The deal would be done either through the Saudi Sovereign
Wealth Fund (SWF) or Saudi Aramco, sources said.
The startup of the much-delayed 650,000bl/d Dangote refinery
is critical to Nigeria’s energy and economic fortunes.
“The Saudis are interested and a team was in Lagos recently,
to meet with the Dangote people and finalise terms. They are just being careful
and doing thorough due diligence as they were burnt by Credit Suisse. We expect
an agreement to be reached and a deal to be announced soon,” people privy to
the deal told MoneyCentral.
Saudi National Bank was the largest shareholder in troubled
bank Credit Suisse, before it was taken over by UBS in a rescue deal in March,
resulting in losses of more than $1 billion for the Saudi banking giant.
The refinery project is a future cash cow for Dangote
Industries Limited (DIL), and once operational, Fitch expects the project to
contribute around $1 billion to EBITDA annually when ramped up from 2024.
The Dangote Group has in the past, done deals with state
controlled entities from the Middle East.
Investment Corp of Dubai (ICD), the state fund which holds
stakes in some of the Emirate’s top firms, bought a $300 million stake in top
African cement producer, Dangote Cement, in 2014.
In 2019 Dangote held a meeting with Saudi Aramco, on
investment opportunities in Africa, and a possible collaboration between
Dangote Refinery and the Saudi Arabia oil ministry.
However, despite some bullish statements from the Nigerian
government, most industry analysts are relatively pessimistic about when the
refinery might begin operations and how long it might take to ramp up to full
capacity.
Sources tell MoneyCentral that an official commissioning
event is still scheduled for the 3rd week of May this year, however the ramp-up
of the crude unit will not happen until some seven months later in December.
“The giant greenfield refinery still has a way to go. It is
expected to come on-stream only after the fourth quarter of 2023 and not reach
full capacity before the end of 2024,” according to information provider
S&P Global.
Construction is very well-advanced, and some flaring has
already taken place, says Mukesh Sahdev, head of downstream research at
consultancy Rystad Energy.
But starting production will be a “struggle”, he continues,
adding that perhaps 150,000–200,000bl/d of capacity could be online by end of
this year, but that full capacity in 2023 is “unlikely”.
Dangote also needs to secure regulatory approvals and to
reach commercial terms with state-owned Nigerian National Petroleum Company
(NNPC), which owns a 20% equity stake in the project.
Sources say the outgoing Buhari administration is likely
keen to expedite the operating licence award but that the commercial agreement
with NNPC “is proving to be a sticking point”.
The cash strapped (NNPC) has yet to pay the sum of $1.76
billion (N746.433 billion) to Dangote Refinery due in part for the 20% stake it
purchased in the refinery, perhaps necessitating the need for Dangote to woo
other investors.
In Dangote Industries Limited Full Year 2021 financial statements
seen by MoneyCentral the firm reported under other receivables: “the sum of
$1.760 Billion (N746.433 billion) (2020: nil) receivable from NNPC on the
purchase of 20% Dangote Oil Refining Company (DORC) shares in Dangote Petroleum
Refinery and Petrochemical (DPRP) FZE.”
Nigeria’s Nigerian National Petroleum Corporation is
expected to supply 300,000 b/d of crude to the 650,000 b/d Dangote oil
refinery.
This swap deal is intended to displace the current direct
sale, direct purchase mechanism with European refiners and trading companies
and break Nigeria’s costly dependence on imported products.
But negotiations continue over the pricing terms for the
crude-for-products swap, as well as issues of credit, freight and potential
access to storage at the Dangote site, Price reporting agency Argus says.
Dangote will have “an annual refining capacity of 10.4mn t
of gasoline and other petrochemicals,” according to the African Energy Chamber,
citing an assessment from consultancy Hawilti that the project “could finally
start rebalancing Nigeria’s trade deficit”.
The refinery could potentially displace 300,000bl/d of
gasoline imports, mostly from Europe, according to Argus data, which notes the
Dangote company’s plans for gasoline to account for 52% of the facility’s yield
and for a surplus 25,000bl/d to be available for export.
Argus also cites the company’s stated intention to cover
Nigeria’s 50,000bl/d of domestic diesel demand and to export an additional
100,000bl/d in surplus diesel production, as well as to export surplus jet fuel
and kerosene volumes of 45,000bl/d and 10,000bl/d respectively.
The Saudis may also view the Dangote Refinery as a means to
alleviate gasoline market tightness, with supplies seen as constrained well
into 2024.
Analysts say that the Middle East does not have that much
spare export capacity, although the planned startups of the Al-Zour and Karbala
refineries will change that to a degree.
Additionally, domestic seasonality is forecast to put a lid
on potential gasoline flows from Indian refiners this summer.
Saudi Arabia may also be looking for other refining
investment opportunities after Reliance Industries Ltd, of India. scrapped a
plan to sell a stake in its oil-to-chemicals (O2C) unit to Saudi Aramco in late
2021.
Aramco, the world’s top oil exporter, signed a non-binding
agreement to buy a 20% stake in Reliance’s O2C business for $15 billion in
2019.
Talks broke down over how much Reliance’s oil-to-chemicals
(O2C) business should be valued as the world seeks to move away from fossil
fuels and reduce emissions.
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