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The Refining Boom Turns To A Bust

From the Eastern Cape to The Niger Delta, the continent struggles to attract investors for large sized refineries that are able to supply regional economies.

By Toyin Akinosho

 

Just five years ago, Africa seemed ready for a boom in construction of large scale refineries.

South Africa’s PetroSA, the state hydrocarbon company, had, in 2007, come up with Project Mthombo, planned to use 400,000Barrels of (mostly imported)crude oil every day to produce millions of litres of gasoline, diesel and a range of other products.

In Angola, the state hydrocarbon company Sonangol, announced it was up to speed with Sonaref, a 200,000BOPD refinery, to be located in the port town of Lobito in the country’s Benguela province.

Around the same time, there was talk about a group of  Egyptian and Saudi Arabian investors planning to build a 130,000BOPD refinery at al-Ain al-Sokhna on the Red Sea coast, east of Cairo. In the same country, Essar Global, the UAE company, proposed a $3.4Billion, 300,000BOPD refinery in Northern Egypt, to come on stream in 2010. The target market was Europe. Refineries in Egypt, as a rule, have state participation.

Nigeria didn’t have in mind a state sponsored refinery project at the time. But its plans were more elaborate; it hoped to open up its downstream and create a private sector led refinery construction effort. By December 2004, it had licenced 24 companies to come up with proposals. By mid-2007, eighteen (18) of these companies had been granted approvals to construct refineries, at least eight(8) of which would each process 100,000BOPD of crude. The country was about to have, in the minimum, 800,000BOPD refinery capacity, on top of the three state operated refineries with nameplate capacity 445,000BOPD.

Boomtown, everyone!

Down the road, the Ugandan government presented the case for a 180,000BOPD refinery, starting with 20,000BOPD plant, to Tullow Oil, the country’s main upstream operator. As the London listed company declared commerciality of Ugandan crude reserves, the government wanted it to choose refining over crude oil export.

Sour Grapes..

But none of these projects looks as if it will get to construction stage any time before 2014. The Chinese had walked out on Angola’s Sonangol on account of disagreement over equity participation, and no other investor has been reported to have come along. The state now says it wants to build the refinery with own money and contracts for building the 200,000BOPD refinery are now expected to be awarded late 2013 or early 2014.

Only in May 2012 did PetroSA sign a Joint Study Agreement with the Chinese company Sinopec, which will lead to a concept framework to be reviewed by the two parties before investment decisions can be made. Construction will not start before 2014.

South African authorities are clearly embarrassed that they have not managed to move the project beyond concept planning stage, five years after it came to the table. You could tell a hint of finger pointing with this statement, made in a September 2012 BusinessDay article by PetroSA’s CEO, Nosizwe Nokwe-Macamo. “South Africa cannot afford to postpone a positive decision on Mthombo lest we find ourselves in the terrible situation with regards to liquid fuels that we experienced in 2008 during the electricity crisis”. This is a way of saying: ‘we are doing our bit, but it’s not entirely in our hands’.

In a swift reaction, the country’s department of energy explained, in a statement reported by Johannesburg’s City Press: “The department has always maintained that a new oil refinery needs to be operational by 2020”, the newspaper quoted….. “the current pace of the project is squarely in the hands of PetroSA”.

While the Angolan project is largely export oriented, the South Africans are mainly targeting their home market. Angola’s 12 million people, with a low industrial base, needs less than half the volume of petroleum products that Sonaref is expected to deliver. Coega, on the contrary will add more than 50% of products to South Africa’s 750,000BOPD refining capacity. Coega forms part of the country’s energy security master plan, which stipulates 30 percent of crude procurement occurs via state agencies.

The Nigerian plans had generally turned out to be pies in the sky, as putative investors claimed that an environment where subsidy reigned could not be favourable to free market. Even when the state announced an MoU between its hydrocarbon company NNPC and China State Engineering Construction Corporation(CSECC), murmurs of “I’d believe it when I see it” filled the air. . A government appointed task force on the investment environment for crude oil refining in the country, released its report in late November 2012 and declared that it had examined 35 greenfield private refinery licensees/applicants and “seven were found to have reasonable potential”.

The Nigerian government is currently spending about $1.5Billion to repair its three refineries(with name plate capacity of 445,000BOPD), to deliver as much as possible of the 52 Million litres per day of petroleum products they were designed to supply.

These three refineries have been able to deliver barely 20% of this volume in the last 15 years, according to the task force report. This supply gap has been bridged over the years from imports, to the extent that in 2011 as much as 76% of aggregate demand was imported. “Further analysis of the 2011 supply gap with respect to each of the products clearly shows that import dependence factors for AGO, DPK and PMS are 31%, 55% and 86% respectively”, says the report. “By implication Nigeria is almost totally dependent on imports for PMS”.

Algeria was completing its overhaul of the 350,000BOPD (nameplate) Skikda Refinery, the continent’s largest, as of the time of our going to press with this article. “The expansion will add capacity to produce four million tons per year of downstream products”, government officials say. “The project will produce gas, butane and condensate; it will reduce Algeria’s fuel imports by at least 20%”. The bill for the Samsung led upgrade was reportedly $3.5Billion.

Still, it is Egypt, where geography allows big refineries to meet the needs of their markets in Europe, that Africa is likely to commission its biggest new refining facility in the next three years. Here in North Africa’s largest economy, where government is always keen to build new hydrocarbon processing facilities, there have been reports by a flood of private investors as well as other governments, -willing to use the country as a hub to export refined products to Europe. But the only one project that can be reported here as being firmly on course is the “Citadel” Refinery, for which construction is firmed up to begin by mid- 2013. Funding for the project started coming to fruition in August 2010, when the Egyptian Refining Company (a Special Purpose Vehicle comprising state hydrocarbon company EGPC and project promoter Citadel Capital) signed a $ 2.35 billion senior financing package provided by Export Credit Agencies and Development Finance Institutions including the Japan Bank for International Cooperation (JBIC), Nippon Export and Investment Insurance (NEXI), the Export-Import Bank of Korea (KEXIM), the European Investment Bank (EIB) and the African Development Bank (AfDB). Plus:a total of $225 million of subordinated debt financing is being provided by Mitsui & Co. and AfDB.

Sited in the Mostorod Refinery Complex, the new refinery will be processing 100,000BOPD and will produce, along with other fuels, 2.5 million tons of diesel oil annually when the complex is completed. Regulatory and environmental approvals for the project have been obtained and ERC has signed a lump-sum turnkey contract with GS Engineering & Construction / Mitsui & Co.

Elsewhere on the continent, attempts to attract investment for refineries in excess of 50,000BOPD capacity have run into one brickwall after another.

Libya’s Ghadaffi-era plans for overall upgrade and new capacity were truncated by the war.

In Uganda, Tullow Oil, the flagship operator, told the government clearly that it wasn’t going to be part of the authorities’ scaling up of the proposed refinery from 20,000BOPD to 180,000BOPD. What Tullow Oil and Co would commit to is a 4,000BOPD early production system, capable of yielding diesel, paraffin, heavy oils, and aviation oil but would not produce petrol. Tullow is choosing to pursue the construction of a mini refinery because the cost of constructing a crude oil pipeline to the cost is huge.

The refinery sector has not been anywhere near the profitability of the upstream segment of the hydrocarbon industry and African refiners face the challenge of new refining capacity under construction in Asia and the non- African Middle East.

Lacking cash and ready investors, African energy projects often stay on the drawing board for long period and quietly roll off the chart.  It is in the hands of Africa’s homegrown businessmen to turn this around.


Nigeria’s Forthcoming Gas Tax: Is the Revolution In Reverse Gear?

David Ige, the Group Executive Director for Gas and Power of NNPC,  the Nigerian state hydrocarbon company, is fond of drawing similarities between the massive road construction going on in Lagos and the laying of several pipelines to transport  gas to various Independent Power Plants around the country.

When the road is finished, everyone forgets the inconvenience they endured while construction was underway, he often says. So is the case of the gas lines, he argues. We all get relieved when they start to help deliver power.

This is true up to a point.

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Naïve Students Transform To Global Players

As an AAPG Region, Africa has taken part in the Imperial Barrel Award Programme(IBA) since 2008. It is a global competition organized annually by the American Association of Petroleum Geologists (AAPG), among its Regions and Sections.
Post-graduate geosciences students from around the world are given real-life petroleum industry data which they have to study, interprete, package and present to industry experts as a new ventures project or opportunity. Students of an IBA team act as a New Ventures Group of an operating oil and gas company, assigned the task of making a detailed assessment of the petroleum potential of a newbusiness opportunity, in just eight weeks. They are expected to “think outside the box” and look at new exploration models based on the most recent published research and their given education.

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The East Threatens A Downpour

By Toyi Akinosho

Mozambique is trying hard to be the next Ghana.

Since late November 2010, the news from the south easternmost country in Africa have been mostly about the confirmation of large reservoirs, filled with hydrocarbon, buried in the deep blue waters off the adjoining coastline of the Indian Ocean.

The only reason we are not cheering the way we applauded the finds in Ghana’s deepwater in May 2007 is that the hydrocarbon type is largely gas.

Take note of this: in spite of the rise and rise of methane as a choice fossil fuel in the last decade, the African petroleum industry still finds stories of discovery of large crude oil pools more reassuring, because the domestic markets for raw or processed hydrocarbon, especially in the sub-Saharan part of the continent are small. The fertilizer for tens of millions of people, are minuscule by the standards of developed countries. So companies are not always readily excited about delivering projects that beneficiate gas resources.

However, let us look first at these assets for the surprise they have been.

We have always guessed that the east African crustal plate contained a lot of small gas tanks.

These resources, we reckoned, would be enough to drive the regional economy: from Mozambique, it would provide sizeable export for gas -to —synthetic fuel plants in South Africa; in Tanzania, it would deliver enough feedstock for small IPP plants and CNG facility. There will be enough gas for export to the port of Mombassa, in Kenya for conversion to LPGs.

No one ever suspected that an extra large facility, say an LNG project, could result from exploration on this side of the Indian Ocean.

But that possibility is beginning to loom large. Anadarko’s recent discoveries in the deep blue waters off Mozambique, in 2010, belong in the same class as the Mahogany oil find, off Ghana, in 2007. They are both elephant sized discoveries, contrary to the popular geologic imagination of the region at the time they were encountered.

Baquentine encountered a total of more than 416 feet net of natural gas pay in multiple high- quality sands. Lagosta encountered more than 550 feet net gas pay in multiple high quality Oligocene and Eocene sands. Specifically, the Barquentine well encountered more than 308 net feet of pay in two Oligocene sands that are separate and distinct geologic features, but age-equivalent to those encountered in Anadarko’s previously announced Windjammer discovery located three kilometres to the southwest. Anadarko doesn’t supply any more information (porosity, permeability) to corroborate its claim that these are “high quality” sands. And we don’t yet know how thick each of these sands are, but the results call for excitement. (For instance, if you stack twenty reservoirs in a 500feet net gas package, it means that that the average thickness for one sand is 25 feet).

The Mozambican reservoirs are tertiary sands, markedly different in age from the cretaceous play of the Ghanaian reservoirs. They are closer in age to the deepwater sands of Angola and Nigeria. The Mozambican finds support the speculation that the tertiary was the great age of hydrocarbon generation in the sinks surrounding the continent. It’s the same line of speculation that adduces that the Ghanaian reservoirs, deposited in the transform margins that hold the reservoirs of the Rio Muni )Equatorial Guinea), Abidjan Margin(Cote D’Ivoire) and probably the Sierra Leone- Liberian basin, are going to be few. These cretaceous fairways are shorter than the tertiary fairways that produced the Congo Fan(Angola) and the Niger Cone(Nigeria).That the Mozambican reservoirs may be in a different ocean today, but have closer depositional and age relationship with pools that are located in another sea, half the world away is proof that Geology is not Geography. What I am saying in effect is that Mozambique might have more elephants than Ghana, on the long run. The challenge remains the fluid type: gas. Delivering the LNG business is not as easy as selling the crude oil.

As I was writing this, the drillship Belford Dolphin was arriving on location at the Tubarao wellsite, the fourth location in the Offshore Area 1 acreage off Mozambique’s Rovuma Basin, where Anadarko encountered those three spectacular finds. It looks like we are set for a cheerful year. Anadarko, the company which provided most of the funds for the first discovery in Ghana and went on to unlock reservoirs in deepwater Liberia, has cracked another African geologic code. It’s Anadarko’s time.

Tanzania hasn’t been as exciting as Mozambique. This, at least, is our interpretation of the caution with which information on recent, similar drilling, has been coming out of that place. BG, the British gas major, has encountered gas in its two wells in deepwater Tanzania, in the same Indian Ocean waters, where Anadarko’s Mozambican finds have been reported. Pweza 1 and Chewa-1, both located on Block 4, are two of a three-well initial work programme planned for Blocks 1, 3, and 4 offshore southern Tanzania. The initial work programme also includes the acquisition of 4,000 sq km of 3D seismic data. BG Group (60%) has the option to assume operatorship of all three blocks upon completion of the initial work programme.

The statements from partners BG (60%) and Ophir(40%) are carefully worded sentences: “The success of the Chewa-1 well follows on from the earlier Pweza-1 discovery and provides a measure of confidence in the use of seismic attributes to guide a successful exploration campaign, in Tanzania” says Allan Stein, CEO Ophir. “We have now calibrated the seismic response from two separate hydrocarbon bearing reservoir intervals and shall use this information to more fully evaluate the potential of this exciting new hydrocarbon province.”

Frank Chapman, BG Group Chief Executive, sounds even less excited” This is an encouraging start to our campaign in Tanzania. We have a large acreage position to explore and an extensive exploration program will be needed to assess the full potential of this new play.”

But again, what is going on there is not what we were expecting.


Guilty By Association

Toyin Akinosho

The World Economic Forum On Africa (WEF on Africa) feels more posh than most of the business gabfests on the continent. Not even the Africa Upstream, which provides top oil industry executives the” business reasons” for travelling to Cape Town, to luxuriate in the “Southern sun” every November, gets anywhere close to being as upscale.

Charlotte Bauer, an editor with the Johannesburg weekly Mail and Guardian, confessed that minutes into the opening plenary of the June 2009 edition, she began to get “Blackberry envy”. She wrote in the paper’s June 12, 2009 edition “My neighbours with smart phones in the packed hall at the Cape Town International Convention Centre were kept entertained as the contents of their inboxes became more fascinating compared with live proceedings”.

African leaders invited to lead conversations at WEF On Africa are themselves very conscious of being in an important place. “I am only attending Davos for the first time”, enthused John Kuffour, the then (outgoing) Ghanaian president, at the 2008 edition of the conference. His mistake of calling the scenic Swiss resort, where the big, global WEF takes place every February, to describe his pleasure at being in a regional meeting of WEF on African soil, was a profound Freudian slip. Imagine IF Mr. Kuffour was invited to the big event?

There wasn’t as much a sense of bonhomie at the 2009 WEF on Africa as it was in ‘2008. Absent in 2009 was the heady self congratulatory air, and the pervasive feeling of optimism-encouraged by high commodity prices and six percent growth rates- that marked the 2008 edition. The economic meltdown in the West had taken its toll on Africa’s commodity prices and the South African economy, the continent’s industrial engine, was imploding.

The somber mood of the 2009 edition of WEF on Africa notwithstanding, there was hardly any evidence that African leaders, as a collective, had learned lessons from the crash of 2008 and were desperate to turbo-charge the continent’s economy to achieve huge capacity growth. There were no ambitious, large scale, self driven projects on energy, intra continental transportation or local content enhancing, innovative technology projects that were going to dramatically transform the lives of hundreds of thousands of people at terribly short notice. Lessons from other parts of the world were lost on Africa: China and India were growing at much faster rates, driven by high technology enterprises and the Middle East, especially the Gulf States, were unhappy with their own apparent backwardness and were keen on spending their way into the 21st century. In Africa, on the contrary, it was the usual softly-softly, postage stamp approach; small scale power projects, “helping” small rural farming with subsistence methods and facilities that involve the heavy participation of Chinese investors as well as more investment in mining that were driven solely by outside parties.

I remember asking a question on investment opportunities in some country in East Africa and the Minister on the panel who responded to me said : “The Chinese investors we are talking to are…” I felt very tired.

In spite of this poor showing by Africa’s political leadership, I still allowed myself to be conned.

This is how it happened.

At a second day session on Africa’s agricultural potential, at which Kofi Annan, former UN Secretary General, emphasized the work his foundation was doing with small scale farmers, I asked whether it wasn’t time for African policymakers to start focusing on large scale farming. I noted that large scale farmers on the continent were mostly the settler minorities; Indians in East Africa and Afrikaners in Southern Africa. In Nigeria, now, everybody is talking about the “success” of the Zimbabwean farmer in the country. It occurred to me, I explained to the audience, to wonder, “Where is the scale minded African entrepreneur in farming? Where is the native African industrialist? Where is The Successful Black Commercial Farmer?”

That question earned me both admiration and reproach. At the coffee break

shortly after, Edward Boateng, creator of the CNN/Multichoice African Journalists Awards, walked up and gave me a short lecture. “You shouldn’t be alienating people” he charged. “East African Indians and South African Afrikaners are Africans, too. Africa needs all her talent”. To Arthur Mutamburra, Zimbabwe’s Deputy Prime Minister, I had, with my comments, become an instant friend. “This is the man who asked the question about black entrepreneurship”, Mutamburra told his wife, Susan, as a way of introductions.

I became, at terribly short notice, a “family friend” of Zimbabwe’s third couple.

And to my surprise, I was feeling cool about it. When Susan Mutambura earnestly explained that she’d been hoping to visit Lagos, the city of my birth, in Nigeria, I felt an adrenalin rush. And I found myself feeling quite exhilarated when the Deputy Prime Minister himself said over and over again: “You must visit Zimbabwe”.

The next place I got “invited” to join Africa’s political class was at the session on Free Trade Zones. After I complained that Africa’s big projects were perpetually on the drawing board, Felix Mswati, Zambia’s Minister of Trade and Industry said pointedly, “my friend, Africa’s current generation of politicians are different from those of the past. Now we want to do business, not politics”. Later, he gave me his card and allowed me to get into a discussion between him, his Ghanaian counterpart and an American State Department representative, who kept on repeating: “It’s true, Africa has a new breed of leaders”. I am surprised, as I write this, that I didn’t interrogate their conclusions, I didn’t argue with them. I was too content to be allowed to hang out with ministers. I didn’t even request for interviews, privately, to question these assertions. What new breed of leaders? Which African country is a showpiece in the direction of people centred development? What projects were happening in Zambia in which Zambian entreprenueurs were taking the initiative? What’s taking place in Ghana that could be compared with the quantum leap in economic progress that took place in Singapore 20 years ago, or in South Korea 15 years ago?

Two days later in the same premises: the Cape Town International Conference Centre. The World Economic Forum had wrapped up and South Africa’s most popular Conference venue was hosting the 4th Cape Town I International Book Fair. Here I attended a discussion entitled Hollow Men: Can Africa’s Leaders fulfill Africa’s promise?  The conversation was between Moeletsi Mbeki, a hugely popular South African public intellectual and brother of the former South African president Thabo Mbeki, and Achille Mbembe, the Cameroon born scholar described by some as one of the most brilliant theorists of postcolonial studies writing today.  Much of the discussion centered around Mbeki’s new book, Architects of Poverty: Why Africa’s Capitalism needs Changing. A highpoint of Mbeki’s argument was that Africa’s current brand of capitalism was comparable with the economic situation in 8th century England, where a very few members of the gentry rode roughshod over the large population of the working class. He spoke about how liberation fighters on the continent always turned out to be oppressors themselves. And he used examples from Algeria (the men who fought the war of independence turned out to be overlords themselves) to South Africa (liberation comrades are the new fat cats) .

Although I felt it was going to be incongruous to ask Mr Mbeki his thoughts on the notion that there was a new breed of African leaders all over the continent. I asked him anyway. He looked me over in a way that suggested I hadn’t been following up closely on events and then he asked, “Who are these new breed of African leaders? Wasn’t that what was sold about a decade ago. Has there been any major difference in the quality of life of the people, on average?”

In that brief moment of Mr Mbeki’s response, my mind went to my repartee with the ministers at the World Economic Forum a few days before, at the same venue. I knew I had been conned.


The Game Changers Are Not Always the Most Expensive

Toyin Akinosho

The cost of Jubilee field development, Ghana’s first sizeable oilfield project, is $4billion. From sometime around November 2010, as the plan goes, this elephant sized deepwater field will deliver a hundred and twenty thousand barrels of crude oil every day into a floating production storage and offloading (FPSO) facility. By February 2011, Ghana will be exporting over one million barrels of crude every 10 days into the world market.

The country will come from nowhere to become Africa’s 11th largest producer of crude oil, after Nigeria, Algeria, Angola, Libya, Egypt, Sudan, Equatorial Guinea, Congo, Gabon and Chad, in that order.

A project of Jubilee’s size, which creates a full, world class industry almost entirely on its own, provides the kind of scale that excites my cousin, Yemisi, a commercial lawyer with a going practice in Lagos, Nigeria.

Over lunch recently, she expressed deep disappointment about an interview on the CNN programme Marketplace Middle East. in which the CEO of Gulf Keystone. an American independent, was gushing with pride about the ability to source some $l2OMillion to prosecute a number of projects in the Kurdistan region of Iraq. “That’s peanuts!”, my cousin complained. I believe I could almost hear her murmur: “My God, what could you possibly do with $l2OMillion”. What she said loudly, though. was this: “This is not the kind of money I am used to hearing about, regarding oil and gas projects, at least here in Nigeria”.

I clearly understand where Yemisi, a keen observer of her surroundings, is coming from.

In the last 10 years, a lengthy list of awesomely expensive oil and gas projects have come on stream in the Gulf of Guinea area; in Angola, at least five field development projects of a scale equal, or bigger than the Jubilee field, have been commissioned.

In Nigeria alone, for specifics: The Nigerian LNG project was commissioned in 1999 after $3.8Billion had been spent; the Bonga field project (on stream date 2005) has officially been reported to cost about $3.6 Billion, and there is controversy as to whether the cost wasn’t far more. The total cost of Erha field development(2006) is in excess of $3.5Billion. Agbami deepwater development weighed in at over $4.2billion. In construction, as we speak, is the Bonga expansion, otherwise known as Bonga North West project, for which a $200Million contract had been awarded for subsea  development alone( provision of pipeline engineering, procurement, fabrication, installation and pre-commissioning services for pipe-in-pipe flowlines, water injection flowlines, umbilicals, as well as related production facilities on the seafloor and the deep marine environment).The cost of the entire Bonga NW work will not be less than $600Million, conservatively speaking.

In Equatorial Guinea, the Aseng condensate field development, granted official sanction in late 2009, will get into construction phase late in 2010. The bill for the project, aimed at producing 50,000Barrels of condensates per day at peak, is $1.3 billion.

The point, however, is that whereas these mammoth projects are headline grabbers, many of the game changing kind of projects are much smaller and, in the perspective of people like Yemisi, “inexpensive”.

Let me provide a shortlist of some of these projects-for they are projects too, whether they are just a wildcat exploration programme, a seismic acquisition shoot or a short distance gas pipeline construction- which are either going to be in construction, or in commissioning stage in 2010.

Construction of the proposed 56km natural gas pipeline from Uquo to IkotAbasi, both in Nigeria’s deep south is likely to start in 2010. At $120 million, it would be too cheap to excite my cousin, but it’s a trail blazing kind of project. As the Nigerian government talks about a gas masterplan to direct more natural gas to power plants and other intermediate, domestic uses, in place of a growing appetite for export as LNG, it is projects like Uquo-Ikot Abasi line that will become an integral part of the basic gas infrastructure.

At $65million the Agbami 4D seismic acquisition programme, which got underway in November 2009, is expensive by the standard cost of seismic acquisitions. The bill is double the cost of comparable acquisitions on similar, large sized deepwater fields. It will take four months for Seabird’s Hugin Explorer, to complete the acquisition. The cost of Agbami 4D lies in its uniqueness; the efficacy of the acquisition is not so much dependent on the vessel capability as it is about the cable reaching the seabed and capturing data that the best seismic vessel architecture cannot achieve. Operator Chevron wants to properly image a reservoir that is much deeper than the deepest known hydrocarbon reservoir and Seabird will help them do it through nodal analysis.

In Egypt, the combined solar and gas thermal project in Kureimat, located south of Cairo. is expected to be commissioned in 2010. This hybrid project will produce about 150 MW of power, 45 percent of which will be from solar parabolic troughs and steam turbines, the rest coming from natural gas turbines. The entire cost is $327 Million, of which the World Bank is providing $49 Million soft loan from its Global Environmental Facility. The Japan Bank For International Cooperation contributes $151 .29Million. The Egyptian government itself comes up with the balance of $126.48Million. If my cousin had seen Hassan Younis, the Egyptian minister of Energy and Electricity, explaining that the country was spending “only” $126.48 Million on an “important” energy infrastructure, she might have dismissed it. But this is a game changing kind of project; the largest solar energy project in the middle east and, for the record, in all of Africa. The South Africans, who have been so fixated on burning tonnes after millions of tonnes of coal in order to expand their power generation, don’t have such a project in sight in the short term. As important for me as anything else about the Kureimat plant is this: the project contractor is Orascom Construction; an Egyptian company listed on the Cairo and Alexander Stock Exchange.

Indeed, the large sized, money guzzling projects we read about every day in newspapers start, quite often. as modest efforts. When the American minnow. Triton, was about to drill its first well in Rio Muni basin, off Eq Guinea, in 1999, it could barely afford the money. The company was practically begging everybody to farm in. It was almost at the last minute that Energy Africa, the South African independent, bought 15°o. Now we all know that the discover-c of the Ceiba field opened the basin to the world, Today, nine years after first oil, the field and its satellite, Okoume, are doing 60,000 BOPD. On account of the project’s cash flow, Triton was bought over by a larger operator, Amerada Hess. The field is also the major reason why Tullow swallowed Energy Africa in 2003. As my friend, Emeka Ene, managing director of Oildata, the Oilfield Service Company, would say:  “Do not despise the days of small beginning.


Yar’Adura’s Team Of Rivals

By Toyin Akinosho

Rilwanu Lukman, Nigeria’s newest minister for petroleum, is the public face of the group, within the government of President Umaru Yar’Adua, that re-instated the Power Holding Company of Nigeria, as the country’s monopoly power generation and distribution entity.

Rilwan Lanre Babalola, the newly appointed minister for power, was the Team Leader for Power Sector Reform at the Bureau for Public Enterprises (BPE), driving the privatization of the entire utility, during the last government headed by Olusegun Obasanjo.

The two personalities have diametrically opposite perspectives on improvement of the power sector in Nigeria. So, what are they doing together in the same cabinet?

Was the idea to bring Babalola in to join Lukman, in what used to be Ministry of Energy, to create a team of rivals? If so, to what end?

Lukman’s idea of the continuation of power sector reform is to have the PHCN run as government funded entity until 2011.

That is a sharp reversal of the policy that Babalola and others championed through the BPE, a framework which provided the grounding for the country’s power sector reform act that was signed into law in March 2005. That act supercedes any law on electricity generation, transmission and distribution in the country.

Babalola cut the image of the spokesperson for privatization of the power sector between 2002 and 2005, during which the power reform bill crawled its way through the bureaucracies of the state house and the national assembly. His statements vilified the running of the PHCN and he was quoted as saying that tariffs could not have been higher than the loss Nigerians suffered from the inefficiency of the PHCN, which he said was understaffed in the technical and marketing departments and over staffed in administration. At a public forum in 2004, Babalola disclosed that he had been asked, in private, even by people in the legislature, why he was so passionate about selling off

PHCN.

As of May 2007, the BPE had put up for sale three of the seven electricity generation companies (power stations) and all the 11 distribution companies carved out of the PHCN. As the Obasanjo government wound up, private investors had submitted a total of 102 expressions of interest (EOI) for the three generating companies on offer and 302 EOIS for the distribution companies.

Yar’adua’s arrival at the state house put all that effort on the back burner.

Lukman’s committee declared that much of the implementation of the reform programme, midwifed by the BPE under Obasanjo, was hasty and that the targets set out in the programme were not met. It noted the pending issues of staff pension, the failure to define the workings of the Rural Electrification Fund and the establishment of the Consumer Protection Fund, among other regulatory shortcomings. To Mr Lukman, it didn’t matter that these issues he listed did not grapple with the argument that the nature of graft, in Nigeria, guaranteed that a government owned power utility could not work. South Africa and Egypt, the biggest economies on the continent, are powered by utilities that are owned by government. But these countries are not Nigeria, simple.

A small digression here. The national consensus in Nigeria, as of May 29, 1999, when civil rule was ushered in after 15 years of military dispensation, was that the electricity utility and the telecommunications monopoly should be disposed off. Nigerian intellectual, commercial and political elite couldn’t guarantee that, like France’s EdF, or South Africa’s Eskom, electricity could be sustainably supplied by a state run entity in Nigeria. The rot in government parastatals, especially those of the commercial variety, was and is still so deep that even officials do not trust their own instincts.

Yet in July 2008, Lukman’s committee called for a halt to the sale of PHCN. Against the run of play, and a subsisting law which provides guidance for the end of the monopoly, the committee decreed “a strengthening of the utility through the establishment of a coordinating body at its headquarters to provide leadership.” That leadership mandate was to run for three years. That was how PHCN returned to run things.

The question, then, is, if PHCN would not be privatised until 2011, the terminal date of the Yar’adua administration, why hire a minister who is ideologically opposed to a PHCN monopoly?

Some have called on Babalola to return the country swiftly to the Obasanjo era reform agenda and finalise the process. They ask him to quickly complete the National Integrated Power Projects, involving the construction of 11 generating stations and an overhaul of old radial transmission and distribution system, with state money and then hand over their operations to those private companies who win in a competitive, transparent sale process. That way, they say, government would not have to spend any single cent more to provide electricity, going forward.

But what’s crucial here is what the president wants.

Is he prepared to allow the forty something year old Babalola push his own initiatives, or is he just having him in the cabinet, to suggest that there are young people in his court, while he implements the initiatives of the elderly Lukman?

With Babalola and Lukman in the same cabinet, are we going to have a bruising fight between those who want the status quo of Africa’s largest country lavishing money on a chronically ill power utility and those who want a choice to a more competitive environment, with a strong regulatory oversight that ensures equitable prices and businesses that don’t take advantage?

President Yar’adua has shown so far to be on the side of those who prefer government ownership of energy companies, no matter how inefficient. In September 2008, Mr. Yaradua’s spokesmen publicly disowned, in a very gruff manner, an announcement by the BPE to privatise the Petroleum Products Marketing Company. The government statement essentially reversed proposals that the BPE, itself an arm of the Nigerian presidency, had put forward after deliberations with members of Mr Yaradua’s cabinet. In the move against the PPMC sale, there were echoes of Mr Yar’adua’s first symbolic act in office; the re-nationalisation of two refineries (with total capacity in excess of 300,000BOPD)from a private enterprise that bought them, returning cheques with value in excess of half a billion dollars. Mr Yar’adua had stated then, that the state hydrocarbon company NNPC had only 12 months to restore the refineries to health.  As of the time of writing this, 19 months after, the refineries are still short of that target.

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