|Tuesday, June 8, 2021|
eaders should keep a copy of this article in a safe place for future reference. Two - four years down the line, check the hypothesis and the prognosis against developments in the downstream oil sector. Now let’s begin:
The first and foremost point is that the purported proposed purchase of 20% equity by NNPC in Dangote Refinery and others(hereinafter referred to as Dangote)is a farce and a fraud on the Nigerian people. They are simply playing on the vulnerability and ignorance of the populace. It is a ploy simply borrowed from the military manual or from their tested and perfected manual. The manual hinges on national security and strategy. There is nothing strategic nor protective of security in the manual. It is a bogey to frighten children with. The military deployed the manual and acquired equity in the Daily Times of Nigeria and 100% equity in the New Nigerian Newspaper. The result of the state requisition was to muzzle the once vibrant newspapers and ultimate failure. Where is Daily Times the once most independent and vociferous voice in Africa? Emasculated and relegated to the doldrums. There is no point to talk about New Nigerian Newspaper. The day of its requisition was the beginning of its death. About 28 May 2007 Obasanjo’s government sold the moribund and cash gulping refineries to Dangote. The same NNPC went underground to lobby and cajole Yaradua’s government to revocation the sale and return the $800m purchase price already paid to the treasury to Dangote. They NNPC pleaded the same manual: national security and strategy to get government to revocate the sale. They promised to do better than Dangote in the business of refinery. They ridiculed and derided Dangote to go and set up his own refinery if he believes he can do better. Fast forward 14 years after, the same NNPC having destroyed their refineries, short changed Nigerians to the tune of trillions of Naira without providing Nigerians with any fuel ?? Trillions of Naira that could have been better used or deployed to provide well equipped schools, maternity homes, health facilities and other infrastructures. The same NNPC have now crawled back to Dangote proposing to buy a share of Dangote. All of a sudden NNPC have now conceded that Dangote is better than them at the business of refinery. So which do we believe? NNPC as sole guarantors of national security and strategy or NNPC as junior partners to Dangote in securing national interests of Nigeria? The answer, is that there is nothing of national and strategic importance in the proposal. It is a sham and farce. It is calculated to siphon funds into private pockets and fetter liberalisation and deregulation of the downstream sector, kill incentives for potential investors who may wish to invest in the Nigerian downstream oil sector so as to continue to give vent to gross corruption that is the regulated regime and correspondingly the petroleum subsidy. Here is why:
NNPC have no intention whatsoever to give up the regulated regime of the downstream sector and correspondingly the subsidy regime:
NNPC is alarmed at the imminent ‘take off’ of Dangote and the implications for the regulated regime of the downstream sector. NNPC do realise that a successful Dangote is incompatible with a regulated regime and (foreign exchange earnings) emphasis that of the writer. It is not that NNPC just realised the incompatibility of Dangote and regulated regime and subsidy. They have been making “friendly visits” to Dangote facility. These visits were preparatory building blocks to sabotage Dangote. They have now come in the name of Nigeria, in the name of national and strategic interest to creep in and destroy. The same NNPC that have been given 40 years to perform but could not, all of a sudden are claiming to be the protectors of Nigeria and its interests against private interests! To drive this home let’s work from the end to the beginning.
The end agenda:
Destroy Dangote, render it moribund as they have done to Kaduna, Warri, Port Harcourt 1 and Port Harcourt. Why? So, as to continue with massive importation ( assisted with crude oil swap - a nebulous and voodoo economics) and the necessitation therefore of petroleum subsidy currently at N120billion a month! It is fraud. This is responsible for poverty in the land which in turn has given rise to all sorts of social upheavals. The surprise so far, is the docility and timidity of Niger Delta state governments to take legal action against the unilateral actions of NNPC. The funds being used by NNPC covertly to fund subsidy is not appropriated by parliament. It is illegal and a fraud on the 13% due to Niger Delta on those funds. People, do not conflate federal government’s funds with federation funds. Unless and until the revenue sharing formula applies to the federation funds its application by an agency of federal government is illegal and an affront to Niger Delta which ought to pursue sanctions at court. It is a dereliction of duty where Niger Delta governments remain aloof to the NNPC reckless plundering of federation resources.
Niger Delta must move against the present evil proposal to acquire 20% stake in Dangote. Alternatively, on the assumption that this will be paid for with crude oil allocation, then Niger Delta must have a 13% of the 20% stake. Where the value of the 20% is say $5billion it means Niger Delta should have a share of $0.65billion of equity in Dangote. NNPC has not got the mandate to use Niger Delta’s resources to acquire shares in Dangote without the consent of the people of Niger Delta through their representatives in the respective state houses of assemblies. Niger Delta governments must be prepared to go to court to seek redress where they are denied equity to their proportion of the 20% stake(that should be 2.6% stake)
The implication of selling crude in Naira to Dangote:
No doubt this represents some difficulties both for NNPC and for Nigerians in particular. The first point is to argue that acquisition of shares in Dangote is not a solution. The main difficulty is earning foreign exchange. Crude oil sale in international markets constitutes about 95% of foreign exchange earnings. It is a Nigerian problem and not Dangote’s. If Nigeria sells crude in Naira to Dangote how does it make up for the shortfall in foreign exchange earnings? But without the sale in Naira then it will undermine the capacity for Dangote to sell refined petroleum products without subsidy. To return to subsidy, notwithstanding crude is being refined in Nigeria is out of the question. So, what is the solution to the dilemma?
a)Dangote may resort to sale of refined products in international markets to make up for payments for crude in dollars and pocket the dollars(pay into its own dollar accounts with banks) As seen above, Nigeria will lose foreign exchange. This prospect is not very feasible
b) buy crude in Naira, sell in international markets and return the equivalent dollars to the central bank. This will short change Nigerians. Pump price will remain expensive,
c) buy crude in Naira, sell in Naira to Nigerians. Then no foreign exchange both for use at official level and Dangote’s. Dangote itself requires forex to meet its international obligations.
The solution - get out of the cartel (OPEC) Lift restriction on production to raise more forex. Perhaps this will trigger a reaction such as “we were beginning to take this writer seriously. His proposal has gone nuclear” Answer, think out of the box. Carbon neutral is the in thing. It means in a maximum of 50 years the burning of fossil fuel will be a thing of the past and correspondingly the crude oil will become ordinary dirty water underground. So, we might as well use it up now before it becomes useless. It will surely become useless. So if we increase our production to 5 million barrels per day, then we can supply Dangote 3 million barrels a day in Naira for local refining. This has a double advantage: 3 million barrels of crude will produce 159 million liters of fuel. This will be enough to supply to the local market yet sell abroad for foreign earnings on the one part. On the second part the balance 2 million crude will go for sale in international markets to earn foreign exchange. Arguably, OPEC will retaliate by upping their production ceiling which in turn will lead to fall in price of crude. This will not harm Nigeria anymore because the primary source of revenue is no longer sale of crude alone. Nigeria is then net exporter of refined petroleum products. This proposal envisages Nigeria becoming destination market for international aviation fuel. Come on you Nigeria! Take the bull by its horns. Do not short change yourself
State control versus free market:
State control is the flip side of regional government’s interest of the same coin. The government lacks capacity given the body language of Buhari, his actions of recruiting preponderance of his own clan’s men into government in complete contempt of the clear provisions of the 1999 constitution. A constitution that Buhari holds inviolable on one hand when it suits him and when it does not suit him treats with contempt regarding the provision of federal character. Buhari loads up his government with only his clan’s men and women with impunity. Such regional based government cannot result in a balanced economic well being. In response to the preponderance of Buhari’s clan’s men in government, Obasanjo raised the alarm and he was called all sorts of names. What is even more damaging is that such an ethnic based government lacks the capacity to run a robust state controlled economy because it fails to tap into the diversity of Nigeria with multi-disciplinary skills and knowledge. What is even worse is that the region making the bulk of government is educationally disadvantaged. At least by their own admission. Yet, occupy the most important government jobs, one of such is NNPC. What with Attorney General who has a primitive conception of human rights. He betrayed himself by the ethnicised argument he offered in opposition to the ban of open grazing by the southern governors. Unless, he is serving a regional government and not that of the federation he could not afford to be that ethnic biased. Unless he was serving a regional government he could not escape rebuke by Buhari. Now Mr Attorney General ‘Freedom of Movement’ as enshrined in the constitution is limited by the rights of others to their lives and properties. In other words with the rights come duties. In exercising their freedom of movement, the herders have a duty not to trespass the properties of their hosts without permission. Hence the herders have a duty not to invade farm lands, destroy farm lands, enter homes, seize the women and girls and rape them. Once those infringements are exercised, any responsible government has a duty to those whose rights have been violated to protect them in line with their oath of office. Hence the state governments have a duty to ban open grazing in defence and protection of those being molested by the herders who are in breach of their duties that come with the exercise of their rights.Conversely if the “spare part dealers” travel to your Kano in exercise of their freedom of movement they are circumscribed by their duty not to trespass the property of their hosts and to obey the local laws of Kano. So they have to take commercial and residential leases of their shops and flats, obey the traffic laws eg ‘one way drive’ and could not enter forbidden houses without severe punishment that may be enforced by Kano State government. They could not appear in court and plead right of freedom of movement enshrined in the constitution, in defence. For too long, folks in the south allowed too much space to the north when it started using the military to assault its way of life and the agreed principles under the 1963 Constitution. The south has no problem with northerners neither the Fulanis. The problem is the conduct of Buhari who has been openly discriminatory in running his office. Shagari was a Fulani yet he ran the most or broadest government in Nigeria. Shagari as president a northerner, Ekueme as Vice President a south eastern, speaker a south eastern, president of the Senate a south southerner, IG a middle belter, Attorney General a south western, chairman of the ruling party a south western just to mention a few. It was the same Buhari as a military head of state that brought such a beautiful arrangement to an an end. Richard Akinjide a south western was the lead lawyer who argued successfully for the installation of Shagari as president against Awolowo a fellow south western. That was the Nigeria we knew and was proud of. Not the clannishness ( to borrow Obasanjo) that we are now witnessing with devastating consequences for the oneness and well being of Nigeria. 29 May 2023 at 10am can’t come soon enough. Enough of the hubris!
Due diligence before purchase is of essence, assuming without conceding that the acquisition is to go ahead. Share purchase is not asset purchase. In share purchase the risk of undisclosed liabilities is high. Supposing without conceding that there was any propriety of going into the share purchase with Dangote, then the advice to Niger Delta and Nigeria in particular is to carry out a proper due diligence of assets and liabilities of Dangote. The reason being that share purchase is not same as asset purchase. With asset purchase the purchaser takes the asset free of risk without further liabilities or at the very worst may only lose the asset. But not so with share purchase. With share purchase Niger Delta and Nigeria represented by NNPC will become joint and severally liable for the assets and liabilities of Dangote. Dangote may be heavily indebted in sourcing funds for the acquisition of the refinery. Besides it may have other hidden liabilities not immediately obvious. So, if the writer, we’re the lawyer acting for Niger Delta, then will insist on full due diligence, full disclosure and secure warranties, indemnities and representations from Dangote to protect his client.
No purchase before refinery comes on stream:
Therefore, it is advisable to build into the purchase contract: practical completion date and legal completion date. It is the contention that to put funds into Dangote before it is up and running (supplying petroleum products) will be grossly irresponsible. How do we know that state resources are not being deployed into a junk. It may never take off. The start date has been shifted several times already. 2018, 2019, 2021 have been proposed without any results. Therefore, for any share purchase agreement to come into force there ought to be a practical completion date preceding it. The purchase agreement must incorporate completion date(the day set aside for the refining to be up and running) and a legal completion date(the day the legal acquisition of 20% equity takes effect) to be triggered by a written notice not earlier than 12 weeks of practical completion served by Dangote on NNPC of its readiness of legal completion.
No bailing out of Dangote from bad bargain with Niger Delta’s resources:
There is the possibility that Dangote's books are ringing alarm bells. There is the further possibility hinging on engineering reasons why the project may not now be feasible notwithstanding the resources and time invested so far. For all we know Dangote may be looking for a bailout. That is not to say that this is necessarily the case neither is it suggested that Dangote approached NNPC for a bailout. The point at issue is that all options must be on table. The state resources must not be used to bailout Dangote from bad bargain. Dangote must rise or fall with its own choices in line with best practices in a market economy.
Dangote may not take off:
NNPC is moving to ensure this outcome, so as to ensure state monopoly for NNPC. Where there is no distress as postulated above it may well be that the most likely outcome is to stifle Dangote from taking off. NNPC officials and some unscrupulous state officials who have been feeding fat on subsidy are alarmed that a successful Dangote is about to expose the hollowness of subsidy. They know more than the vulnerable public that liberalisation and deregulation of the downstream sector does not necessarily mean higher pump price. The opposite may even be the case. Prices may become lower where competitors are able to tap into economies of scale and transfer the benefits to the ultimate consumers. The projection is that NNPC may actually be after stair casing. The initial 20% stake is just the first step. The hidden agenda is to obtain 100% stake. Once in, NNPC may announce that the business is not doing well or will not now do well. Therefore, having invested 20% equity the only solution to secure its investment is to acquire 100% equity. It may well be that such announcement will come from Dangote. It may well argue that in the interests of its global business it has become necessary to sell 100% equity to NNPC. People it is voodoo economics! NNPC has got away with voodoo economics a few times. There is nothing they will not try. They have no respect for Nigerians. They cannot deliver a liter of Petrol ?? Yet, have the temerity to lose 1.4 trillion Naira running refineries. No body lost his job for wrongful trading, no one is being tried for criminality. Talking of no one is being sacked for wrongful trading leads us to the role of labour who unwittingly protects NNPC. Labour on its part is alarmed that their capacity to hold Nigeria by the jugular is being threatened by a successful Dangote. They know this better than anybody else. Once liberalisation and deregulation is up and running the leverage to hold Nigerians to ransom will be taken out of their hands. They do not wish the fate of NITEL workers to befall them. NITEL workers, till today, notwithstanding the economic and industrial success of the telecoms sector cannot forgive Obasanjo for sweeping the rug under their feet. In short whereas NUPENG cannot go on strike if Dangote is 100% privately run, but with NNPC presence, they can they go on strike. This is the agenda. To give NUPENG a say, so that NUPENG can be given opportunity to support a regulated regime and by extension the subsidy regime.
Finally as advised in the beginning print out this article, keep in a safe place for future reference, so as to check-the boxes in the next two to four years as events unfold.
God bless Nigeria!