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Battling funding deficit in private refinery venture



Battling funding deficit in private refinery venture

As at the last count, 20 private refineries’ licences have expired for non-activity and acute shortage of funding. ADEOLA YUSUF takes a look at the implications of this trend for an industry in need of serious investment



Twenty of the 43 licenses granted by the Department of Petroleum Resources (DPR) to set up private refineries in Nigeria have expired at the initial level of License to Establish (LTE). Another seven of these licences are, according to a report by DPR on Licensed Refineries in Nigeria, billed to expire between July and August, bringing the total to 28, which had been idle for three years.

Their validity, it is pertinent to note, is two years. While the DPR and winners of the bids disagreed on several issues surrounding the failure of their ventures, they still sing similar tunes on funding as the biggest hurdle for their success. A few success stories However, the 5,000 barrels per day (BPD) capacity Waltersmith Refining and Petrochemical Company Limited, located in Ibigwe, Imo State, has gone beyond LTE to construct (ATC). Clairgold Oil and Gas Engineering Limited, Niger Delta Petroleum Resources, and Dee Jones, have also advanced to the level of construction. The report revealed that the 500,000 bpd Dangote Oil Refinery Company located in the Lekki Free Trade Zone, Lagos, has been granted Detailed Engineering Design Approval by the industry regulator.

Dangote Refinery is projected to commence operations in 2019, and is expected to help Nigeria attain self-sufficiency in petroleum refining. Similarly, the 24,000bpd Kaiji Resources Limited, Oguta, Imo States has also been granted Front End Engineering Design Approval. Government refineries as worse hit Recall that the Group Managing Director, Nigerian National Petroleum Corporation (NNPC), Dr. Maikanti Baru, reassured of the determination to get the nation’s four refineries back to model after it suffered setbacks due to scarce resources for major oil projects on which over $6.5 billion funding projections have been made.

The government, an appraisal of correspondences exchanged between the Ministry of Finance and the Nigerian National Petroleum Corporation (NNPC) sighted by New Telegraph at the weekend showed, sanctioned the adoption of contractors financing model, when it dawn on it that the old model was a threat to survival of Nigeria’s energy future. Already, over $3.7 billion out of the funding projections have been secured in Alternative Financing Agreement in the last three years. The NNPC, one of the documents showed, is also rounding off discussion, which would yield over $2.8 billion in financing through the contractors financing model.

Naming the projects Naming the $2.8 billion AKK project on which agreement were signed recently as the latest project on which $2.8 billion is being secured through new financing model, the document added that the new model is what it takes to save Nigeria’s energy future from impending financial quandary. “Within the last three (3) years, we have embarked on several successful Alternative Funding Programmes on which $3.7 billion financing was secured to sustain and increase the national daily production and producibility,” the document quoted Baru to have said. The $3.7bn financing package, their optimal, nameplate capacities.

Baru said NNPC had been holding far-reaching discussions with some consortia to get the best funding options towards the refineries’ overhaul. “Since coming on board, we have made the revamp of our abandoned assets and critical downstream infrastructure a key component of our corporate vision of 12 Business Focus Areas (BUFA),” he stated. Baru said over the last few months, many crude oil, petroleum products, and natural gas pipelines were resuscitated while more than half of Nigeria’s 21 strategic depots were also upgraded.

He decried acts of pipeline vandalism, crude oil theft and sabotage, which he noted had resulted in huge loss of revenue, lives, and property as well as damage to the environment. He called on the security agencies and other stakeholders nationwide to collaborate with the corporation in its ongoing campaign against the sabotage on the nation’s oil and gas facilities.

While attributing the recent fuel challenges faced in parts of the country to the nefarious acts of hoarders, diverters, profiteers, and smugglers, Baru stressed that NNPC was working with relevant stakeholders to ensure the sufficiency currently being witnessed is sustained. Like private refinery, like government’s The problem of funding is not peculiar to private refineries and ventures alone as government’s business in the oil and gas industry is also choked by similar challenge of funding.

Based on this, the Federal Government has finally dumped self-finance this newspaper gathered, included the $1.2Billion multi-year drilling financing package for 23 onshore and 13 offshore wells under NNPC/Chevron Nigeria Limited Joint Venture termed Project Cheetah and the $2.5Billion alternative funding arrangements for NNPC/SPDC JV ($1Billion) termed Project Santolina; NNPC/CNL JV ($780million) termed Project Falcon as well as the NNPC/First E&P JV and Schlumberger Agreement ($700million). On the reason it dumped the old model, the corporation said it “suffered setbacks due to scarce resources for government to fully finance the project, hence the adoption of the contractor financing model.”

Project Cheetah is expected to increase crude oil production by 41,000bopd and 127Mmscfd with a Government-take of $6Billion over the life of the Project. In the same vein, Projects Santolina, Falcon and the NNPC/First E&P JV and Schlumberger Funding Arrangement are expected to increase combined production of crude oil and condensate by 150,000bopd and 618MMscfd of gas with a combined Government-take of about $32billion over the life of the Projects, Dr. Baru added. New model for funding Stating that it would adopt the new model base on its potency for other major Joint Ventures (JV) projects, the NNPC, the document added, said that evolving new funding mechanism for the JV operations was a critical part of President Muhammadu Buhari’s far-reaching reforms aimed at eliminating cash call regime, enhancing efficiency and guaranteeing growth in the nation’s oil and gas industry.

As a result of the cash call underfunding challenge, which rose to about $1.2bn in 2016 alone, NNPC and its JV partners began exploring alternative funding mechanisms that would allow the JV business finance itself in order to sustain and grow the business. With average JV cash call requirement of about $600 million a month, coupled with flat low budget levels over the past years, the budgeted volumes were hardly delivered, the document showed.

“The truth is that it is difficult to deliver the volumes without adequate funding. The low volumes and by extension low revenues had resulted in the underfunding of the Industry by Government, which has stymied roduction growth,” the NNPC said. With the new Alternative Funding Arrangement in place, JVs are expected to now relieve Government of the cash call burden by sourcing for funds for their operations (estimated at $7-$9 billion annually).

Meanwhile, more facts emerged at the weekend on how the NNPC secured approval for 614 kilometer Ajaokuta – Kaduna – Kano gas pipeline (AKK) Project worth $2.8 billion. The corporation had at the weekend executed contracts for the engineering, procurement, construction, commissioning and financing for Lots 1&3 of the 40inch x 614km AKK pipeline and stations with a consortium of indigenous and Chinese companies under a 100 per cent contractor financing model. “After a painstaking technical and commercial evaluation process, the Federal Executive Council at its 46th meeting on 13th December, 2017 approved the contract valued at over $2.8 billion,” the NNPC said. It would be recalled that the process for the award of the AKK project teed-off in July 2013.

Last line

The DPR should intensify due diligence on availability of funding by prospective bidders before issuing refinery licences to them. To complement this, the government should also see to funding challenges that are likely to come up for the investors mid-way into the delivery of their projects.

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