NNPC prepares 20 investors to stake over $20bn in modular refineries

THE Nigerian National Petroleum Corporation, NNPC, has commenced move to attract 20 companies to make substantial investment worth $20 billion in order to meet

the Federal Government’s target of increasing refining capacity in the country.

Investigations showed that the apex oil corporation has, in the past few weeks, been engaging with the investors in order to inform, educate as well as assist them to prepare various packages required in the process of applying for licence. 

On completion of the engagement, the promoters of the modular refineries would be equipped with vital knowledge to submit their applications to the Department of Petroleum Resources, DPR, that is vested with the responsibility to issue such licenses. 

Confirming the development on the sideline of a forum on modular refinery in Lagos, General Manager, Refining Directorate, Mr. Ahmed Danlade, who is involved in the process, disclosed that the NNPC decided to play the role in order to guide potential investors to invest in the sector. He said this became very important, especially as many potential investors did not know much about the sector.

 In a follow-up telephone interview, Danlade added: “Building a modular refinery is not cheap. It costs millions of dollars to establish a modular refinery with 10,000 barrels per day, bpd.

“But building a 100,000 bpd to 150, 000 bpd modular refinery can cost between $1 billion to $2 billion. So, investors need to have adequate funds to go into business,” he added. The Associate Director, PricewaterhouseCoopers Limited, Mr. Olumide Adeosun, indicated in an interview that there was a great need for investors to invest in refining, targeted at reducing dependence on importation.

 “Current demand for refined products in the region is estimated at 39 billion litres and refineries such as SIR (Ivory Coast), SOGARA (Gabon) and SAR (Senegal) cannot meet this. There is an opportunity for potential uptake by neighbouring countries if the market has Nigeria’s refined products readily available.”

 “Imports currently account for 90per cent of Premium Motor Spirit (PMS) supply and 60per cent of Automotive Gas Oil (AGO) supply. Nigeria consumes over 17 billion litres of PMS annually and consumes over 3 billion litres of AGO. 

Transportation and power are the major drivers of demand for PMS in the country while increasing the demand for self-generation options such as AGO powered generators is the major driver of AGO demand,” he added. 

The Managing Director of Niger Delta Petroleum Plc, Dr. Layi Fatona urged local and foreign investors to invest in the sector, adding that modular refinery is profitable. Based on his experience in operating the Ogbele – based plant in Delta State, Fatona said that investment could be recouped within the first few years. The company stated at its website that, “ The Company was the first private refinery in Nigeria to receive an operating licence by the Federal Government and has the sole right to sell surplus diesel fuel to the local market. 

The refinery is not complex; however, it does produce a range of refined products including diesel, kerosene and marine diesel. “The company is planning, as part of a two – five year plan to expand capacity fivefold to 5,000bpd which, if we assumed a 60% operational efficiency rate, equates to revenues greater than US$3m per month, or US$36m per annum. 

This would require capex of US12m to achieve, with a payback of around 6 months.” “We have valued the refinery using EV/EBITDA multiples which assume a 50% EBITDA margin on revenues, 30% corporate tax rate and a 6x EV/EBITDA multiple which is typical for a global refinery, to arrive at our NAV value of US$32m” it added. However, the Head of Ecobank Energy Research, Mr. Dolapo Oni said that investors would likely encounter funding and other challenges. He indicated that Nigeria’s banks have already provided a maximum of 20 per cent loans to operators in the energy industry as stipulated by the Central Bank of Nigeria. Oni noted that many beneficiaries of the loans have not been able to pay back, thus leading to legal tussle as the banks move to recover their funds. 

Consequently, he called on investors to look beyond loans in funding modular refineries which many investors intend to establish in different parts of the nation. “In the light of current state of affairs, it would be advisable for investors to think of creative ways and means of raising funds to implement their projects, including modular refineries.” 

“Specifically, they should think of equity participation and other options, apparently because apart from many projects call for medium and long term funding which many banks are not ready to consider at this time,” he added. Meanwhile, the Managing Director and Chief Executive Officer of the Niger Delta Development Commission, NDDC, Mr. Nsima U. Ekere has disclosed that NDDC would invest in modular refinery. Ekere, who led a strong delegation to this year’s Oil Technology Conference to explore partnership opportunities in modular refineries for the Niger Delta said NDDC is attending the conference as it prepares to implement Federal Government’s proposal to replace thousands of illegal refining facilities scattered across the region with modular refineries. 

Also, the Governor of Bayelsa State, Seriake Dickson has disclosed that the establishment of modular refineries and other oil and gas related businesses, will stem the tide of militancy and illegal refineries in the Niger Delta region. He said, “The policy I want to appreciate the federal government for and which is also why I am here is the issue of modular refinery. Some of these young people are engaged in illegal refineries. We know that is not the right thing to do, but somehow, they are doing it. Our environment is affected in the process.” 

“We want to establish three modular refineries – one in each senatorial district, so that some of these young people, who engage in illegal refineries, can be brought together in an organised manner, working with our partners, “he added. In its 2017 briefing notes, Shell indicated that incidents in 2016 have reinforced that security remains a high priority in the Niger Delta. 

“Crude oil theft, sabotage and related damage to oil and gas facilities continue to present significant security concerns in parts of the Niger Delta, as well as environmental damage, which is aggravated by the proliferation of illegal refineries in the area.” “Illegal refining and third-party interference are the main sources of pollution in the Niger Delta today. Third-party interference is the cause of 90% of the number of spills of more than 100 kilograms from The Shell Petroleum Development Company of Nigeria Limited operated Joint Venture (SPDC JV) pipelines in 2016.” “Security in parts of the Niger Delta remains a major concern with persisting incidents of criminality, vandalism, threats from self-described militant groups, host community agitations and offshore piracy. There were renewed acts of sabotage by self-described militant groups on oil and gas infrastructure in parts of the Niger Delta in 2016, which severely impacted oil and gas operations. For example, export operations at the SPDC- operated Forcados Oil Terminal (FOT) were disrupted after three sabotage incidents in 2016,” it added.