Dangote looks to borrow money to expand its refinery.

Africa’s wealthiest individual, Nigerian tycoon Aliko Dangote, is in negotiations to secure billions of dollars in additional funding to expand operations at his $20 billion oil refinery located near Lagos. The refinery, one of the continent’s most ambitious infrastructure projects, aims to transform Nigeria’s energy sector and reduce the nation’s dependence on imported petroleum products.

According to Financial Times reports, Dangote is in discussions with a mix of commercial lenders, development banks, oil traders, and other key industry players to raise the funds necessary for ensuring a consistent crude oil supply to the refinery, which has the capacity to process 650,000 barrels per day (bpd) once fully operational.

Dangote Industries has already sourced crude from international suppliers in the U.S. and Brazil, and is exploring partnerships with African countries like Libya and Angola to meet the refinery’s growing demand. The refinery began production earlier this year and is already processing 420,000 bpd, with Dangote aiming to reach full capacity by mid-2025, despite setbacks in meeting earlier targets.

In September, the refinery began producing jet fuel and naphtha, followed by petrol in October, fuelling hopes that Nigeria could finally end its long-standing reliance on fuel imports. However, Dangote’s efforts to secure a stable flow of crude have been complicated by challenges with the Nigerian National Petroleum Company (NNPC), the state-owned oil corporation that was supposed to supply a significant portion of the crude required.

In recent discussions, Dangote sought guarantees from President Bola Tinubu and NNPC CEO Mele Kyari for a steady supply of 365,000 bpd of crude, which would be paid for in Nigeria’s depreciating currency, the naira. In December, the Africa Finance Corporation (AFC), a pan-African development bank that is already invested in the refinery, led a financing round to help get the project off the ground.

As production increases, Dangote now faces the challenge of securing additional funds to cover both crude procurement and the refinery’s operating expenses, which could amount to about $2 billion every 90 days for a minimum supply of 300,000 bpd. Several financiers have expressed concerns over the naira’s significant devaluation, which has made financing and crude imports more expensive. Some analysts are skeptical that the refinery will achieve profitability under these financial pressures.

One source told the Financial Times, “The refinery was built over budget, and the naira, which will be a major source of revenue, has devalued massively.” Additionally, NNPC’s stake in the refinery has been reduced to 7.2% after it failed to meet the payment schedule for a deal valued at $2.7 billion. NNPC made an initial payment of $1 billion in 2021 but has not been able to cover the remaining $1.76 billion, which was supposed to be paid in crude supplies.

This situation has raised doubts about NNPC’s ability to meet Dangote’s needs, especially given the significant crude quantities it has already committed to in forward contracts. Despite these challenges, Dangote remains determined to use the refinery to meet Nigeria’s entire daily demand for petrol, which he estimates at 30 to 35 million liters. Once fully operational, the refinery could dramatically reduce Nigeria’s need for imported fuel, which costs the government billions annually.

A report by Knightsbridge Strategic Group (KSG), a geopolitical intelligence firm, suggests that Dangote’s refinery could eventually help lower fuel costs in Nigeria and increase competition in the European fuel market. Once the refinery reaches full capacity, Nigeria could become a major exporter of refined oil products, providing an alternative to European nations seeking to reduce their reliance on Russian oil.

However, KSG cautions that persistent crude shortages and the weak naira could delay the refinery’s progress towards full capacity. The report warns that if NNPC continues to delay its crude supply, the refinery will face financial strain due to its massive debt commitments. It projects that the refinery may not reach full capacity until at least mid-2025, which would prolong Nigeria’s dependence on expensive foreign crude imports, further straining the nation’s economy.

KSG also highlights the political implications of Nigeria’s refinery challenges. The government’s inability to resolve fuel supply issues could fuel rising inflation, higher fuel prices, and social unrest. The removal of fuel subsidies earlier this year has already led to protests, and ongoing issues with Dangote’s refinery could intensify public dissatisfaction.

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