…Battles Bank Letters Of Credit Problems, Technical Hitches.
The inability of the Dangote Refinery and Petrochemicals Company to raise banks letters of credit may have forced the company to be reselling cargoes of crude oil bought from Nigeria to other countries.
Sources familiar with the matter confirmed this on Friday.
A letter of credit is a mode of payment for the importation of visible goods. As requested by the customer, the bank promises in writing to pay the exporter a certain sum within a certain time frame in return for goods, as long as the customer provides the bank with the proper paperwork.
Pricewaterhouse Coopers Nigeria and Citibank have recently raised concerns about foreign suppliers rejecting letters of credit amid unsettled foreign exchange obligations to domestic lenders.
Three of the sources, according to Reuters, said the re-offer by Dangote Refinery was linked to technical problems at the Refinery among and the issue of letter of credit from banks.
It was learnt that a Dangote executive, when asked about the offers had revealed in the market that the refinery is having operational issues affecting the crude distillation unit.
The refinery is the largest single-train refinery valued at $20bn. Launched in May 2022 by former President Mohammadu Buhari, the refinery started production in January and it is being tipped to be the largest in Africa and Europe when it reaches full capacity.
Cargoes of Nigerian Escravos and Forcados crude were among the grades being offered, as well as the U.S. WTI Midland crude, the sources,according to Reuters said.
The plant has been importing several crude cargoes a month, traders have said.
Traders said such resales by refineries are quite rare but not unknown.
It was learnt that crude prices added to an earlier decline after the news on Friday. For instance, Brent crude fell as much as 2.5 per cent to about $80 a barrel, and had recovered to above $81 by Friday.
Attempts to get comments from the Spokesman of Dangote Refinery, Mr Tony Chiejina was not successful as calls made to his mobile phone were not picked. Similarly, a message sent to him has not been replied as of 9pm on Friday.
The development is coming barely five days after the Minister of State Petroleum Resources [Oil], Senator Heineken Lokpobiri took a hold towards resolving the crisis at Dangote Refinery by convening a meeting with major stakeholders in the oil and gas sector.
The high-level meeting, which was held in Abuja had in attendance the Chief Executive Officer of the Nigerian Upstream Petroleum Regulatory Commission, Eng Gbenga Komolafe; Minister of petroleum Resources [oil], Senator Heineken Lokpobiri; Chairman and CEO of Dangote Group,Mr. Aliko Dangote; Group Chief Executive Officer of the Nigerian National Petroleum Corporation Limited, Mr. Mele Kyari and Authority Chief Executive of the Nigerian Midstream and Downstream Petroleum Regulatory Authority, Farouk Ahmed.
The meeting focused on how to address and resolve the ongoing issues surrounding the Dangote Refinery.
A statement from the Special Adviser Media and Communication to Min’ster of State for Petroleum Resources (Oil), Nneamaka Okafor, said the stakeholders expressed their gratitude to the Minister for his exemplary leadership and timely intervention in facilitating this crucial dialogue.
The meeting, according to the statement made available to NewsNGR, focused on finding a sustainable and lasting solution to the current impasse affecting the Dangote Refinery, with all parties demonstrating a commitment to collaborative and proactive problem-solving.
The minister emphasized the importance of cooperation and synergy among all stakeholders to ensure the success and optimal performance of the oil and gas sector, which is pivotal for Nigeria’s economic growth and energy security.
“The meeting marks a significant step towards resolving the challenges and underscores the Minister’s dedication to fostering a conducive environment for Nigeria’s oil and gas sector,” It added.
Before that meeting, the NMDPRA had accused Dangote Refinery and Petrochemicals Company of not having any license to operate in the country.
The Authority Chief Executive, Mr. Farouk Ahmed had said the allegations raised by Dangote Refinery that its operations are being scuttled owing to lack of supply of crude oil by International Oil Companies were untrue.
Specifically, he said contrary to the narrative being pushed by the Chief Executive of the Refinery, Alh Aliko Dangote that the company is set for operation, it is indeed just about 45 per cent completed.
A company’s operating license is an official document issued by the responsible governmental authority, usually the municipal government or another regulatory agency, that allows the company to operate legally in a specific location and under certain conditions.
With the revelation by the NMDPRA that Dangote Refinery has not been issued operational license, it therefore means the Refinery is currently being operated illegally in Nigeria.
The Vice President of Oil and Gas at Dangote Industries Limited, Devakumar Edwin had accused International Oil Companies of refusing to sell crude oil to their refinery, adding that the company buys crude from IOCs at $6 above the market price.
Edwin had said, “It seems that the IOCs’ objective is to ensure that our petroleum refinery fails. It is either they are deliberately asking for a ridiculous/humongous premium or they simply state that crude is not available.”
His assertions differ from Section 109 of the PIA, which provides that the sale of crude oil to refineries must reflect commercial viability.
While the law allows for a “willing buyer and willing seller” arrangement, such transactions must be done in a manner that will not make the seller run at a loss.
Section 109 of the PIA which deals with the National Crude Oil Requirement of Refineries states that the Nigerian Upstream Petroleum Regulatory Commission shall base the allocation of the domestic crude oil supply obligation applicable to the respective lessees on the National Crude Oil Demand requirement supply curve, which is the supply curve of crude oil or condensate that can be supplied on a voluntary basis at the prevailing international market price.
The section reads, “The supply of crude oil shall be commercially negotiated between the lessee and the crude oil refining licensee, having regard to the prevailing international market price for similar grades of crude oil.
“The buyer shall provide payment guarantees as required by the applicable seller. The payment for crude oil purchased pursuant to the obligations shall be in US dollars or Naira, as may be agreed between the seller and the buyer
“A lessee who has not complied with his DCSO were a willing buyer(s) exist shall not be granted an export permit for the export of crude oil from his lease area.”
The NMDPRA Boss had said the government cannot rely heavily on one refinery to feed the nation.
Specifically, he said Dangote Refinery is requesting that the regulators should suspend or stop all importation of petroleum products, especially AGO and Jet Kero, and direct all marketers to the refinery.
This, he added, is not good for the nation in terms of energy security, noting that it would also make Dangote a monopoly.
He said, “Well, just like you rightly asked, there are a lot of concerns about supply of petroleum products nationwide and the claims by some media houses that were trying to scuttle Dangote Refinery that is not so.
“Dangote Refinery is still in the pre-commissioning stage. It has not been licensed yet. We haven’t licensed it yet. They are still in the pre-commissioning stage. I think they are about 45 per cent in completion rather.
“So, we cannot rely heavily on one refinery to feed the nation because the company is requesting that we should suspend or stop all importation of petroleum products, especially AGO and Jet Kero, and direct all marketers to the refinery.
“That is not good for the nation in terms of energy security, and that is not good for our markets in terms of monopoly. So, in terms of quality, currently, the AGO quality in terms of sulfur in the lowest as far as a West African requirement of 50 ppm.
“Dangote Refinery, as well as some major refineries, like Walter Smith’s refinery, other refineries, they produce 650 to 1,200 ppm. So, in terms of quality, their quality is much, much inferior to the imported commodities.”