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    NNPC Plans to Fund Proposed 20% Equity Stake in Dangote Refinery with Debts…

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    In the just concluded week, the Nigerian
    National Petroleum Corporation (NNPC) stated that it will fund its proposed 20% equity stake in Dangote Refinery using borrowings from finiancial institutions.

    The government owned enterprise plans to borrow up to USD3.8 billion
    to achieve its objective of having equity stake in the 650,000 barrels per day refinery, loacted in Lekki Free Zone, Lagos State.

    According to NNPC Group Managing Director, Mallam Mele Kyari, the refinery – estimated to produce 50 million litres of premium motor spirit (PMS) per day – is expected to come onstream in 2022 and
    is tentatively valued at about USD19 billion.

    He mentioned that repayment of the borrowed fund would be majorly from the dividends the Commission receives from its equity investment in the refinery.

    The NNPC boss stated that as part of government’s strategy to secure its energy needs and guarantee the country’s security, it would take similar equities stake in significant businesses in the oil and gas sector, such as fertiliser plants, methanol plants and small condensate refineries in excess of 50,000 barrels per day.

    Meanwhile, the state oil giant still wishes to go ahead to overhaul its refineries despite several failed attempt by previous administrations to get them fixed with huge amounts of money spent.

    Currently, maintenace work has begun on Port Harcourt refinery while the Engineering, Procurement and Construction (EPC) contracts for Warri and Kaduna refineries will be awarded this month of July 2021.

    We believe the future of the national oil company (NOC) can be transformed if run as a privately-owned company – as this will increase its capacity to harness the potentials in the country’s oil and gas sector.

    Governments in other countries that have taken this step were able to open up economic opportunities in their countries.

    The Mexican Government privitsed its national oil company, Petroleos Mexicanos (PEMEX); currently, PEMEX is one of few completely vertically integrated oil companies in the world, involved in everything from exploration to distribution and commercialization of end products.

    It produces upwards of 2.55 million barrels of crude oil and 6.39 cubic feet of natural gas per day. Some of Its products include petrochemicals, natural gas, liquid gas, sulphur, gasoline, kerosene, and diesel.

    Also, Saudi Arabia’s NOC, Saudia Aramco, which was also set up as a legal entity seperated from the government is also creating economic value even as it continue to spread its business operations across the globe.

    In another development, Zenith Bank Plc emerged as the number one bank in Nigeria by Tier-1 capital, for the third consecutive time, in the 2021 Top 1000 World Banks’ Ranking published by The Banker Magazine – a publication of the Financial Times Group of the United Kingdom.

    It was also ranked as the 454th bank globally even as it maintained the only Nigerian bank in the Top 500. Tier-1 capital which speaks to the capital adequacy of a bank, is the core measure of banks’ financial strength.

    Its composition as determined by the Central Bank of Nigeria include: Paid-up share capital; Irredeemable preference shares; Share premium; General Reserves (Retained profit); Small and Medium Enterprises Equity Investment Scheme Reserves (SMEEIS); and Statutory Reserves. The ranking was based on bank’s Tier-1 capital as at FY 2020.

    We feel that NNPC’s proposed use of debt to fund its equity stake in Dangote refinery appears to be economically justified given the lean purse of the federal governement and its growing expenses even at a time insecurity has reduced government capacity to generate more income.

    However, the state oil giant’s move to overhaul the other refineries appears to be another round of waste of resources.

    Instead, we expect NNPC to sell off those refineries to private players and take up minority stake in them.

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