NNPC 20% acquisition in Dangote will be transformational–Rewane

Chief Executive Officer of Financial Dirivative Company(FDC) Mr Bismarck Rewane, and its Think Tank have applauded the acquisition of 20 percent of Dangote Refinery by the Nigerian National Petroleum Corporation(NNPC),saying it has the capacity of transforming the nation’s oil sector.

Speaking at FDC’s Breakfast Monthly meeting in Lagos, Rewane hinted that only a discerning analyst would have raised his eyebrow when the NNPC announced its intention to pay its first dividend in September 2021.

Rewane would ask if this was a precursor for listing the oil behemoth on the Nigerian stock market just like Aramco did in Saudi Arabia. Aramco IPO has been the world’s largest to date.

According to him, to “list any company on the exchange, the company must have paid dividends in the prior three years. This announcement was swiftly followed by the FEC approval of NNPC’s acquisition of a 20% stake in the Dangote refinery and petrochemical project.

“These decisions are not only huge but are potentially transformational for the petroleum sector in Nigeria, which had been hitherto in a moribund state. The governance requirements of listed companies is likely to force the NNPC to become more transparent and accountable in its financial management”.

The financial expert noted that the Nigerian Bureau Statistics (NBS) will release the quarter two (Q2) Gross Domestic Product(GDP) data on August 26,saying that  Consensus estimates are for a positive growth number ranging anywhere from 2.6% -3.2%, primarily due to base year effects. The growth numbers will be closely watched by the markets and analysts.

The Nigerian economy has been struggling as it seeks to overcome structural defects whilst simultaneously embarking on badly needed economic reform.

The 5-year average GDP growth rate is 0.3% because of the impact of two recessions and a slow recovery from the pandemic-torn environment.

He was optimistic that the Naira will continue to appreciate ,going forward, adding that the ” bright spot in the chequered picture is that oil prices are back up again at an average of $74pb in July and (OPEC) has increased Nigeria’s quota to 1.8mbpd. This could lift the quarterly dollar oil revenue towards $14bn per quarter from an average of $11bn in 2020″.

Also he posited that “Nigeria’s terms of trade, which measures the change in prices of its exports relative to the prices of its imports has improved from 23.2 in 2020 to 30 in 2021. This means that with the balance of trade now becoming positive ($1.2bn) and an exchange rate determining mechanism aimed at attaining global competitiveness, there is a chance that Nigeria might be moving gradually and closer towards fair value of the naira on a more sustainable basis”.

He noted that the naira has gained 3.24% since it fell to N525/$ last week, stating that most pessimists were of the view that the naira was likely to plunge to N700/$ after the Bureaux de changes (BDCs) were stopped from buying dollars from the Central Bank of Nigeria (CBN).”

We continue to hold the view that the naira will continue to appreciate towards fair value (N470-N490/$) in the parallel market as long as the CBN increases forex supply.

However, corporates remain nervous as to policy direction and uncertainty remains.

He believes that the facts of the harvest season is at hand and will ensure that inflation continues to trend down, predicting that it may moderate around 17.5% by September.

Meanwhile, Nigeria has given its state oil firm the green light to acquire a 20% stake in Dangote’s oil refinery for $2.76 billion, Minister of State for Oil, Timipre Sylva, has confirmed. According to a Reuter report, the 650,000-barrel-per-day oil refinery, owned by Africa’s richest man Aliko Dangote is under construction in Lagos, the biggest city in the most fuel-consuming nation in the region. The refinery is scheduled for commissioning, January. National Business recalls reporting last month that NNPC had obtained Presidential go-ahead to invest in Dangote Refinery and two other private owned refineries.

Sylva said the government approved the Nigerian National Petroleum Corp’s (NNPC) acquisition at a Cabinet meeting, he told reporters in Abuja, adding that the country also awarded contracts for the modernisation of two stateowned refineries.

The NNPC, the report revealed had said its move to work with private companies was in line with safeguarding the country’s energy security and would not undercut plans to rehabilitate its own refineries.

The NNPC, Reuter disclosed, said in June it had signed term sheets with Dangote Group for the stake in its $19 billion oil refinery and is in talks with banks to borrow to buy the stake but would require government approval of the plan.

The Dangote Group has previously said NNPC and three other firms had approached it regarding a stake purchase, to be able to secure crude supply agreements. Nigeria, Africa’s biggest crude oil exporter, imports virtually all its fuel due to moribund state refineries, which has prompted NNPC’s interest in Dangote’s oil refinery.

In March, Nigeria approved $1.5 billion of spending on the modernisation of the Port Harcourt oil refinery and awarded a contract to Italy’s Tecnimont (MTCM.MI).

Sylva said 15% of the contract sum has been paid and work has started in Port Harcourt.

He added that the Cabinet approved contract awards for the upgrade of the Warri and Kaduna refineries to Saipem SpA (SPMI.MI) and Saipem Contracting Ltd for $1.484 billion.