitch reported that the EBITDA contribution from DORC has fallen far short of previous projections, further complicating the refinery’s financial situation. The downgrade has increased the cost of borrowing for Dangote Refinery, which is already struggling with its working capital.

Fitch also projected that the Dangote group’s consolidated EBITDA margin would drop from 33% in 2023 to 9.1% in 2024, primarily due to the low-margin refinery business, which began operations in February 2024. The 650,000 bpd Dangote Refinery will be ramping up production just as global refining margins are declining from historic highs, adding further uncertainty to the $20 billion project.

The refining industry faces shrinking margins due to new capacity additions, alongside the growing popularity of electric vehicles and LNG-fueled heavy trucks, particularly in China, the world’s largest oil importer.


Source : https://politicsnigeria.com/dangote-refinery-financial-troubles-3-billion-working-capital/

kk

This refinery thingy is making Dangote look like an amateur businessman from Upper Iweka but man is bigger than that

Its been a whole month of troubles for him

Dangote miscalculated a lot of things...

He just rushed to build the biggest refinery in Africa because he was striking shady deals with the last government and expected things to go his way.

This whole situation was fueled by his deep greed... All he was seeing was the end of making so much money because he was thinking of how much he was going to exploit and milk the system.

Unfortunately, this present government had other plans.

He was actually expecting to get crude for free from the last government. Reason he spent so much money building such a large scale refinery infrastructure without the importance of finance to actually purchase the crude oil which will be refined.

What is a refinery without crude.

His high level greed brought him here.

Now he is crying like a baby. I feel no pity for him.

I only know some benefits would trickle down to the economy/people if the refinery actually works.

For that alone he should be given the necessary support... Not because he is about loosing the billions he invested.

He is just another shady business man in a situation that went wrong!

What happened to the 450k bpd that's suppose to go towards local public refineries?

They want Dangote Refinery to bleed out, and status quo will remain; Nigerians will continue to suffer the consequences of having an indigenous refinery but importing refined products at the prevailing foreign exchange, not to mention the unending scarcity.

If fighting Dangote makes petroleum products steadily available to Nigerians at very reasonable rates, and ends subsidy payments in the downstream sector with the money channeled to things like education and infrastructure, Nigerians won't really care.

But if all your propaganda does is to maintain the status quo where Nigerians continue to suffer, then your government is very evil.

Greed, corruption, and ethnic politics are about to seriously hurt an indigenous refinery, one of the largest in the world by the way.

If Peter Obi were president, he would've struck a simple but effective deal with Dangote Refinery. Here's the deal:

We supply you (Dangote Refinery) our own share of the crude from our JV deal with IOCs, you refine the crude, we sell the refined products in the local and international market, and we share the revenue in a similar way we share revenue with IOCs

Anything less than an effective deal that solves the problem of forex, availability and subsidy payments, is the result of corruption and greed.

You can't explain your way out of it.

Did they approach you after they failed to get David Hundeyin to trash Dangote?

Nigeria doesn’t need to be selling crude, they can export petrol and other products of refined crude and get more than double the forex they need.

The way Nigeria shares revenue with oil companies for drilling out crude is the same way they could’ve shared revenue with Dangote for refining and selling the refined products abroad while also meeting local consumption

This was the deal from Day 1 but greed, corruption and crude ethnic politics that don’t benefit the people has gotten in the way of business and progressive politics

Nigeria borrows money from the WB and IMF with expected crude sales as collateral. They’ll have more forex and need to borrow less if they sold refined products instead of crude

Greed and corruption is about cripple an indigenous refinery, one of the biggest in the world by the way

brain54:
Dangote miscalculated a lot of things...

He just rushed to build the biggest refinery in Africa because he was striking shady deals with the last government and expected things to go his way.

This whole situation was fueled by his deep greed... All he was seeing was the end of making so much money because he was thinking of how much he was going to exploit the system.

Unfortunately, this government had other plans.

He was actually expecting to get crude for free from the last government. Reason he spent so much money building such a large scale refinery infrastructure without the importance of finance to actually purchase the crude oil which will be refined.

What is a refinery without crude.

His high level greed brought him here!

brain54:
Dangote miscalculated a lot of things...

He just rushed to build the biggest refinery in Africa because he was striking shady deals with the last government and expected things to go his way.

This whole situation was fueled by his deep greed... All he was seeing was the end of making so much money because he was thinking of how much he was going to exploit the system.

Unfortunately, this government had other plans.

He was actually expecting to get crude for free from the last government. Reason he spent so much money building such a large scale refinery infrastructure without the importance of finance to actually purchase the crude oil which will be refined.

What is a refinery without crude.

His high level greed brought him here!

The plan to build predates Buhari's govt.

Seems Reuters and Arise are on the side of Dangote
While Financial Times and Politics Nigeria are on his traducer's side
Anyways, if this refinery fails, it will be a massive blow a and a terribly bad signal for the oil and gas industry in Nigeria
Industry players, regulators and govt better sit up and get things right for the country

CodeTemplar:
The plan to build predates Buhari's govt.

His intention to build a refinery was in 2013...

But actual construction started 2016 when buhari was in power!

COMRADES, it shall not be well with Tinubu, APC, Wike the Judas and all those who contributed their qouta in one way or another through the backyard for Tinubu to emerge victorious in the 2023 election

Mahmood is a Muslim from the North and Dangote too is Muslim from the North, Mahmood Yakubu you can see how the evil works which you've done in 2023 is now hurting your brother and your entire region, by extention Nigeria is also feeling the pain

Dangote should sell some of his shares in Dangote cement and use it as capital. Nigeria banks have given him so much loans that they might be uncomfortable giving new loans.

brain54:


His intention to build a refinery was in 2013...

But actual construction started 2016 when buhari was in power!

Dangote should have started with 200k refinery then gradually progress to another 200k etc

nedu666:


Dangote should have started with 200k refinery then gradually progress to another 200k etc

Exactly the point I raised in a different thread...

He should have started a smaller refinery and gradually increase capacity.

But his greed didn't let him... He was only thinking of all the money to be made!

So, LASG cannot help the biggest investment in its domain? With all the $ Billion IGR, that should be a small thing now!

Also Tinubu, our president cannot help, because of his Malta connection.

These greedy people would rather allow the Europeans to destroy the refinery than save it.

Struggling with $3billion I thought Dangote is the richest man in Africa ?

nedu666:


Dangote should have started with 200k refinery then gradually progress to another 200k etc

Dangote didn't build a refinery so he could make his money in one day. It takes years for some highly valued companies to turn a profit though they're earning billions of dollars in revenue. This is how many businesses in developed countries operate

As long as you have revenue to service your debt, you're good.

Dangote's case is the result of greed, corruption and crude ethnic politics

Thrasher2024:
Struggling with $3billion I thought Dangote is the richest man in Africa ?

That is his evaluation doesn't mean he has that kind of money in cash

He will come out of this challenge stronger

Reality

Dangote will have to sell a significant stake and he will not get a good price at this time


All the noise he has been making is just blackmail

Ignorant Nigerians have been suckered by his propaganda



Simple truth is it will make no difference where he buys crude from whether in Naira or not. This is a matter of simple analysis not sentiments

Some might ask surely that would ease the pressure on the Naira

Just analyse this

1000 barrels of oil are produced by Mobil or Chevron and Dangote requires 500
The 500 are sold to him in Naira

That 500 belongs to to Nigeria and Mobil. 60;40
So when Dagote pays in Naira the CBN would still have to charge the 40% for Mobil so they can repatriate their profit

Also Mobil will claim that they import equipment and other input and would still ask for and get additional dollars so you can safely assume that even if you sell to Dangote in Naira about half of that will be changed to dollars and expatriated
Also there is every chance of Naira fluctuations such that you sell to Dangote at dollar 1500 and when it is time to settle Mobil it is 1600


On the other hand Dangote can import his 500 barrels and the CBN says to him go and get dollars in the parallel market you are on your own.
Dangote will say okay in that case that will reflect in the price. The government says fine we will allow others to import let there be competition

The latter seems like a rational approach

Does it means that a feasibility study was never done before the advent of this over famed Dangote refinery? Why all these crisis bedevilling it?

So ww are about have another refinery that is not working.

Toh

The refinery would soon get back on track. The news of financial troubles is exaggerated

Gajagojo:
Reality

Dangote will have to sell a significant stake and he will not get a good price at this time


All the noise he has been making is just blackmail

Ignorant Nigerians have been suckered by his propaganda



Simple truth is it will make no difference where he buys crude from whether in Naira or not. This is a matter of simple analysis not sentiments

Some might ask surely that would ease the pressure on the Naira

Just analyse this

1000 barrels of oil are produced by Mobil or Chevron and Dangote requires 500
The 500 are sold to him in Naira

That 500 belongs to to Nigeria and Mobil. 60;40
So when Dagote pays in Naira the CBN would still have to charge the 40% for Mobil so they can repatriate their profit

Also Mobil will claim that they import equipment and other input and would still ask for and get additional dollars so you can safely assume that even if you sell to Dangote in Naira about half of that will be changed to dollars and expatriated
Also there is every chance of Naira fluctuations such that you sell to Dangote at dollar 1500 and when it is time to settle Mobil it is 1600


On the other hand Dangote can import his 500 barrels and the CBN says to him go and get dollars in the parallel market you are on your own.
Dangote will say okay in that case that will reflect in the price. The government says fine we will allow others to import let there be competition

The latter seems like a rational approach

The latter seems like more an irrational approach if Dangote has to buy and sell on the open market. It will be more expensive to buy and Nigerians will never be able to afford it, we continue importing @ $600M per month so inflation will continue.
The problem is that most of the NNPCs portion of the JV crude has been amortised and spent upfront for loans, the little left over after NNPCs contractual commitment is usually seen as one for the boys, which what the fight is about.
What would have made sense for the Kyari and his cahoots to cede their jv crude (one for the boys) to dangote in Naira, allow him to refine and supply the local market which would free up scarce forex and if there’s any left over Dangote can export and split the forex earnings with the FG.
Unfortunately it seems the boys will rather die or lose their jobs than for this to happen and trust me the FG is very complicit in this whole arrangement. If not, why is there 0 transparency on how much crude have been amortised, how long into the future will Nigerians continue to suffer due to this and crucially, how much bpd is actually left after JV and crude back commitments have been met. I suspect the FG know that there’ll be a public outcry if the true information is made public.

It would irresponsible of any government to let this kind of project with significant impact on Gdp fail. Let both side come clean. If the refinery needs working capital the federal should value the project and buy shares in it once the refinery becomes profitable they can divest from it

brain54:
Dangote miscalculated a lot of things...

He just rushed to build the biggest refinery in Africa because he was striking shady deals with the last government and expected things to go his way.

This whole situation was fueled by his deep greed... All he was seeing was the end of making so much money because he was thinking of how much he was going to exploit and milk the system.

Unfortunately, this present government had other plans.

He was actually expecting to get crude for free from the last government. Reason he spent so much money building such a large scale refinery infrastructure without the importance of finance to actually purchase the crude oil which will be refined.

What is a refinery without crude.

His high level greed brought him here.

Now he is crying like a baby. I feel no pity for him.

I only know some benefits would trickle down to the economy/people if the refinery actually works.

For that alone he should be given the necessary support... Not because he is about loosing the billions he invested.

He is just another shady business man in a situation that went wrong!

This refinery a project started in 2013 and this guy never had the opportunity to clarify crude supply issues , this is unbelievable.. As critical as crude supply agreement contracts are for a refinery , this dude never had any in place for a 650k barrels per day refining capacity refinery this is outrageous.

givedemwotowoto:
They want Dangote Refinery to bleed out, and status quo will remain; Nigerians will continue to suffer the consequences of having an indigenous refinery but importing refined products at the prevailing foreign exchange, not to mention the unending scarcity.

If fighting Dangote makes petroleum products steadily available to Nigerians at very reasonable rates, and ends subsidy payments in the downstream sector with the money channeled to things like education and infrastructure, Nigerians won't really care.

But if all your propaganda does is to maintain the status quo where Nigerians continue to suffer, then your government is very evil.

Greed, corruption, and ethnic politics are about to seriously hurt an indigenous refinery, one of the largest in the world by the way.

If Peter Obi were president, he would've struck a simple but effective deal with Dangote Refinery. Here's the deal:

We supply you (Dangote Refinery) our own share of the crude from our JV deal with IOCs, you refine the crude, we sell the refined products in the local and international market, and we share the revenue in a similar way we share revenue with IOCs

Anything less than an effective deal that solves the problem of forex, availability and subsidy payments, is the result of corruption and greed.

You can't explain your way out of it.

That refinery started in 2013, what stopped dangote from entering into a crude supply agreement since then? Dangote didn't put against house in order

I think dangote might get to the point he puts the refinery for sale.

MaxW11:


The latter seems like more an irrational approach if Dangote has to buy and sell on the open market. It will be more expensive to buy and Nigerians will never be able to afford it, we continue importing @ $600M per month so inflation will continue.
The problem is that most of the NNPCs portion of the JV crude has been amortised and spent upfront for loans, the little left over after NNPCs contractual commitment is usually seen as one for the boys, which what the fight is about.
What would have made sense for the Kyari and his cahoots to cede their jv crude (one for the boys) to dangote in Naira, allow him to refine and supply the local market which would free up scarce forex and if there’s any left over Dangote can export and split the forex earnings with the FG.
Unfortunately it seems the boys will rather die or lose their jobs than for this to happen and trust me the FG is very complicit in this whole arrangement. If not, why is there 0 transparency on how much crude have been amortised, how long into the future will Nigerians continue to suffer due to this and crucially, how much bpd is actually left after JV and crude back commitments have been met. I suspect the FG know that there’ll be a public outcry if the true information is made public.

Seems ?.?.

It is because of people who are too lazy to do any research that we hear all kinds of bullshit
Nigerian crude is called Bonny light sometimes it commands a premium of $8 compared to WTI which Dangote has been buying

At ful capacity that's $ 8 x 365 x650000 in a year opportunity cost

Even the US where he has been buying. WTI from buysmost of its crude from Canada
In general if you don't understand research and ask questions don't form any opinion about what you don't understand

If you cannot analyse figures this is a waste of time

Absolutely no point

CodeTemplar:
The plan to build predates Buhari's govt.

The refinery project started with Gej in 2013 but the dangote dude should have known a better, every refinery has a crude supply agreement with suppliers why didn't he put effort in this regards, this is as critical or more critical than the different unit in the refinery. He had 11 years but never had a concrete agreement on gas supply in place other than banking on the president to use executive order to make crude supply available to him. Very poor.

LNG train 7 is ongoing but Gas supply agreement is almost been finalized by the company with its potential suppliers for the new train irrespective of government input even though government has 49% stake in the business while government has 7.5% stage in dangote refinery.