US embassy cable - 05LAGOS1877

UNCLAS SECTION 01 OF 02 LAGOS 001877 
 
SIPDIS 
 
DOE FOR DAS JBRODMAN AND CGAYE 
TREASURY FOR ASEVERENS AND SRENANDER 
USDOC FOR 3317/ITA/OA/KBURRESS 
 
STATE PASS USAID FOR GWEYNAND AND SLAWAETZ 
STATE PASS EX-IM FOR JRICHTER AND KVRANICH 
STATE PASS OPIC FOR ZHAN AND JEDWARDS 
STATE PASS TDA FOR NCABOT AND BTERNET 
 
E.O. 12958: N/A 
TAGS: EPET, EINV, NI, ENERG 
SUBJECT: NIGERIA'S OANDO GROUP LISTS ON SA STOCK EXCHANGE 
 
 
-------- 
Summary 
-------- 
 
1.  (U)  Oando Group, an integrated energy firm and 
Nigeria's leading downstream petroleum marketer, was listed 
on the Johannesburg Stock Exchange (JSE) on November 25, the 
first Nigerian firm approved to do so.  Oando announced 4 
percent of its shares would be listed on the JSE; Oando 
forecasts 25-50 percent of its shares will be on the JSE 
within 10 years.  Oando claims to be the largest oil 
marketing company in Africa.  With this listing, Oando hopes 
to eventually raise USD 1 billion to diversify into 
exploration, production, refining, power generation, and for 
additional expansion in other African markets.  With access 
to financing in South Africa, Oando has distinguished itself 
from other indigenous rivals. 
 
--------------------------------------------- -------------- 
Oando First Nigerian Firm on the Johannesburg Stock Exchange 
--------------------------------------------- -------------- 
 
2. (U)  On November 25, Oando Group listed on the "Resources 
- Oil and Gas" section of the Johannesburg Stock Exchange 
(JSE), Africa's largest exchange, becoming the first 
Nigerian firm on the JSE.  Oando will initially list 4 
percent of its shares on the JSE, increasing this to 10 
percent within months.  Executives forecast 25-50 percent of 
Oando's shares will be traded on the JSE within 10 years. 
Oando will maintain its primary listing on the Nigerian 
Stock Exchange, where its market capitalization is Naira 
60.7 billion, about USD 464.7 million.  Oando management 
hopes this new listing will help towards the goal of raising 
USD 1 billion, allowing the firm to diversify into 
exploration, production, refining, power generation, and to 
further expand regional operations. 
 
--------------------------------------------- ------ 
Vertical Integration and Regional Expansion: 
Oando Strategy, Corporate Structure, and Operations 
--------------------------------------------- ------ 
 
3. (U)  Now an indigenous Nigerian firm, Oando Group began 
operations in 1956 as Esso West Africa, a subsidiary of 
Exxon Mobil.  The GON nationalized the company in 1976, re- 
branding it Unipetrol.  In an initial move towards 
privatization, in 1991 the GON sold 60 percent of its shares 
to the public. In 2000, Ocean and Oil, a petroleum trading 
company, acquired 30 percent stake, while a further 10% was 
sold to the public. In 2003, Unipetrol and Agip Nigeria 
merged to form Oando Plc, becoming the largest Nigerian 
petroleum products retailer.  Originally focused on 
downstream petroleum marketing, Oando is now pursuing a 
strategy of vertical integration and regional expansion. 
Oando subsidiaries currently include: 
 
--Oando Marketing, the country's largest downstream 
marketer, with 500-plus retail outlets in Nigeria, and 
operations in Ghana, Togo, Liberia and Benin; 
--Oando Trading, Africa's largest independent oil trading 
company; 
 --Gaslink Limited, a natural gas distribution company, 
delivers compressed natural gas to industrial users in Lagos 
via a 100-kilometer pipeline; 
--Oando Power, an independent power plant development firm; 
--Oando Energy Services, provides oil services to major 
upstream companies; 
--Oando Production and Development Company, an oil 
exploration and production company; 
--Oando Refinery is investigating both purchasing a 
government refinery and greenfield projects. 
 
Retired Major General Magoro, a former Transportation 
Minister, chairs the Oando Board of Directors.  Wale Tinubu, 
a lawyer and nephew of Lagos State Governor Tinubu, is the 
Group Chief Executive Officer. 
 
--------------------------------------------- 
Oando and Shell Bid to Enter Refining Sector 
--------------------------------------------- 
 
4. (U)  The GON is aggressively pursuing increased domestic 
refining capacity, through privatization of poorly 
functioning parastatal refineries, and construction of new 
plants.  In a drive to enter the refining sector, Oando is 
bidding on a 51 percent stake in the Port Harcourt Refining 
Company (PHRC), with Shell Petroleum Development Company 
(SPDC) as technical partner.  The project is worth about USD 
3 billion.  Oando is also exploring construction of a 
360,000 bpd greenfield refinery in Lagos.  If both projects 
move forward, Oando would become a significant player in 
Nigerian refining, with a refining capacity of about 570,000 
barrels per day (bpd): 210,000 bpd from the Port Harcourt 
refinery and 360,000 bpd from its proposed Lekki refinery in 
Lagos. 
 
--------------------------------------------- ----- 
Oando Also Expands into Upstream and Power Sector 
--------------------------------------------- ----- 
 
5. (U) Oando recently moved into the exploration and 
production arena, winning three marginal oil blocks offered 
in the August 2005 oil block bid round.  The firm is also 
expanding into the power sector.  Its new power subsidiary, 
Oando Power, is expected to commence business in Q4 2006, 
using gas-powered turbines (with gas supplied by Oando 
subsidiary Gaslink) to generate electricity within the Lagos 
area.  Industrial customers are its initial target clients. 
 
-------- 
Comment 
-------- 
 
6.  (U)  Oando's listing on the JSE demonstrates the growing 
business and investment links between Nigeria and South 
Africa, Africa's two largest economies.  In the last several 
years, well-financed and aggressive South African firms have 
moved into Nigeria, most prominently in the banking and 
telecommunications markets.  Now, Nigerian firms such as 
Oando are looking to advantages they can tap in the South 
African market.  Oando's expansion onto the JSE reflects an 
increasingly sophisticated understanding of international 
financial markets, and a quest for more competitively-priced 
financing.  This move creatively sidesteps the Nigerian 
financial market's inability to support expensive oil 
exploration and production operations.  On the South African 
side, JSE's listing of Oando signals confidence in the 
firm's corporate governance and balance sheet.  It also 
demonstrates that Nigeria is a credible destination for 
South African investment, not only sales.  However, it 
remains uncertain whether Oando will attain the high level 
of investment from South Africa that is currently 
contemplated. 
 
Browne