A Review of the Nigerian Energy Industry

Market regulation stalls Greenfield refineries

NNPC refinery, PH09 July 2013, Lagos – The Petroleum and Natural Gas Association of Nigeria, PENGASSAN has decried the non commencement of construction works on the three Greenfield refineries two years after the government promised to build the refineries.

Mr. Babatunde Ogun, President of the association told Vanguard in a chat on Sunday, that there will not be any appreciable development in the oil and gas industry in Nigeria until the refineries are built.

“Our position has been very clear that there won’t be any appreciable improvement in our development and employment opportunities until the refineries are built, and Nigeria starts processing other natural resources locally instead of exporting the raw materials for dollar exchange only,” he said.

Recall that the Minister of Petroleum Resources, Mrs Diezani Alison-Madueke, attributed the delay in the take-off of the refineries to the non deregulation of the country’s downstream sector.At the Offshore Technology Conference, OTC, held in May, in Houston, Texas, the Minister, who was represented by the Group Managing Director, Nigerian National Petroleum Corporation, NNPC, Mr. Andrew Yakubu, however gave the assurance that government was working hard to establish investors’ confidence, so as to achieve self-sufficiency in crude oil refining in the country.Government had signed a $51.8 billion (N8.1 trillion) Memorandum of Understanding, MoU, with various local and international investors between 2011 and 2012, to build new refineries across the country, to stem the tide of fuel importation.

The three refineries were meant to have a combined capacity of 400,000 barrels per day, bpd. The refineries were to be built in Brass, Bayelsa State; and Lokoja, Kogi State, which have a capacity for 100,000 bpd each, and Lekki, Lagos, with a capacity for 200,000 bpd.

The minister also said that government is working hard to ensure that the proposed greenfield refineries are moved from the proposal stage to the implementation stage.

According to her, “We must get the business model right. There are quite a number of issues that are wrong. No investor will want to invest in a regulated environment. Today, the petroleum product market is regulated and there are quite a number of things that are needed to be done to ensure that the business environment is conducive enough for investors to invest.

“The business models must be right. We are working hard to establish investors’ confidence in the Greenfield refineries.”

Signing of agreementsRecall that the Nigerian National Petroleum Corporation, NNPC, and the China State Construction Engineering Corporation, CSCEC, Limited, in May, 2011, signed an agreement for the joint sourcing of funds for the construction of the three new Greenfield refineries and a petrochemical plant in Nigeria under a $28.5-billion provisional deal.

The initial plan was that each of the new refineries would be able to process around 250,000 bpd, to potentially meet Nigeria’s estimated need of 750,000 bpd over the next 10 years.

But the decision to downsize the capacities of the plants was based on the new Detailed Feasibility Study, DFS, prepared by Wood Mckenzie & Foster Will.

The Industrial and Commercial Bank of China, ICBC, the world’s largest bank, would provide 80 per cent of the amount budgeted for the project, while the NNPC would provide 20 per cent equity, to be diluted for private sector participation later.

– Vanguard

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