A multi-billion US dollar letter of credit (L/C) has been used to finance much needed new cement capacity in Nigeria.

The L/C opened by Nigeria's Dangote Cement Limited will finance a second train at an existing cement plant as well as two new plants.

Cement shortage

Nigeria's construction boom has caused cement supply shortages and prices to soar over recent months.

According to Dangote its expansion plans will alleviate supply shortages and halve cement prices from around US$17 to about US$8.5 per bag.

L/C arrangements

Dangote says it effected the financing of its expansion plans at the end of May when it opened a US$1.85 billion confirmed L/C via Nigeria's GTBank to J P Morgan in New York.

The L/C is opened in favour of the contractors that will build all the new facilities, an engineering consortium led by the China's Sunoma International Engineering.

Expansion plans

Dangote Group President Alhaji Aliko Dangote says the L/C will be used to finance the construction of a second train at the existing Obajana Cement plant in Kogi State. The expanded plant will have a production capacity of 12 million tonnes per year (Mtp/y).

The remaining finance will be invested in the construction of two new plants in Ogun State with installed capacities of 5.5 million Mtp/y.

Payment terms

The Sunoma-led consortium was paid US$1 billion in advance to commence work on the construction of the plants according to Dangote.

He said the remaining US$850 million will be disbursed as work progresses and the consortium meets the predetermined milestones specified under the contract.

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