All posts tagged refining gap


An Industrial Park Grows on the back of a Marginal Field

Waltersmith Petroman, the Nigerian independent, pulled out all the stops, late November 2020, to inaugurate a 5,000BOPD modular refinery in Ibigwe in the east of the country.

Over 300 oil and gas executives, most of them airlifted from Lagos and Abuja for the event, and a speaker line-up that included President Muhammadu Buhari, who directly addressed the gathering virtually from the State House, witnessed the commissioning.

Sitting in that glittering gathering, cramped for space in a vast canopy, you could be forgiven for assuming that the country was launching the grand project itself: the 650,000BOPD Dangote Refinery, under construction for the last five years.

But this modest hydrocarbon processing project is part of an ambitious journey that began as a marginal oil field, estimated at no more than 20Million Barrels of crude in recoverable reserves.

The destination is an Industrial and Innovation Park, with a 50,000BOPD refinery complex and a 3,000MW gas-fired power plant as the centrepieces of a hub that will provide energy to 118, 000 households and 27, 000 commercial and industrial users.

The park is designed to be spread over 100 hectares of land initially, of which 65 hectares of land has been acquired. The Power Plant will supply power to nearby industries or industries which come to locate themselves in the hub. Waltersmith was awarded electricity generation license by the Nigerian Electricity Regulatory Commission (NERC) in 2017.

The 5,000BOPD plant, with planned optimum output of about 271Million litres of refined petroleum products (Diesel, Kerosene, Heavy Fuel Oil-HFO and Naphtha) per annum, is thus the first of a three phase complex comprising a 20,000Barrel per day condensate refinery and a 25,000 crude oil refinery, planned for completion by 2022.

To fund this starter project, Waltersmith Petroman formed a Joint venture (JV) with the Nigerian Content Development & Monitoring Board, a Government parastatal which holds 30% to its 70%. The JV, named Waltersmith Refining and Petrochemical Company, got funding support from the African Finance Corporation (AFC), a pan-African Multilateral Development Financial Institution.

Even if the project is halted at this first phase, it is already an exception in the country.

As a rule, private Nigerian owned E&P companies do not aspire to be integrated entities.

Waltersmith is only the second company, out of over 20 Nigerian independent crude oil producers, to get into the business of running a refinery. It is instructive that the first: Niger Delta Petroleum Resources, also built its refinery on the back of a marginal oil field.

Established in 1996, Waltersmith Petroman acquired the Ibigwe Marginal Field (OML-16) license in 2004 and delivered first oil in 2008. It grew production to over 7,000BOPD, built a 15,000 BOPD Flowstation at Ibigwe to process crude from the Ibigwe Field and the neighbouring NNPC/ SEPLAT JV Ohaji South Field in OML-53. Anticipating additional growth in production from the vicinity, Waltersmith is expanding this facility to handle 20,000BOPD by the end of 2020.

Two intractable challenges that confront small producers like Waltersmith in delivering crude oil to the market are the incessant vandalism of export pipelines and high charges paid to both pipeline and terminal facility owners. At one point for Waltersmith was losing between 25% and 30% of the output before the crude got to the terminal. Then again, the company was paying as much as $8 per barrel on pipeline and terminalling charges.

The idea for the refinery came primarily from thinking to mitigate production losses. But gradually, what started as a route out of economic challenges started taking the shape of a higher calling.

“WE HAD BEEN PRODUCING OIL NOW FOR OVER A DECADE and of course, we had our own unique locational challenges but I then asked the question, is this it for our nation?”, wondered Abdulrazaq Isa, Waltersmith’s Chairman and co-founder. “Producing and exporting oil? Is this it for us, is there a way we can do something better?”

The company decided it was going to start small and build a modest modular refinery,“but side by side, we started asking the question, what can we do with the gas that we are producing, from which we had been generating about 1.2MW of electricity for ourselves on our site? I started asking why can’t I provide electricity for some other people?”

Razaq said that, as the refinery project started taking shape, “the next wave of thinking in our company was how to create an industrial infrastructure where we then begin to provide other services to other people. We can acquire a significant amount of land within our area: we are building a refinery, we are providing electricity for ourselves, we are providing water for ourselves, we are providing security for ourselves so why can’t we scale that up and do that with other people? Why don’t we create the same enabling environment within our area for those of us who are operating within that area and provide these same services to them?

That way, we can create jobs for people, people can co-locate factories and industries where we are and that way, we can impact the economy directly and begin to create an industrial base for the production of other things. That was the kind of thing that we are beginning to think about but that is in addition to expanding our refining capacity and our upstream business will of course continue to grow because we will continue to look for assets. We see our upstream business as an enabler for doing things. We in this business, must look at other sectors of the economy and continue to intervene in them because we earn significant resources from the E&P segment of our business”.

By 2018, Final Investment Decision (FID) had been taken and in October 2018 the groundbreaking ceremony was done, effectively kicking off the construction phase in November 2018.

FEED STOCK FOR THE EXPANSION

The 5,000BOPD refinery utilises own operated crude as feedstock, but negotiations are ongoing with both SEPLAT and NNPC on Crude Sales and Purchase agreements for the over 7,000BOPD NNPC/SEPLAT OML-53 JVO haji South production processed at Waltersmith’s Ibigwe Flow station. There is also ongoing conversations, for some commercial arrangement with other parties who either hold positions in, or operate, fields sited within 30-km of the Ibigwe Marginal Field.

Front End Engineering Design (FEED) for the 25,000 Barrels Per Day (BPD) Phase 2 Condensate Refinery was completed in Q1 2020, with feasibility study concluded in Q2 2020 and the EPCIC Contracting process has been initiated with Final Investment Decision planned for Q4 2020 and the delivery expected by Q4 2022.

Phase 2 will output about 1.4Billion litres per year of refined petroleum products (Premium Motor Spirit – PMS, Diesel, Kerosene, Aviation Jet Fuel and HFO) when completed, in addition to the 271Million litres from the Phase 1. “The combined products expected at full capacity, from the three phases, is about 2.7BIllion litres of products per annum. “This represents 10% of the total refined products consumption in Nigeria”, Isa said. The groundbreaking ceremony for 2nd and 3rd  Phases of the refinery complex was done in conjunction with the commissioning of the 5,000BOPD Phase 1 Refinery last November.

THE LINEUP OF SPEAKERS AT THE commissioning ceremony comprised, largely the CEOs of the companies expected to provide condensate and crude oil feedstocks for the next two phases.

One of the first speakers was Roger Brown, CEO of Seplat, operator of OML 53, the condensate rich asset on which the 300MMscf/d ANOH gas project, promoted also by Seplat, was being constructed. “This plant means that crude oil from this area will be refined in this area and sold to people from this area”, Brown gushed. “And this is what the future is got to be. It’s got be utilized within our areas and states. I’m delighted to say the crude stock from our OML 53 production will be refined here and sold in Imo State”.

Waltersmith also has eyes on crude oil from Egbema field (operated by NPDC, an NNPC subsidiary) and Egbema West (held by Shell Petroleum in JV with NNPC). The assets, “located in nearby OML 20, are excellent sources of crude oil feedstock for our refinery”, Isa told the gathering.

Chike Nwosu, CEO, Waltersmith

This is what Osa Okunbor, Chair of Shell Companies in Nigeria, referenced when he spoke. “This project sits very, very close to several of our land assets and there’s a lot of room for collaboration to ensure that the required feedstock is obtained”, Okunbor said.

“I want to reaffirm this commitment working with our partners in the SPDC JV in particular, the GMD of NNPC to see how we can fulfill this commitment we made to support this project with the required feedstock.”

One sticky point in Waltersmith’s negotiations for feedstock from these nearby fields, sited within 30-km of the Ibigwe Marginal Field, is NNPC’s own development plans.

The state owned firm’s decision to site a condensate refinery, right in the Assa North- Ohaji South (ANOH) field area, had been as ore headache in the planning for Waltersmith’s 2nd Phase Condensate Refinery.

Waltersmith had been in discussion with Seplat Petroleum, to have the latter inject the condensate from its ANOH field gas project to the refinery. But NNPC too, as Seplat’s partner on the asset, is angling for a condensate refinery in the vicinity. NNPC wants to construct four condensate refineries of 30,000BPD capacity each, and site one of them in the ANOH area. Its primary feedstock is the same gas condensate from ANOH that Waltersmith is seeking to take from Seplat.

Waltersmith has been negotiating with NNPC to either merge its plans into the Ibigwe Phase 2 Refinery, or for the two of them to find some other middle ground. This is why Waltersmith’s press releases and its several public statements in the past year have repeatedly contained the line: “Critical to the success of these projects is the Federal Government’s support, through NNPC, to conclude on advanced discussions to grant Waltersmith access to nearby Condensate feedstock in Assa North / Ohaji”.

Of critical importance, then, was the speech of Mele Kolo Kyari, the NNPC’s Group Managing Director, at the commissioning.

“We have engaged Waltersmith severally and we have assured them that between us and our partners, we will make feedstock available to this refinery” Kyari declared. “ NNPC will continue to collaborate with other investors to establish more refineries”.

THE HUB, THE COMMUNITY

As putative feedstock providers were providing verbal guarantees of crude condensate and gas supply for the refinery, the basic blocks of the larger industrial park were also being assembled.

Isa, the Chairman of WalterSmith Group, announced the “ground breaking of the development of our Industrial and Innovation Park with the flagging of the Technical Support Agreement with United Nations Industrial Development

Organisation (UNIDO) and United Nations Economic Commission for Africa (UNECA)”.

Chike Nwosu, Waltersmith’s Chief Executive Officer, said that once the company “can provide the basic needs of manufacturers which is around energy, we expect them to be attracted to these areas and we expect that to begin to create commercial hub around the Ibigwe area where the inherent entrepreneurship of the people of that area will be given the juices for them to grow and so, you will see small and medium enterprises growing along with the larger industrial manufacturers”.

Nwosu has heard so much talk about companies’ ability to pay for the industrial park services, especially provision of power.

He has a response: “Waltersmith has a paradigm shift”, he explained. “The ability to pay conversion is about delivering power, you don’t deliver power because the end users don’t have the ability to pay. Why don’t you create that ability to pay through a couple of steps? The first step is creating the environment for customers who can pay which is the industrial complex.

“There is need to create an industrial complex where manufacturing companies who can pay for the energy because it is cheaper for them and who you can provide with access to ports.

For instance, Port Harcourt is near us, Onitsha is near us including the Port Harcourt airport and other airports within our jurisdiction.

There are exit routes to export anything that you want to do. This should be created for the manufacturers, bring them because they have the ability to pay”.


OPAC Refinery: “We Thought We Were the First in Nigeria”

By Foluso Ogunsan and Akpelu Paul Kelechi, in Lagos

The OPAC (Modular) Refinery, located in Kwale, in the Niger Delta basin, has taken so long (Four years) from conception to completion, largely because of the bureaucracy of constructing a hydrocarbon processing facility in Nigeria, in the opinion of Momoh Jimah Oyarekhua, the refinery’s CEO.

“We had various issues, because we were more or less like pioneers, we had to fight for waiver and that meant going through processing, going through the Ministry of Petroleum, going through the Ministry of Finance, going through Customs. At some point it was now gazetted by the Presidency,” Oyarekhua discloses. “While we were waiting for waiver, which took us eight months, we had some of our equipments stolen at the port. Our intention was to complete the refinery by the end of 2018, or maybe if it spills over, in 2019. But we had some of our equipment missing, some of that equipment had to be reproduced, which opened us to cost because we were at the forefront”.  

Oyarekhua’s use of words like “pioneer” and “forefront” would suggest that the OPAC Modular refinery is the first in the country. In truth, as the 10,000BOPD OPAC refinery undergoes commissioning stages, there are already, on ground, two such facilities fully functional: the Niger Delta E&P (NDEP) owned, three- train 11,000BOPD Ogbele Refinery in Ogbele, in Rivers State and the Waltesmith Petroman owned 5,000BOPD Ibigwe refinery in Imo state, on the eastern flank of the Niger Delta basin. 

But this is how Mr. Oyarekhua frames his narrative of OPAC being a pioneer:

“When we were conceiving the idea of this refinery, (in 2017), I truly would say that I did not know any other refinery existed in Nigeria. When we asked around we were only aware there was a one thousand barrel a day topping plant owned by NDPR stripping out the gasoil in their crude. When in 2017 were thinking of actually building a Modular Refinery. Before then, there were licenses and all that. It began to dawn on us that there was a space that we could play”.

Records at the Department of Petroleum Resources (DPR), the country’s regulatory agency, indicate that the ‘authority to construct’ (ATC) a refinery was only granted to Waltersmith Petroman in March 2017, whereas OPAC refinery received its own ATC, six months after, in September 2017. It’s also true that, as of that time, NDEP was only running its first train, a 1,000BOPD (crude oil to diesel) topping plant-a valid refinery itself no doubt- but had not been granted licence to increase the complexity of the unit to the 11,000BOPD refinery it is running today. DPR records show that ATC for NDEP’s second train 5,000BOPD refinery and third train 5,000BOPD refinery, were both granted in December 2018. 

From DPR’s records, then, Oyarekhua’s claim of being a pioneer, despite “meeting” two refineries on ground, is not necessarily wrong. 

But OPAC had other challenges that ensured the facility’s delay in delivery.

“This project is financed by equity, there isn’t debt. When there are variations, we go back to the drawing table trying to raise money. It’s different from the WalterSmith one that government through NCDMB gave money and all of that. Our models are different, we could be struggling at some point, but they already had everything well worked out”. 

The full interview with Momoh Jimah Oyarekhua, CEO of OPAC Refinery, can be read in this link.

Local Refining Can Consume $Billions of Scarce Nigerian Forex


Funding is the Challenge for Ugandan Government’s Stake in Refinery

With the conclusion of agreements to launch the upstream and midstream segments of the Lake Albert development project, discussions are shaping up around financing close for the 60,000BOPD. 

The government holds a 40% participating interest in the refinery. The Uganda National Oil Company (UNOC) is taking up the biggest shareholding in the project through one of its subsidiaries, the Uganda Refinery Holding Company (URHC), on behalf of the state. “We have a role together with the refinery consortium in ensuring that the refinery makes a final investment decision in 2022, in accordance with the timelines of the Project Framework Agreement”, says Proscovia Nabbanja, CEO of UNOC.

The Albertine Graben Refinery Consortium, which holds 60% of the project, consists of General Electric (GE), Yaatra Ventures LLC, Intracontinent Asset Holdings and Saipem SPA.

The refinery is expected to come on stream between 2024-2025. “There’s a lot of work being done today, such as the environmental and social impact assessment and the front-end engineering design”, Ms. Nabbaja explains. “We are also working with the Ministry of Finance to secure financing for our equity in the refinery”, she notes. 

But the Ugandan government is stretched thin. In the last five years, it has expended close to $2Billion on infrastructure, to equip the country to handle the oilfield project, which will see over 10 fields in the Hoima district producing 230,000BOPD at peak.

“Without financing you can only do so much”, Nabbanja says.“If you are going to play as a contracting party or partner within the agreements, then you must have the financing”.

She says that Financing is not only for UNOC’s equity participation; “to deliver on your strategy, you must have a good target operating model and you must have resources for it. Internally, we have defined the financing needs for UNOCoperations to make ourselves field-ready and capacitated for that time when we actually get into execution mode for the projects”.


Angola to Announce EPC Contractor for Soyo Refinery Next Week

The Angolan Ministry of Mineral Resources and Petroleum (MIREMPET) will, on March 15, 2021, announce the winner of the tender to build the 100,000BOPD refinery in Soyo, in Zaire Province the north easternmost part of the country.

At the start of final evaluation, there were nine proposals from groups that included Atis Nebest-Angola, SDRC, Jiangsu Sinochem Construction Co., Tobaka Investment Group, Satarem, Gemcorp Capital,  China Petroleum Pipeline (CPP) Engineering Firm, Quanten Consortium, as well as a joint proposal submitted by CME, Aida and VSF.

 

One of them has since dropped out, which means that eight companies and consortia had their proposals evaluated by PwC, the government’s due diligence consultant, as of December 29, 2020.

But MIREMPET postponed the announcement, for the second time in January 2021, in order that the best ranked competitors could renew their investment financing guarantees, “through renowned financial institutions, as well as re-affirmation of the corporate structures involved”, the ministry says in a statement.

The Soyo refinery is one of three refinery projects under development by the Angolan government. One is to expand the capacity of the Luanda refinery, another is the two-phase construction of a new 60,000BOPD refinery at Cabinda, which is underway.

 

 


NCDMB Will Extend Its ‘Transitional’ Equity to Ibigwe Expanded Refinery

Nigeria’s National Content Development Monitoring Board (NCDMB) will invest in the next phase of the Waltersmith Refinery in Ibigwe, Imo State, on the eastern flank of the Niger Delta basin.

The board is a 30% participant in the first phase, a 5,000BOPD facility with output capacity of 271Million litres of Petroleum Products, per year.

But whereas the NCDMB’s $10Million investment in the first phase is transitional equity, which means it is expected to pull its funding when the project is developed, the board is impressed enough with the first phase that it is committing itself to the 25,000BPD Phase 2 Condensate Refinery, for which Final Investment Decision is under active consideration.

“Yes, we will continue”, Simbi Wabote, the NCDMB Executive Secretary told Africa Oil+Gas Report. “They have done what they said they would do and we are happy with them”.

Abdulrazaq Isa, Chairman of the board of Waltersmith confirmed the development to Africa Oil+Gas Report. “Ÿes they are working with us on the second phase”, he said.

The 25,000BPD Condensate Refinery will utilize feedstock from the nearby ANOH Gas Processing Company (AGPC) “and some additional commercial discussions were progressed on some nearby oil and gas assets”, Waltersmith says in a briefing.

Front End Engineering Design (FEED) for the 25,000BPD Phase 2 Condensate Refinery was completed in Q1 2020, Feasibility study in Q22020 and the EPCIC Contracting process has been initiated while delivery is expected by Q4 2022.

The groundbreaking ceremony was done in conjunction with the commissioning of the Phase 1 Refinery in November 2020 by President Muhammadu Buhari.

When completed, the Phase 2 will deliver about 1.4Billion litres per year of refined petroleum products (Premium Motor Spirit – PMS, Diesel, Kerosene, Aviation Jet Fuel and HFO) in addition to the 271 million liters from the Phase 1 Refinery.


NNPC Opens Bids for EPC Contracts for PH Refinery Revamp

By Ahmed Gafar Alade, in Lagos

Nigerian National Petroleum Corporation (NNPC), the Nigerian state hydrocarbon company, has publicly opened bids for the Engineering, Procurement, and Construction phase of the rehabilitation of the Port Harcourt Refining Company

A company statement claims that the exercise was “a new chapter” in the corporation’s  refineries rehabilitation project

The event, which held virtually, had in attendance external observers such as the Bureau of Public Procurement (BPP), Nigeria Extractive Industries Transparency Initiative (NEITI) and the Civil Liberties Organizations, according to a press release by Kennie Obateru, the Group General Manager, Group Public Affairs Division, “This signals the imminent take off of the second phase of the rehabilitation of the Port Harcourt Refinery whose first phase was completed earlier in the year”, the statement says.

The bids were submitted electronically and, the NNPC says, they would be viewed virtually.  They were submitted through the NipeX portal for the pre-qualification for technical evaluation. The NNPC statement contains assurances that “the process provides a level playing field for all bidders”.

In the press release, Mele Kyari, Group Managing Director of NNPC, restated the Corporation’s oft repeated statement that it was committed to revamping the four Refineries including the Warri Refinery and the Kaduna Refineries.

The NNPC has announced revamps of its refineries, all of them with total input capacity of 445,000BOPD, several times in the last 20 years. It is now self-evident that there haven’t been any revamp in those years.

Last July, Kyari said that the failure to fix the refineries over these years was a strategy problem, as they never knew what they wanted to do with it. He said that the corporation didn’t get the right advisory services and the right strategy to go through with it.

 

 


Nigeria: Three Refineries Completed, Two under Construction

By Foluso Ogunsan, in Ibigwe

The 5,000BOPD Waltersmith Refinery in Ibigwe, has joined the 11,000 BOPD Ogbele Expanded Refinery, also in eastern Nigeria, as two private sector owned functioning refineries in the country.

The Waltersmith Refinery was commissioned by President Buhari on November 24, 2020, speaking virtually to a packed audience including two state governors, a host of traditional rulers, heads of oil and gas regulatory agencies (NNPC, NCDMB), local CEOs of oil majors and independent E&P companies as well as oil service companies.

The latest update from the Department of Petroleum Resources (DPR), the industry regulator, cites the 7,000BOPD OPAC refinery in Kwale, in the country’s Midwest, as Nigeria’s likely third functioning, privately run refinery, having just been completed and awaiting commissioning.

Under construction are two others: The 500,000BOPD Dangote refinery is 71% completed, says the DPR‘s report, and the 6,000BOPD Edo Refinery is also far gone. (It is instructive that, in the DPR’s books, the Dangote Refinery is not listed as a 650,000BPD refinery, as widely described in the media, but as a 500,000BPD facility).

Apart from these five, no other refinery is under construction in the country today, despite the widespread perception in the press that a number of refineries are under construction.

The widely publicized  Elko Petrochem & Refining Company is not yet under construction, according to the DPR update.

Nor is the Petrolex Oil and Gas refinery, for which an ‘authority to construct’ (ATC), was granted in December 2018.

There are 16 proposed refineries that have been granted authoritisation to construct, but are not in construction stage.

This piece is slightly updated from the original article, published in the October 2020 edition of the Africa Oil+Gas Report.

 


President Buhari to Commission a Modular Refinery in Eastern Nigeria

The facility is the first project in a planned industrial-energy park

Nigeria’s President, Muhammadu Buhari, will commission a 5,000 barrels per day (BPD) modular refinery in Ibigwe, Imo State, in the east of the country on November 24, 2020.

The facility, which will be commissioned under the chairmanship of the Governor of Imo State, Hope Uzodinma, is the first of a three-phase project. It will deliver about 271Million litres of refined petroleum products (Diesel, Kerosene, Heavy Fuel Oil-HFO and Naphtha) per annum.

Promoted by Waltersmith Petroman Oil Limited, operator of the Ibigwe marginal oil field,  the project is developed by Waltersmith Refining and Petrochemical Company, a Joint venture (JV) between Waltersmith Petroman Oil Limited (70% equity) and the Nigerian Content Development and Monitoring Board (NCDMB), with 30% equity.

It is also the first project of a planned energy-industrial park. Waltersmith, as of last February, disclosed that it had surveyed 500 hectares of land, out of which it had  acquired 65 hectares of land for the park, on which it proposes   to build a Power Plant. The company  received an electricity generation license from the Nigerian Electricity Regulatory Commission (NERC) in 2017 to develop a 300MW gas fired plant(the Ugamma Gas Power Plant) to be situated in the same energy industrial complex as the refinery and the flow station in the Ibigwe field.

The power plant will utilize processed gas largely from third parties operating gas fields that are within proximity with the Ibigwe field. It will then supply this power to nearby industries as well as industries who come to locate themselves in that industrial park.

Meanwhile, the second phase of the Modular Refinery construction, a 25,000 BPD capacity will be added, while the third phase, another 20,000 BPD, is expected to bring the capacity to 50,000 BPD.

It is expected that President Buhari will be commissioning both the first phase of the refinery and breaking the ground for the 45,000BPD second and third phases of the refinery, planned to deliver about 1.4Billion litres per year of refined petroleum products (Premium Motor Spirit – PMS, Diesel, Kerosene, Aviation Jet Fuel and HFO).

 


Egypt’s Alexandria Refinery Gets $250MM Financing for Upgrade

By Ahmed Gafar, Editorial Assistant

Egypt’s state-owned Alexandria Petroleum Company (APC) will receive a quarter of a billion dollars ($250Million) from the European Bank for Reconstruction and Development (EBRD sovereign loan.

The loan is partial financing of the $647Million in water and energy efficiency upgrades at the company’s diesel refinery (Alexander Refinery).

The project will bring operations at the facility in line with European environmental safety standards and reduce emissions, the bank said.

Alexander Refinery, established in 1954, is operated by APC with a crude design capacity of 100,000 BPSD. It typically processes light Western Desert crude oil and heavy Kuwait crude oil. It began life as a small refinery with 250.000 ton/year capacity for satisfying Alexandria city and West Delta area needs from the petroleum products. APC refining capacity increased up to 4.7Million ton/year by executing three crude distillation units No. 2, No. 3 and No. 4 in the years 1963, 1968 and 1982 respectively. In 1979, a solvent production complex started in operation under the license of UOP to produce Hexane, Petroleum Ether, and Petroleum solvents. In 1982, the lube oil complex started in operation with design capacity 100.000 ton/year bright stock oil, based on fuel oil feed from Kuwait crude oil origin and in 1983 the vapour recovery unit started operation to produce Stabilized Gasoline and LPG.

Finally, in 1989, the Hexane and Kerosene complex started with annual production capacity of 22.000 ton / year hexane or 18.000 ton / year of treated Kerosene under the license of IFP, while in 1997 the spent oil re-refining unit started in operation with capacity 30.000 ton/year of spent oil and under the license of KTI. Bitumen blending, oxidation and solidification unit started in operation to produce solid bitumen packages in 25 kg blocks.

The EBRD says: “Raising the quality of fuel produced by the refinery will cut down on greenhouse gases, while the construction of a new wastewater treatment facility aims to lower the risk of seawater pollution and a new energy management system will help to reduce fuel consumption”..


Our Archive/Nigeria’s Refining Gap: The Road to Privatisation and Back

OUR ARCHIVE

DATELINE, ABUJA, AUGUST 2007

Calls for a halt to the waste of resources on Nigeria’s state owned refineries go back several decades, as the story below, from our file records of 13 years ago, shows…

In mid July 2007, less than two months after assumption of office, Nigeria’s president Umar Yar’adua ordered that two refineries that had previously been sold to the private sector be returned to state hydrocarbon company NNPC (Nigeria National

Petroleum Corporation). It was an anticlimax to a four-year, controversial privatization process, which ended just in May 2007 with 51% stake in the largest refinery, the 210,000BOPD plant in Port Harcourt, sold to Bluestar Consortium for $561Million. Mr. Yar’dua instructed the NNPC to get the refineries working to at least 70% capacity within twelve months. It was a triumph for the NNPC, which had preferred to be left to run the refineries. But was it a triumph for efficiency? Has Mr. Yar’adua rolled back the painful “gains” of deregulation in the downstream oil and gas sector? As part of our ongoing series on the Refining Gap in Nigeria, senior correspondent EJIKEME OKEKE-AGULU pieces together a six year story, highlighting the see-saw nature of the sale…

In NOVEMBER 2000, GIUS OBASEKI, then Group Managing Director of the NNPC,

gave an overview of the state of the three government owned refineries in the country. He was satisfied with himself. The “Port Harcourt Refinery is running at 75%” he told Yakubu Lawal, energy editor of The Guardian of Nigeria. “I can run Port Harcourt at 100%,” Obaseki said “But professionally, I will be doing myself damage because the cracker- the FCC will not be in place till the middle of next year”.

The country’s refineries have a nameplate capacity of 445,000BOPD; with the Warri Refinery, in the midwestern part of the country, designed for processing 125,000BOPD of crude, the Port Harcourt Refinery, (which is really two in one), located in the east of the country, designed to process 210,000BOPD and the Kaduna Refinery, sited in the north, having an installed capacity of 110,000BOPD.

It was expected, from Mr. Obaseki’s comment then, that Port Harcourt Refinery, by far the largest, would be running 100% by the middle of 2001 though subject to crude availability as the GMD had presumed. This was to be two years into the then new democratic dispensation. Obaseki also told Yakubu Lawal that the Kaduna refinery was “running 60% after a lot of maintenance work”. This performance, he promised, would be tremendously increased, such that by 2001, the Kaduna refinery would “operate at the same level with Port Harcourt”. There was a caveat, however. “Unless we are left to do our work”, Obaseki told Lawal, “we won’t get to where we want to be.”

From the results on the ground, Mr. Obaseki either “wasn’t allowed to do his work”, or the problems were overwhelming.

By 2003, two years after the Port Harcourt and Kaduna refineries were supposed to be working at full steam, and four clear years into President Obasanjo’s take over of power from the military, the thinking in government had changed from “government can run the refineries” to “let us privatise the refineries”, or so it seemed. Port Harcourt, Warri and Kaduna, didn’t achieve the full delivery of petroleum products they were designed to output. The Bureau of Public Enterprises(BPE), Obasanjo’s privatisation agency, had stepped up to the plate.

“All of the refineries are in need of complete overhauling”, the BPE said. “Bad management and poor maintenance have cut refining output considerably, it lamented.

“The Government has attempted to meet the shortfall by importing gasoline. The domestic shortage of refined products persists, and has led to numerous clashes and accidents” said the BPE and “the most recent incident occurred in Warri, Delta State, where more than 1,000 people lost their lives when a gasoline pipeline exploded and caught fire. Villagers were scavenging for gasoline, which had been in very short supply.” The BPE spelt out a number of options being considered by the Government in reforming the refineries and that included: leasing, privatisation, contract management, and joint venture.

THE PRIVATISATION JOURNEY HAD BEGUN.

On his return for a second term in May 2003, President Olusegun Obasanjo signed off on the privatization of the  three refineries. The Privatisation was to be carried out under the auspices of the National Council of Privatisation (NCP).

Transaction commenced in October 2003 with a 60-day sales study of the refineries by the then advisers, Credit Suisse First Boston (CSFB), set up to assess the saleability of the facilities and establish potential bottlenecks that may likely impact closure of transactions and recommend appropriate litigants. The advertisements for Expressions of Interest (EOIs) from prospective bidders in all the refineries commenced simultaneous with the Sales Study. This sales study was completed in December 2003, though Warri Refinery was not covered due to precarious security situation in Warri and environs at the time.

For the Port Harcourt Refinery (PHRC), a Preliminary Information Memorandum (PIM) was sent to the final list of Expressions of Interest (EOIs) approved by the Steering Committee, which included the oil majors. The PIM was also distributed to prospective bidders for new oil blocks in the 2005 Licensing Rounds.

A BPE report says that “The unbundling and corporatisation of PHRC as a separate business entity from NNPC was undertaken, with a detailed assessment of environmental impact of the refinery operations and submission of a detailed report indicating the extent of environmental liabilities and the required remediation plan in other to effectively sell off 51% of the government’s stake in PHRC”.

In November 2005, the Bureau issued the final Information Memorandum (TM) and relevant bid documents to the short listed bidders, viz,

Essar Infrastructure of India;

Oando Plc;

Refinee Petroplus; and

Transcorp Plc. The four firms submitted their technical and financial bids at the deadline of December 2, 2005.

But the BPE said the four bidders did not meet the minimum qualification benchmark after evaluation. They were asked to resubmit revised bid by April 24,2006 after pointing out the areas of weakness in the bids, which did not meet up with some, or all such minimum qualifications as;

o Technical expertise in refining will be a prerequisite;

o Credible Investment Plan aimed at critical rehabilitation and expansion of refining capacity; o A Social Plan also key in dealing with over- staffing;

o Evidence of financial resources; and

o Demonstration of managerial ability. As stated by the BPE

Efforts to understand where each of these four bidders failed the test proved abortive as the BPE never replied to the various queries sent to it by this magazine.

The four bidders however submitted revised bids by the deadline of 24 April 2006. Most of the bids were disqualified after the BPE found that technical partner was a member in more than one consortium.

Following multiple membership in bidding consortia by a technical partner, which would have led to disqualification of most of the bidders, the Technical Committee of the NCP directed that a new RFP (Requests for Proposal) be issued to bidders after further clarification on the bidding procedures. The four companies were eventually pre-qualified for the financial bids opening, scheduled for July 2006.

On the order of President Obasanjo, the process was halted and the transaction re-opened to other bidders.

There were reports then that the refinery was being underpriced and the president ordered the refinery to be returned to the NNPC. There was no improvement afterwards and so the advertisements for EOIs were again placed in December2006 with the deadline for submission of EOls was 19 January 2007. Six bids were received by the deadline from the following prospective investors which included; Mittal Investments Ltd; Indorama International Finance Ltd; Global Oil & Energy; Link Global International Ltd; Taleveras Group; and Oil Works Ltd (DFP project Finance Ltd). Following evaluation of the new EOIs, the following consortia, consisting both existing and new bidders, were approved to proceed to the next stage of the transaction: Essar Infrastructure of India, Oando Plc, Refinee Petroplus, Transcorp Plc, Mittal Investments Ltd, Indorama International Finance Ltd, Global Oil & Energy, and Link Global International Ltd. As at then, it was only the Transcorp that still represented her bid.

The Bluestar Consortium was not in the race.

But sequel to the disengagement of CSFB as transaction advisor, the Bureau sent out Terms-of-Reference (TOR) and an invitation letter to three international firms: HSBC, BNP Paribas & Standard Bank of South Africa asking them to submit proposals to act as transaction advisors for the privatisation of both Port Harcourt & Kaduna Refineries. Only BNP Paribas submitted a proposal and was appointed as the new advisor to complete the refineries transaction.

Three bidders (Oando Plc; Refinee Petroplus; and Bluestar Consortium (incorporating Transcorp) submitted their technical and financial proposals and following evaluation of the former, the three were pre-qualified for financial bids opening. The Bluestar Consortium emerged winner with a bid of $561Million for 51% stake in the plant.

FOR THE KADUNA REFINERY, following China National Petroleum Company’s lower bid of about $102Million for the Northern refinery, NPC conducted a detailed due diligence on KRPC between 17 October and 4 November 2006 prior to submission of bid for KRPC. And they submitted their technical and financial proposals. At the bids opening on May 17, 2007, it offered to pay a revised offer price of$ 102 million, which was below the reserve price. Blue Star Oil Services Consortium also took up the challenge of buying into the KPRC with an offer price of $l60Million for 5l % equity; an amount exceeding the $102 million revised offer by China National Petroleum Corporation (CNPC).

Irene Chigbue, the Director General of the BPE, said that the Bureau’s mandate has never been to sell government’s enterprises for the purpose of generating money for government. “Our greater mandate is to allow the private sector drive the nation’s economy. It is not how much we are getting from these sales that matter, but the overriding desire to see our refineries meet the local need for fuel, thereby saving the country from huge foreign reserves call arising from fuel importation.”

But the Nigerian Labour Congress and the Trade Union Congress in their fight against the refinery sale and increase in petroleum pump price that said government failed in their duty at ensuring that it maintains control on utilities that directly affects the ordinary citizen.

David Mark, then newly elected senate president (presiding over the upper legislative house) said “that there might be friction if government sells an enterprise that has social impact and there is no social cushion to alleviate the pains”.

Emman Egbogah, regional director Society of Petroleum Engineers (SPE) Africa region and former Technology adviser to the Malaysian state hydrocarbon company Petronas: argued: “there are certain critical things the government should maintain a tag upon and I think in the case of Nigeria, there are many areas in which the government of course should have some contributions to make so that distribution will be equitable and maintaining a couple of refineries shouldn’t be too much for us”

IT HAS TAKEN FOUR YEARS, starting from the first few months of president obasanjo’s second term to the last weeks of the president’s tenure, to privatise the refineries, and all that has ended in a smoke, with the return of the refinery to the NNPC.

The NNPC had been wary of going full hog with the deregulation process; at some point the Port Harcourt refinery was withdrawn from the bid process. When an audience at a seminar in the course of an SPE conference asked Edmund Ayoola, a just retired Group Executive Director at the corporation, he fired back: “Why are people insisting on buying government owned refineries?” In a veiled reference to the lack of progress of companies licenced to construct refineries, he responded in frustration: “Why won’t people build their own?”.

Even while government kept on saying that NNPC would get out of the downstream business, the corporation continued to build mega filling stations all over the country.

The most immediate reason for the failed sale of Port Harcourt and Kaduna refineries has been the face of the winners. Bluestar Consortium consists of Dangote Industries Limited, Zenon Corp and Transcorp, three companies widely perceived to be run by cronies of the former president. “All the documents released by the BPE never at any point mentioned or noted Dangote Industries and Zenon (partners in Blue star) as a partner to any of the Bidders”, according to Labour.

Mr. Dangote had tried to douse the tension arising from the transaction and the obviously connected Transcorp by saying that after refurbishing the refineries, a significant equity would be listed on the Nigerian Stock Exchange to afford Nigerians opportunity of investing in the national facility. But when the public outrage over the sale heated up, Dangote threw darts at the NNPC. He told the Daily Sun of Lagos, Nigeria that the government corporation received over $700Million, all within the last eight years, to fix the refineries.

“NNPC stinks”, Dangote charged. “The government did not spend $1.1Billion to refurbish the refineries as some papers report. I know that fact. The papers are there. For the last eight years, the government has given NNPC about $700MilIion to refurbish the two refineries—over a period of time. That money wasn’t properly applied. And even after it was applied, the refineries are still not working. They are still not working. They are worth nothing.” While Dangote fingererd the NNPC as a nest of corruption his critics accused him of using government connections to get them out of business.

Figures from NNPC down stream report for the first quarter of 2005, the latest figure obtainable from the Department of Petroleum Resources:

The Kaduna Refinery processed an average of 38,070BOPD of crude oil for the first quarter of 2005 with a shortfall of 71,930B0PD. The Port Harcourt Refinery on the other hand processed an average of 94,453B0PD, showing another deficit of 11 5,547B0PD while the Warri Refinery processed an average of 65,496B0PD and a shortfall of 59,504BOPD. In all the two refineries of Kaduna and Port Harcourt were only able to process 132,523B0PD out of their total installed capacity of 320,000bbls/d. But an American Energy Information Administration report on Nigeria puts her average crude oil consumption for 2006 at 297,000BOPD with a growth in demand of 12.8% annually.

The figures available in the first quarter of 2005 shows that that KRPC and PHRC received a total of 14,733,289Bbls in the first quarter of 2005 and processed about 11,927,082Bbls also in the same period leaving a total of 2,806,2O7Bbls unprocessed. These figures suggest that as at the time, the two refineries were actually working below 40% as at 2005.

Dangote insists that the sale was transparent enough. He told Daily Sun “BNP Paribas, which was also called in by BTE to come and also do evaluation, just a week before we bought the refineries. Both these two, their evaluation was low” both this two refers to Credit Suisse which had also carried out their own evaluation previously. “When we went out to bid, No.1, there was this company Petroplus or whatever consortium a Saharan Energy. Their group came and they bid $300million. But they couldn’t bring even a deposit. They were therefore disqualified. Oando bid $200million. And they were asked to bring half of the money. Instead of $100million, Oando could only bring $80million. So they were also disqualified. We said $200million for the 51 percent and we put down our $1 O0million. So we qualified. And now, we were asked to go back and bid again and come back with a new price”. It is clear then that Dangote was a late entrant and a lucky child of destiny at that or maybe he represented other interests. Oando would not respond to queries by AOGR.

Now that the Bluestar has pulled out of the Refinery deal and requesting a refund of $721m and the NNPC given another 12 months by the consortium of Dangote, Zenon and Transcorp will NNPC really deliver, after years of failing to deliver? Funsho Kupolokun, who took over from Obaseki in 2003 and has run NNPC ever since, is positive.

“Before February 2006, all the three refineries were running and NONE were running on less than 75% of installed capacity. This magazine’s attempt to get specific 2007 figures from NNPC headquarters in Abuja was futile by officials. Mr Kupolokun stressed that the refineries are comatose today because of the vandalised Chanomi creek crude pipeline and that they would recommence production by September 2007 after their repairs. “Then the refineries will be back; they have been tested and proven. Once we get the refineries running, we will keep improving on what we have done”.

Kupolokun told the Nigerian press, in the last week of July: “The refineries wee working by the third and fourth quarters of 2005. Our import level went down to as low as 30 cargoes and all the depots in Nigeria, except Ore, as at that date, were functioning.”  If Mr. Kupolokun is proved wrong, the costs to the struggling economy would be enormous.

This story was originally published in the August 2007 edition of the Africa Oil+Gas Report monthly..

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