July 5, 2016 - 4:30 AM EDT
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Dangote's Odessey Into the Petrochemical Industry

Crusoe Osagie reviews Dangote's $17 billion investment in the petrochemical and allied industries, highlighting the potential benefits to the economy

As at last Thursday, June 30, 2016, Nigeria's total foreign reserve stood at $26.34 billion. Placing this figure side by side with the $17billion investment sum for Dangote's ongoing subsea pipeline, fertilizer, refinery and petrochemical projects, it becomes clear how helpless the public sector can actually be in the bid to directly drive the industrialisation of nations.

Imagine if the Nigerian government were to embark on the development of an integrated crude oil processing facility such as Dangote's, it would have to draw down nearly 60per cent of its total foreign reserve. No responsible government would approve such funding for a single project, no matter how important.

Therefore, for a single operator in the private sector to take on this crucial but colossal investment, which will end the country's age long dependence on other nations for fuel, petrochemicals and fertiliser, and possibly reduce forex demand for importation of consumables by 50per cent, such an operator must be commended and supported.

There are so many indigenous billionaire businessmen dotting Nigeria's landscape. At least three are listed in the Forbes magazine ranking of the world's richest and several others probably richer, but cannot be on the list because of the unclear sources of their wealth.

Therefore, although there are several individuals in Nigeria with the wherewithal to embark on such strategic and gigantic projects, they would not, because apart from funding and know-how, humongous gut is required to pull such projects off. Such investors must have immense belief in the Nigerian state and its future which unfortunately is scarce among many rich and privileged Nigerians.

Apparently, for Dangote, a man already worth more than $20billion, it has gone beyond just making money, it is now more of a mission to prove that Nigeria indeed can achieve its potential, diversify its economy and take its position among the greatest in the world.

Speaking recently with THISDAY, Dangote said he first learnt about the need to diversify the nation's economy in 1979, but stressed that successive governments have not been able to effectively lead the country out of its dependence on revenue from a single product which is crude oil.

Dangote noted that for the past 37 years or so, he has had his eyes fixed on the objective of playing a key role in the process of industrialising the country.

With the massive investment in integrated cement production having reached advanced stages and Nigeria firmly established as one of the biggest cement producing countries in the world, Dangote is now looking towards petroleum refining and processing which holds the potential of dealing with the nation's power problem and rapidly transforming the country's industrial landscape.

Power Generation Potential

Recently, Vice President Yemi Osinbajo said the ongoing sub-sea gas pipeline project by the Dangote Group which will supply three billion cubic feet of gas daily had the potential of solving the problem of electricity shortage which had plagued the nation for decades.

Speaking when he paid a working visit to the Dangote's ongoing $17 billion Gas pipeline, fertiliser, petrochemicals and refineries project at the Lekki Free Trade Zone (LFTZ), he said the investment as a whole was an incredible industrial project being the largest and the most ambitious in Africa and possibly the entire world.

Addressing journalists after a two-hour presentation on the entire project, Osinbajo said the gas pipeline project "is meant to supply three billion standard cubic feet of gas daily to Lagos and its axis. It will largely address power outage. That is huge when compared with our current requirement, it is about two billion standard cubic feet of gas daily.

"If it can be done, it is a major asset for Nigeria. It will boost our gas supply tremendously. For me, that is the most important project that could be done in this country. It will be a major boost for industrial development," Osinbajo said.

He explained that the sub-sea installation, estimated at N500 billion, would go all the way from Bonny in Rivers State through Ogedegbe, Olokola to Lekki and Escravos Lagos pipeline and then West Africa Gas Pipeline.

In terms of security, Osinbajo said the pipeline "is secure. The pipeline is installed under the sea. It is a subsea project. It is fortified and goes into the sea. It is not what anybody can go there and vandalise with the way it is designed. It is designed to prevent vandalisation. It is designed very deep into the sea."

Noting that the project would boost power supply tremendously, he said on completion it would be a major strategic asset for Nigeria.

Commenting on the refinery, he said: "It is meant to refine 650,000 barrels per day. By all projection, it is the largest in the world. It has a petro-chemical plant. It also has fertilizer plant, which is projected to be the largest in the world."

Speaking further, he said: "The refinery will take off in the first quarter of 2019. I think the sub-sea gas pipeline, which is very important project, is meant to take off in 2018. It is an incredible industrial undertaking. It is possibly the largest and the most ambitious on the continent today. It is truly inspiring to see."

In his remarks, Dangote, said the decision to site the projects in Lagos was due to the investment friendly climate in the state.

"Lagos is one state that is very investor friendly and the governor himself has always been asking, what are the issues, and he normally put in place steps to resolve those issues immediately," he said.

Dangote said the Gas Pipeline Project would guarantee uninterrupted power supply in Lagos on completion, which he said would also positively increase the State's Gross Domestic Project (GDP).

Dangote further said the projects would also attract other bigger investors into the Zone.

He also said the projects would benefit the local communities as at least 65 per cent of people in the catchment area would be employed, while over 1,000 would be trained.

"Our target is that in the next five years or so from now, we hope and we believe that half of Nigeria's crude will be refined and exported rather than just exporting crude to go and create jobs elsewhere," Dangote said.

The Lagos State Governor, Mr. Akinwunmi Ambode, while commenting on the investment, said the refinery, petrochemical, gas and fertiliser projects being undertaken by Africa's richest man, Dangote, in Lagos, would significantly boost the economy of the state and Nigeria in general.

According to Ambode, "First, there is a refinery project that is ongoing, second there is a petrochemical project that is also ongoing. There is pipeline transfer project that brings gas from Bonny down to Olokola and down to Lekki and then the fourth one is the fertiliser project all in one location."

He said the projects would also be critical to the economic growth of the Lagos East and West Senatorial Districts, which according to him, will be open to massive investment opportunities on completion.

Job Creation

The projects are expected to create a minimum of 235,000 new jobs, both direct and indirect jobs, as it becomes operational in the first quarter of 2019.

The $12 billion refinery would have a capacity of 650,000 barrels a day, driving a huge market for the refined products because in Africa, only three countries have functioning refineries (Egypt, South Africa and Cote d'Ivoire) with others importing from abroad.

The Dangote refinery will be ready in the first quarter of 2019. Mechanical completion will be end of 2018 but it will start producing in 2019.

When the projects fully take off in 2019, it would help the country save $5 billion currently spent annually on the importation of petroleum products.

The refinery, petrochemicals and fertilizer plants in one spot according to Dangote, is the single largest project in the world. "This site is the biggest site in the world, the refinery is the biggest single refinery in the world, the petrochemicals are 13 times bigger than Eleme Petrochemicals while the fertilizer plant will be 10 times bigger than former National Fertilizer Company. He explained that the project with the $2 billion fertilizer unit was funded through loans, export credit agencies and our own equity.

Dangote explained that the diversification of Nigeria economy was long over-due and that one sector that Nigeria can focus on to rejuvenate the economy is agriculture.

He stated that his investment in fertilizer is one sure way the diversification into agriculture could succeed because according to him, it will amount to little if focus is directed to agriculture and fertilizers would have be imported.

He said: "Agriculture is the way to go, but a critical component of that sector is fertilizers, Nigeria has more arable land than China which now is the biggest economy in the world, we can tap into our vast land and produce what we need and even export the remaining.

"By the time we complete this project, there will be opportunity to take on agriculture and say bye to poverty, because there will be jobs, no sector has more job potential than agriculture"

Dangote said the project was an ambitious one and that when completed it will give Nigeria a new economic direction in the quest for diversification of the economy, as excess products would be imported to give Nigeria the much needed foreign exchange. That is when diversification starts.

Speculations on Forex

Dangote also clarified that his refinery, petrochemical and fertiliser plants did not collect as much foreign exchange from the Central Bank of Nigeria (CBN) as some people have speculated, stressing that his company raised substantial part of the forex being used in the execution of the multi-billion dollar project.

He explained that the company sourced for the $100 million used in acquiring the land and raised another $300 million capital to start the project without any assistance.

"Let me expatiate for you to understand so that you don't get me misquoted. The loan for this project was taken by Dangote Industries, which is the holding company because the refinery is a brand new company and nobody will give you money for brand new company.

Dangote Industries used their balance sheet to borrow the money and there is interest element that we have to be paying because we took the money since 2014. So, the interest since 2014 to date is $173 million. That is the only forex we have received from the CBN to build this plant out of $12 billion we are using to build this plant. If you look at the fertilizer plant, the forex is into two components but they are all below $600 million out of $2 billion. So, we have always been trying our best. For example, we bought the land for $100 million. Legally, we are not supposed to pay the Lagos State Government in dollars. So, we brought in $100 million and changed it and paid them the naira at that time. We also brought $300 million capital to start the work. So, we brought quite a substantial amount of our own money," Dangote explained.

The foremost industrialist cited media reports saying that his company received $161 million in 11 weeks and argued that the amount was even insufficient when compared to the amount of foreign his companies used to run their operations.

"Yes, well, I don't want to dispute the figures but even if we got $161 million in 11 weeks - 11 weeks is roughly three months; but we need about $98 - $100 million every month for the operations of Dangote Flour Mills, Dangote Sugar, Dangote Cement and diesel to fuel our 9,000 trucks. We are a company that minds our own business and we don't complain. When the exchange rate was moved from N197 to N280, we lost $420 million and that is almost N50 billion," he added.

Dangote described himself as a proud Nigerian with no house or even a single block outside Nigeria.

"Yes, I have money but I don't have properties or even a house outside Nigeria. Wherever I go, I stay in a hotel. This means that every amount of money, we make here, we throw it back into the country. That is why we are doing all these," Dangote said.

He recalled that the issue of forex allocation to his company arose after the CBN governor visited the project site and described it as the future of Nigeria and also promised that the apex bank would render whatever assistance he would require.

"Really, the projects we are doing here are to help diversify the economy of Nigeria and they are the largest single project anywhere in the world - be it fertiliser, gas pipeline, petrochemical or refinery. This is the largest single refinery in the world. The petrochemical that we have is 13 times bigger than the Eleme Petrochemical; What we are doing in terms of fertiliser is 10 times of NAFCON. It is the largest fertiliser plant in Africa," he said.

In a presentation, the company stated that Nigeria would save $17.5billion in forex earnings from the project.

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Source: Equities.com News (July 5, 2016 - 4:30 AM EDT)

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