Nigeria plans a major overhaul of its existing refining capacity as the state-owned Nigerian National Petroleum Corporation finally moves to transform its beleaguered refining industry.
Anibor Kragha, CEO of NNPC’s Refineries Division told S&P Global Platts in an interview that he expects to sign a deal with two consortiums next month, that will help increase refinery runs in the country and reduce its hefty fuel import bill.
The objective of this program is to increase its domestic refinery utilization rates to 90% from current levels of 10-20%, Kragha said speaking to Platts in Cape Town on the sidelines of the African Refiner Association conference.
Kragha also said NNPC is working on reducing the sulfur content of its gasoil and gasoline imports. Nigerian gasoil imports will shift from 0.3% sulfur or 3000 ppm to 50 ppm gasoil from July this year, while for gasoline it hopes to shift to 300 ppm or 0.03% maximum sulfur gasoline from October, Kragha added.
Platts: How are talks with foreign partners on the overhaul of the existing refineries progressing? When is this expected to be finalized?
Anibor Kragha: NNPC’s engagement with the potential financiers has progressed to the stage of term sheet negotiations with financiers. This is coming on the back of two rounds of evaluations with consortiums that expressed interest to finance the rehabilitation of the refineries.
It is expected that the financial close will take place by April 2018 with procurement of long lead equipment starting soon thereafter.
Platts: We have heard that two consortia consisting of trading companies, oil majors and project companies will be participating in this program and this model will involve the offtake of refined products for modernizing these plants. Can you please elaborate?
Anibor Kragha: Correct, NNPC is currently progressing term sheet negotiations with two consortia (one set for Warri/Kaduna refinery and another for Port Harcourt). The financing is structured as a prepayment for volumes by a SPV (special purpose vehicle) project company to the refinery company and will be documented under a forward sale agreement.
As such, the project company shall monetize the volumes through both local sales and offshore exports to meet their debt service obligations. To ensure optimal performance of the refineries post commissioning, each consortium includes experienced and reputable refinery operations and maintenance contractors who will be responsible for operating and managing the refineries with NNPC during the term of the forward sale agreement.
Platts: Can you please give us some details on this new system and how will it impact the ongoing Direct Sales Direct Purchase model which NNPC currently uses to import refined products?
Anibor Kragha: The current financing structure and operational model post rehabilitation have been designed to ensure improved performance of the refineries such that the crude that was hitherto made available to traders under the DSDP program will now be dedicated to the operation of the refineries.
NNPC will be committing to ensure crude oil supply to the refinery companies post rehabilitation under this structure (under a crude oil supply agreement with the refinery company) to ensure the consortia are able to meet the performance target of 90% utilization capacity currently contemplated under the financing. It is therefore envisioned that the DSDP program will fall away post rehabilitation but could be used to deliver products to meet domestic demand during the rehabilitation period of the refineries.
Platts: What is the latest in Nigeria’s quest to move to low sulfur refined products especially for gasoil and gasoline?
Anibor Kragha: NNPC is to utilize the rehabilitation program to implement desulfurization technology in refineries to ensure alignment with ARA Fuel Standards by 2021. Refineries received a three to four year waiver from the inter-agency committee to meet this target. There is also a mandate to import cleaner fuels by 2019 of acceptable sulfur levels. The cost of the desulfurization technology will be incorporated in the capex for the funding.
Platts: What is the current status on the gasoline shortages and what is NNPC doing to tackle this?
Anibor Kragha: NNPC has put-in place a robust gasoline supply strategy encompassing import and in-country production while maintaining a minimum of 45 days sufficiency.
As such, the gasoline shortages have broadly been curtailed. The current refinery rehabilitation project is aimed at putting in place a long-term solution to permanently deal with reliance on imports which will also mean significant savings on foreign exchange for the country.
Platts: Is NNPC still on track to ensure 90% minimum capacity utilization by 2019 or has this changed?
Anibor Kragha: This target has not changed. The operations and maintenance contractors shall be required to commit to 90% minimum capacity utilization post completion of the rehabilitation.
It is expected that the engineering, procurement, and construction contractors will complete the rehabilitation and re-commissioning within 18-24 months (including the testing period).
Platts: Are there any plans to build new refineries?
Anibor Kragha: NNPC has undertaken feasibility studies (done by Wood Mackenzie) for four greenfield refinery projects in Lagos, Bayelsa and Kogi States and is seeking credible investors for those opportunities. Currently, NNPC is collaborating with Eni’s AGIP/NAOC as a strategic partner in developing a proposed 150,000 b/d refinery project to be located in the Niger Delta region.
With Nigeria’s population of over 180 million people and the potential opportunity in the regional market as a refinery hub, NNPC welcomes companies and financiers that wish to partner with it on greenfield refinery projects.
This interview was conducted by S&P Global Platts on the sidelines of the African Refiner Association conference in Cape Town, South Africa.
