The Dangote Petroleum Refinery has assured prospective investors that a drop in crude oil prices after the end of the ongoing US-Iran war will not directly affect its profitability.
The Vice President of Dangote Industries Limited, Devakumar Edwin, gave the assurance on Friday amid concerns that a fall in crude prices could weaken the returns on investments in the refinery’s ongoing initial public offering.
Edwin spoke during a media tour and briefing at the refinery, where he explained that the company’s profitability was driven by refining margins rather than the absolute price of crude oil.
“The crude price will not directly have an impact on profitability. Because, let us say, you are a trader. You are importing stationery and selling. You want to have a 20 per cent profit margin. Whatever your import price is, you will add the 20 per cent and keep your profit margin.
“So, your import price is not going to affect your profit margin because you are focused on your margins. So, the same way, when the crude price goes up, our product’s price will go up. When the crude price comes down, the product’s price will come down,” he stated.
Edwin was responding to concerns over the possible effect of the end of the US-Iran conflict on crude prices and, consequently, the profitability of the refinery and returns to shareholders.
He, however, said the ongoing geopolitical crisis could temporarily boost the refinery’s profitability, not because of higher crude prices but because of disruptions to the supply of refined petroleum products.
According to him, some refineries were unable to operate at full capacity because they could not obtain enough crude, while refineries in the Middle East were also unable to supply their usual volumes of products.
“But, during the war, there could be a little bit of extra profitability now. It is not because of crude, but because product movement is affected. So, irrespective of the crude price, the product price still goes higher because of a shortage in the market.
“Some of the refineries in the Middle East are not able to operate fully because they are not able to get enough crude. Also, all the products that used to come out from the Middle East are not getting into the market. So, there will be an extra profitability for this period,” Edwin stated.
He said the additional profitability from the supply disruption would eventually decline. “The extra profitability will go down. But when we made the investment of $20bn, we made our own calculation. How much is going to be our profit? How much will our returns be? So, we are on target as far as that is concerned,” he said.
The Dangote executive also assured prospective investors that the company’s president, Aliko Dangote, had declared that dividends from the refinery would be paid in foreign exchange.
Contrary to fears that the current N525 share value could drop after listing, Edwin said there would be value appreciation. “As a company, we believe that there is going to be a very good value appreciation. There will be very good returns in terms of dividends. And my president has even declared that the dividends will be in foreign exchange, in dollars,” Edwin said.
