Dangote refinery can’t pose threat to international refiners on delivery—Yusuf
…Explains why no investor can survive building refinery with credits from local banks
The Director General of Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf has argued that the coming on stream of Dangote Refinery in Lekki Free Zone cannot pose any significant market threat for other international refiners supplying products to Nigeria.
Besides, he argued that no investor in refinery can stand the throat cutting interest rates of Nigerian banks now above 22 per cent.
In an interview, he averred that “The global market for refined Petroleum Products is large, estimated at over $2 trillion in 2017, and projected to reach $7 trillion by 2024. The effect of the Dangote Refinery on the global market may not be that material.
According to him, “I do not think it would pose a major threat to foreign refineries. What would happen is that current suppliers to Nigeria will seek new markets and customers. I also do not see any basis for anybody or organisation to seek to sabotage the Dangote Refinery. The market is big enough to accommodate all players”.
Explaining more on borrowing from Nigerian banks to finance deep pocket businesses like refineries, Yusuf recalled that “Refineries are capital intensive and long gestation projects. Unfortunately, there is no long-term fund in the Nigeria economy”.
“Besides, the cost of fund in the economy is too high, well above 22 per cent. It will be suicidal for an investor to fund refineries project with funds from the commercial banks at such outrageous interest rates. Funding options appropriate for such projects should be on concessionary terms, perhaps from bilateral sources, multilateral sources and other concessionary financing.
“Perhaps even more critical challenges for private refineries is the policy environment. The current policy regime in downstream is a major disincentive to investment in the sector. It is an inappropriate policy to fix prices when costs are not static. No investor can thrive in such a policy environment.
“Currently, the pump price of Premium Motor Spirit (PMS) is N145 per litre, while landing cost is about N200/litre. Domestic production cost may also be higher than the fixed price. But the important point to stress is that we cannot attract investors if they cannot reflect their cost in the pricing of their products. That of course cannot be a sustainable business model. It is also difficult to raise funds to support downstream oil and gas projects under the current policy regime.
“Therefore, policy reforms are urgent and imperative to attract investment. What will however make the difference with Dangote Refinery is the fact that it is in export free zone. It has the option of selling to domestic market or exporting. Current importers of petroleum products may buy from the refinery and save cost of freight. This is the business model I believe the Dangote Refinery has adopted.
