Why Private, Greenfield Refineries, Can’t Take Off

• DPR withdraws approval
• Agency monitors 25 modular facilities
Nigeria’s plan of producing over 2.2 million barrels per day (bpd), the reason for which 45 licences were issued by the Department of Petroleum Resources (DPR) between 2002 and 2014 for the establishment of private refineries in the country, may remain a pipe dream never to be realised.

This is because the DPR has already withdrawn the licences as the projects failed to take off after an 18-month deadline, due to political interferences, a lack of finance and technical know-how and inability to get the assurance of crude oil supply from the Federal Government.

Besides, an agreement between the Nigerian National Petroleum Corporation (NNPC) and China State Construction Engineering Corporation (CSCEC) for the construction of three greenfield refineries and a petrochemical plant in Nigeria has also been stalled due to the inability of the two parties to conclude the deal.

According to the NNPC, the 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 the 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.

Also, the agreement entered into between the Federal Government and two firms, United States-based Vulcan Petroleum Resources and Petroleum Refining and Strategic Reserve Limited, a Nigerian company, for the construction of six modular refineries in the country has been forgotten. The project, with a combined capacity to refine 180,000 barrels of oil per day, would have been located in areas where there are crude oil pipelines.

As a measure to boost local refining capacity, the DPR has commenced monitoring of 25 modular mini- refineries granted licences last year. The Manager, Communication, DPR, George Ene-Ita, told The Guardian that the monitoring, which started about a week ago, is geared towards enhancing Federal Government’s repositioning of the petroleum industry and making Nigeria self-sufficient in petroleum products. According to him, modular refineries are capable of handling refining capacity of between 10,000 and 35,000 barrels of crude oil per day.

On the private refineries, The Guardian gathered that the 39 projects with capacity to process 2.2 million bpd paid a non-refundable fee of $1 million each to DPR before licences were issued to them to build and operate refining plants. The DPR had earlier revoked licences issued to investors in 2004, citing a lack of credible milestones by the companies, and introduced the 2007 revised guidelines, which contained the $1million refundable deposit requirement.

Some of the refineries awarded licences were Akwa Ibom Refining and Petrochemicals Limited, Badagry Petroleum Refinery Limited, Clean Waters Refinery, Ilaje Refinery and Petrochemicals, Niger Delta Refinery and Petrochemical Company Limited, NSP Refineries and Oil Services Limited, Ode-Aye Refinery Limited, and Orient Petroleum Resources Limited.

Others were Owena Oil and Gas Limited, Rivgas Petroleum and Energy Limited, Sapele Petroleum Limited, Southland Associates Limited, South-West Refineries and Petrochemical Company, Starex Petroleum Refinery Limited, The Chasewood Consortium, Tonwei Refinery, Total Support Refineries, and Union Atlantic Petroleum Limited.

The Resources Petroleum and Petrochemicals International Incorporated with the capacity to process 100,000bpd, located in Ikot Abasi, Akwa Ibom State, got its Approval to Construct (ATC) revalidated in 2010. Sapele Petroleum Limited with 100,000bpd located in Sapele, Delta State got its ATC revalidated in 2010. Rehoboth Natural Resources Limited, with capacity to process 12,000bpd got permission to operate in 2008, but applied to convert ATC to Licence to Establish (LTE) in 2010. Amexum Corporation with capacity to produce 100,000bpd, complained of a lack of financing which stalled the project’s takeoff. Antonio Oil, located in Ogun State, with the capacity to produce 27,000bpd, commenced civil and structural work on its site, but was unable to go further while the Associates International Limited Refinery, located in Ipokia, Ogun State, with 100,000bpd refining capacity got its LTC granted and was also unable to continue. Also, the Refinery Company Nigeria Limited, located in Ologbo, Edo State, with 12,000bpd capacity, completed its engineering package, but its licence was not renewed by DPR and could therefore not go further.

A source in DPR put the total capacity of the 45 licences issued so far at over 2.2 million barrels per day, which is about the country’s daily crude oil production output.

On the upfront start-up fee, he said “ultimately, the government reconsidered and accordingly reduced the fee in line with investors’ expectation. In spite of this concession, the investors failed to show serious commitment, raising funds locally was obviously a problem, as bank interest rates of 20 per cent and above would make borrowing for such a project a suicidal mission!

“On the other hand, much cheaper foreign loans required certain sovereign guarantees that government did not consider necessary. Other investors demanded a free market pricing policy that eliminated subsidies, as the uncertainty and time lag related to subsidy refunds could jeopardise the ultimate success of such ventures.”

As at 2010, the Amakpe International Refinery Incorporated with capacity to process 12,000 bpd got its approval to operate in 2007, but got stuck due to political reasons in Akwa Ibom State.

In fact, the company’s engineering partners had already achieved a 100 per cent completion of the fabrication of plant and machinery for the first phase of 6,000 BPD (barrels per day) of the Amakpe refineries project before it was abandoned.

Indeed, the company even got a letter from DPR, titled: “Re: Petroleum Refinery Project-Certification of Fabricated Equipment”, which reads in part: “The inspection exercise revealed that the fabrication of the major units of your refinery project phase 1 has been completed; and design, manufacture and testing of these process and utility equipment, were done in line with international codes and standards and good engineering practice.”

As at 2010, the plant’s manufacturing process was already completed and had the government of Akwa Ibom State represented by Akwa Ibom Investment and Industrial Promotion Council (AKIIPOC) along with DPR consistently and continuously monitored the progress of the equipment fabrication. “They even engaged the professional services of Ventech International Engineers based in Pasadena, Texas for equipment manufacturing and fabrication. UPS Capital Business Credit based in Windsor, Connecticut along with comprehensive insurance guarantees from US Export-Import Bank (EX-IM BANK) provided a short-term credit facility. Sterling Bank Plc, a strong believer in this project provided credit facilities and guarantee while Nigeria’s Export-Import Bank (NEXIM BANK) financed a short-term bridge loan. We are also indebted to our financial and project development consultants- Financialbridge Inc of Miami, Florida,” the source said.

Giving reasons for the failure of private refining in Nigeria, a DPR official said that many of the investors were skeptical about starting off due to crude oil supply guarantee and lack of funding. According to the source, the investors later encountered the challenge of securing crude oil and were concerned by the fact that the crude was going to be sold to them at the international market price.

The source, who hinted that investors were looking for incentives from the government to be able to build private refineries, said it was somehow strange because they came forward as investors, who were willing to go into the business, and they requested sovereign guarantee from the Federal Government to enable them access funding from international lending institutions. “What we did was to forward their request to the appropriate quarters. But our main concern was to make sure that the licences were useful. There is a time limit for each licence. When each of them lapsed and nobody came for renewal, the issue died,” he added.

The Managing Director, Mobil Oil Nigeria Plc, Tunji Oyebanji, said investment in local refineries is key to the growth of the downstream sector, adding that private refineries were yet to come on stream, years after obtaining approval from the DPR. This, according to him, is due to a lack of funds, as banks are not ready to advance credit to them for reasons best known to the financial institutions.

“The problem of the companies approved by DPR to operate refineries is not collaterals, but cash. That accounts for the reason local refineries have not taken off in the country,” Oyebanji said.


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