The Chinese state energy giant PetroChina has been holding a cargo of US crude oil in Nigeria’s biggest new refinery for almost a month because of foreign exchange problems, according to sources and shipping data, Reuters reported on Thursday.
The deadlock underscores difficulties faced by Dangote’s $20bn refinery in its aim to be the biggest refinery on the continent and in Europe when it reaches full capacity next year.
However, shipping data from LSEG and Kpler showed that since March 28, two million barrels of West Texas Intermediate crude oil shipped by PetroChina on board the supertanker Maran Mira have been floating off Nigeria.
One source familiar with the matter said that PetroChina’s sale of oil to Dangote has been delayed because the refinery had yet to issue a letter of credit to its Chinese supplier.
The largest form of commercial finance is a letter of credit. A buyer’s bank sends a letter to the seller’s bank guaranteeing payment to the seller once the goods arrive.
According to the source, PetroChina also did not opt for oil products as payment, one of howDangote had paid for its crude.
Reuters reports that Dangote refinery had difficulties sourcing dollars from the government due to a sharp decline in the naira as global oil prices have increased, according to two sources.
The government did not immediately respond to a request for comment and a Dangote executive did not directly address the issue in comments to Reuters.
In an interview with Reuters, the Executive Director of Dangote Group Edwin Devakumar said that it was the common business practice to seek favourable terms for sales and credit.
“If someone gives me one year credit, I’ll grab it and if not, I’ll negotiate the best possible deal,” he said. “When you go to a shop to buy something … You’ll try the best possible deal and I do the same.
“We are not delayed. If someone’s business is delayed, he is not giving us a good deal,” Devakumar said.
The amount of Nigerian and US crude discharged at Dangote totaled 8.4 million barrels in March and 5.4 million barrels so far in April, Kpler data showed. Another one million barrels of Nigerian crude is expected to arrive on April 27.
Dangote refinery began operations in January and has reached half its capacity this month, but the need to borrow billions of dollars for working capital so that it can buy large volumes of oil is slowing down further growth, trading sources said.
