FG May Dump Bayelsa, Kogi Greenfield Refinery Projects as Only Lagos Viable

Filed under Lagos
There are indications that the federal government may jettison two of its three Greenfield refinery projects, following the recommendations of the National Refineries Special Task Force (NRST).

The 22-member task force headed by former Minister of Finance, Dr. Kalu Idika Kalu, had in a report submitted on August 2, 2012 found that of the three joint venture Greenfield refineries option under consideration by the Nigerian National Petroleum Corporation (NNPC), the economics strongly favours only Lagos.

Based on its finding, the committee had advised that only the proposed 350,000 barrels per day (bpd) Lagos Greenfield refinery should be pursued vigorously as a priority project to ensure it comes on stream by 2016, while the proposed Bayelsa and Kogi refineries should be explored later.

The NNPC and China State Construction Engineering Corporation (CSCEC) in 2010 signed a memorandum of understanding (MoU) for the construction of three Greenfield refineries in Lagos, Bayelsa and Kogi, as well as a gas refining/petrochemical plant.

Under the terms of the agreement, 80 per cent of the estimated cost of all four projects, put at $28.5 billion was meant to be funded with a term loan provided by China Export Credit Insurance Corporation (SINOSURE) and a consortium of Chinese banks led by the Industrial and Commercial Bank of China, the world’s largest bank, while the NNPC was to foot only 20 per cent of the cost as equity contribution.

The project was envisaged to add 750,000 barrels per day of extra refining capacity to Nigeria’s current 445,000 barrel per day refining capacity as well as stem the flood of imported refined products into Nigeria.

However, the project had suffered series of setbacks, as the NNPC was said to have failed to fulfill the conditions stated in the MoU.

A source at the NNPC told THISDAY weekend that although the Final Investment Decision (FID) on the Greenfield refinery projects had been completed and soil analysis showed that the project was viable, the project might not take off soon as government was determined to implement the recommendations by the refinery task force.

He explained the construction work did not commence as planned because the NNPC was awaiting the report of the refinery task force, which, would determine the next line of action.

The source said, for now, the government was interested in revitalising the old refineries and also planned to divest its equity from them in line with the recommendations of Idika Kalu task force.

“No meaningful development has taken place as regards the Greenfield Refineries project. We are still considering the refinery committee’s report to see areas that will be fully adopted. And if the NNPC decides to follow the recommendations of the task force, it will definitely affect the Greenfield Refinery projects one way or the other”, the source said.

He also noted that based on the recommendations, the partners may have to amend the MoU, a development, which he said will further delay the project.

The Idika Kalu committee had been mandated to among others, conduct a diagnostic review of the nation’s existing four refineries and advise on the best approach to turn them around; review as well as advise government on private refinery licensing and partnership models for Greenfield refineries.

The committee had also in its report, observed that the old refineries with combined capacities of 445,000 bpd, could meet Nigeria’s domestic needs only if the root causes of their poor performances were vigorously resolved. It also identified years of maintenance neglect as the major cause of the refineries’ poor performances.

“In the early 1990’s, Nigerian refineries produced enough petroleum products to satisfy national demand and exported the excess, but discovered the refineries have not been efficiently and safely operated and maintained for more than 15 years”, the committee noted, even as it advised that government should divest its equity from the refineries and allow private entities to manage them.