“…making a new refinery run at a profit would work even if the government failed to scrap the subsidised fuel price that has deterred others from investing… We’ve done our numbers and the numbers are okay.”
Pick up your calculator, work out the difference between the #67 and the 100 and something naira we pay today – per litre. How has the supposedly huge windfall from all these been spent by the government? You see, it’s more of a social challenge than an economic misunderstanding on the part of the rejecting mass, because the government has a lot to prove to earn some trust credit.
Dangote also putting up over 30% equity means he’s minimised the risk of raising finance for the project. I’m not sure many of those who got refinery licenses were doing that. They were probably looking for pure debt financing. Truth is, setting up an economically viable refinery in a country like Nigeria is not for wannabes or jokers. If it’s going to be done, it has to be massive possibly starting at 150,000 – 200,000 bpd capacity. Not all these jokers who are trying to set up 50,000 bpd refineries and who are still running around for financing. At the end of the day, whoever sets up a refinery in Nigeria will always sell at market rates to the oil marketers.
2] Strong government contact is necessary to keep the trade in motion, a stalemate, probe or disagreement/late payments from government to contractors which is often, would see to massive losses to the refinery. This is the most important asset of Dangote on this project; the capacity to facility efficient business between all parties. In summary his end client is the government, with an artificial buffer/middle man for arms-length leeway.
3] Those who are involved with petroleum products have no fight against him; if the system remain regulated, nothing changes; apart from the sourcing refinery and BULK SELLER. This is in Dangote’s favour.
4] The economic viability, on time completion, long term sustainability still uncertain, it has less than a probability of success of 25% as at this time.
5] Raising entire “pure debt” finance for the project is impossible as it is in a regulated non-market economy for petroleum products. I commend him for taking the high risk of putting his cash. The issue here is not that “others do not want to do the same”. They don’t have the wherewithal.
I am yet to see any human being put in $3.5b on a single project of their own money. This is high risk and probably high payout, and Dangote would deserve whatever he gets out of this, morally and otherwise. But then if you are worth $16billion, you can play with $3b.
6] Selling at market rates to oil marketers whom would claim subsidy reimbursements is as complex as can be if you are within Nigeria operating in the country, it retains all other prevailing issues and the cycles of problematic bottlenecks. It’s obvious there would be issues, all those same factors faced under the regulated industry.
The 99% of investors prefer to deal in an open and free market devoid of issues related to government bureaucracy and its attendant apron strings, political interference etc
6] Dangotes cards may also be privileged information of a post-2015 deregulation. In fact, this is the most likely scenario, whether it is Tinubu, GEJ or David Mark that becomes president. Everyone in the know agrees on the need for deregulation, the issues against are mostly political.
Today Japan Post is the biggest and most profitable postal service, yet its public owned why its US counterpart is dying. One of the most profitable airlines in the world today which has defied all known case studies in the industry, becoming a business case study itself in the last 3 years is Ethiopian and its 100% govt owned and run.
Some years ago a certain man with vision was made Post Master General of Nipost, within 2 years he turned the fortunes around, achieved 48 hours delivery and for the first time in half a century Nipost was self run.
If oil sector is in private hands, if all of them decide to be selling a liter of pms at N1000, who will stop them? In the UK, about 3 years ago, TESCO increased the price of a loaf of bread by ordinary 60 pence, above government stipulated benchmark, they were fined heavily for cheating the citizens. That is a definition of control.
In Nigeria, if the MTN, AIRTEL and co decide to make call rate at 1000 per minute, who will stop them? After building the refinery, who will stop Dangote from selling at N1000 per liter, especially if government refineries are down or have been sold to the likes of Otedola?