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$23bn Greenfield project: The morning after

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$23bn Greenfield project: The morning after

The Nigerian National Petroleum Corporation (NNPC) has confirmed New Telegraph’s report on the flopped Greenfield refineries’ project in Nigeria, earlier expected to be majorly financed by China State Construction Engineering (CSCEC). ADEOLA YUSUF examines implication of the project’s failure to meet the 2015 delivery date on Nigeria’s foreign direct investment (FDI) drive

 

 

In far away Cape Town, South Africa, Chief Executive Officer (CEO), Nigerian National Petroleum Corporation (NNPC), Refineries Division, Anibor Kragha, confirmed this newspaper’s investigative report on the flopped $23 billion Greenfield Refineries project.
The project, floated by the Federal Government in 2010 was to be financed by CSCEC and NNPC on 80 to 20 per cent ratio. Three years after failure to meet the 2015 delivery date for the project, Kragha, last weekend, hinted S&P Global Platts on the sidelines of the African Refiner Association conference in late Nelson Mandela’s country that government was still seeking investors/partners for the project.
NNPC, he said for the umpteenth time, had undertaken feasibility studies (done by Wood Mackenzie) for four greenfield refinery projects in Lagos, Bayelsa and Kogi states and is seeking credible investors for those opportunities.
“Currently, NNPC is collaborating with Eni’s AGIP/NAOC as a strategic partner in developing a proposed 150,000 b/d refinery project to be located in the Niger Delta region,” he said, adding that “with Nigeria’s population of over 180 million people and the potential opportunity in the regional market as a refinery hub, NNPC welcomes companies and financiers that wish to partner with it on greenfield refinery projects’’.

Hard facts
Before Kragha’s revelation of fresh hunt for investors, this newspaper had exclusively reported that the $23 billion greenfield refineries’ project floated by the Federal Government in 2010 had hit the rocks.
“The 400,000 barrels per day extra refining capacity project slated for three states of the federation-Lagos, Kogi and Bayelsa – jointly financed by the China State Construction Engineering Corporation (CSCEC) and the Nigerian National Petroleum Corporation on 80 to 20 investments ratio, was expected to be completed and ready for operations in 2015,” the newspaper reported.
Three years after the delivery date, further works on the project have, however, been embargoed while its fate is yet unknown.

Thorough analysis of the fresh schemes for crude oil refining self-sufficiency by the ministry of petroleum resources showed that the project has been struck out.
Both minister of state for petroleum resources, Dr. Ibe Kachikwu and the Group Managing Director of the NNPC, Dr. Maikanti Baru, had in their speeches, addresses and lectures – delivered in the last two years, been silent on the Greenfield refinery as a part of the strategies by the government to raise the country’s refining capacity.

The adversities, the reasons
The 650, 000 barrels per day capacity Dangote Refining and Petrochemical; investments on co-location of refineries between NNPC and oil majors as well as modular refinery projects have now halted dynamics for the $23 billion Greenfield refineries projects, checks by this newspaper revealed.

These were further worsened by regulatory uncertainty in the oil sector as well as the age-long mien of partnership with the “unreliable government-run NNPC.”
The biggest reasons for the delay, an industry source close to the deal said, are the non passage of the Petroleum Industry Bill (PIB) and its resultant hesitation for the sector to attract foreign direct investment, the unsettling international oil market with the prevailing drastic fall in prices, and the slowdown in the Chinese economy.

80 per cent of the cost is provided by CSCEC and a consortium of Chinese banks led by the Industrial and Commercial Bank of China, while the NNPC is to provide 20 per cent of the remaining fund as equity contribution.
“The Chinese are no longer that quick to drop their money as before. This was all manifested in the Kalu Report as it recommended the jettisoning of the Kogi and Bayelsa projects for a single Lagos refinery,” the source said.
“The failure and the delay in completion of the Greenfield refineries summarises the challenges faced in the oil and gas sector during the past five years.

“Though CSCEC is meant to pick up 80 per cent of the bill, with NNPC the rest, refineries were unusually still meant to operate strictly on a commercial basis. A joint partnership with the unreliable government-run NNPC was always going to be fraught with difficulty.”

Complaints galore
The Conference of Nigerian Political Parties (CNPP) had earlier petitioned the Federal Government requesting for full disclosure of transactions concerning the contract for three Greenfield refineries and petrochemical plant awarded by President Goodluck Jonathan eight years ago.

“May I under the Freedom of Information Act 2011, request for the full disclosure of transactions concerning the three Greenfield refineries and petrochemical plant contract awarded on May 13, 2010, by President Goodluck Jonathan to Chinese State Construction and Engineering Corporation Limited, CSCEC at $23 billion meant to be located at Bayelsa, Kogi and Lagos states.

“Secondly, why are they dead on arrival, as five years down the line, neither the three Greenfield refineries nor petrochemical plant is under construction,” a copy of the letter read.
The NNPC, in its feasibility study for the project displayed on its website, said: “Detailed Feasibility Studies undertaken by Messrs Wood Mackenzie Energy Consulting Limited and Messrs Foster Wheeler Energy Limited in 2011 for three Greenfield Refineries to be located in Lagos, Bayelsa and Kogi states confirmed that all three refineries would be economically feasible at the respective sizes of 200,000 bpd for Lagos, 100,000 bpd for Kogi and 100,000 bpd for Bayelsa.”
It, however, added :

“Nigeria is currently deficit in the supply of white petroleum products, most of which are currently imported into the country. Current consumption of gasoline or premium motor spirit (PMS) is estimated at 35 million litres per day, while that of kerosene is 10 million litres per day. In order to meet the deficit in supply, “Nigeria currently spends an average of between $12 and $15 billion yearly and it is the desire of government to stem the flood of imports by investing in additional refining capacity along with interested equity participants.”

Long journey to probe
The House of Representatives had, in 2016, mandated its Committee on Petroleum Downstream to investigate why the Federal Government failed to construct the $23 billion refinery project following a motion brought before it by Abbas Tajudeen. He had observed that in spite of the agreement signed by the Federal Government since May 13, 2010 with CSCEC for the construction of Greenfield refineries with a completion period of five years, nothing had been done.
More than three years down the lane, the project has remained a mirage and the planned probe seemed to have been swept under the carpet.
Recent studies by stakeholders in the industry have revealed that a new refining capacity of at least 420 KBPD would be required to meet the existing refining gap. This formed the basis of the current effort to establish at least three new refineries of approximately 400-550 KBPD capacity in Lagos, Bayelsa and Kogi states.
On why it engaged the Chinese firm to partner in the project implementation, the Corporation said: “NNPC does not intend to build Greenfield Refineries on a sole risk basis. The strategy is to develop investment consortia (in partnership with other prospective local and foreign investors) for these projects while holding reasonable but minority interests. The refineries will be ring-fenced to be operated strictly on a commercial basis; completely market oriented and profit motivated and as such issues of location, configuration and shareholding structure will be determined not solely by NNPC but by the consortia collectively.”

Last line
With the revelation on fresh manhunt for investors in the Greenfield refineries, NNPC should do due diligence on reasons for failure of the investments template earlier set for the project in which the Chinese investors were involved. This will prevent the new move, if any at all, from falling into the same pit and also assure of delivery for 400,000 additional refining capacity for the country through the project.

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