FG Gets One Year Extension for Greenfield Refinery Project

Deziani Alison-Madueke , Petroleum Resources Minister

By Chika Amanze-Nwachuku

China State Construction Engineering Corporation (CSCEC) has extended by one year a Memorandum of Understanding (MoU) it signed last year with the Nigerian National Petroleum Corporation for the construction of three Greenfield Refineries and a Petrochemical plant in Nigeria.

The renewal of the MoU followed NNPC’s inability to make the May 13, 2011 earlier set for the projects envisaged to boost Nigeria’s refining capacity by additional 750,000 barrels per day.

Conveying the board’s decision in a memo Friday to the Group Managing Director (GMD) of the NNPC,  Austin Oniwon, CSCEC’s Vice President Overseas Operations, Yu Zhende, noted that the extension was granted based on NNPC’s assurance that feasibility studies for the three refineries would be carried out in July.

The one paragraph memo, a copy of which was obtained by THISDAY, read: “Further to your request to extend the May 13, 2010 MoU between the NNPC and CSCEC for one year, we have held discussions with our board and advised (Detailed Feasibility Studies (DFS) will be ready in July. Although our board would have preferred a three-month extension (because of the need to commence loan negotiations, we accept your request to renew the MoU till May 13, 2012”.

The MoU signed by Nigeria and China in May last year was for the construction of three oil refineries in Lagos, Kogi and Bayelsa States under a $28 billion provisional deal. The start of the construction, according to the MoU, was dependent on the conclusion of negotiations, which had been slated for 5 July. Under the plan, each new refinery will be able to process around 250,000 barrels of oil a day, potentially meeting Nigeria’s estimated need of 750,000 barrels per day over the next ten years.

Under the terms of the agreement, 80 percent of the projects cost were meant to be funded with a term loan provided by China Export Credit Insurance Corpo-ration (SINOSURE) and a consortium of Chinese banks led by the Industrial and Commercial Bank of China, the world’s largest bank.

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.

The parties had agreed to build two Greenfield 300,000 barrels per day refineries – one each in Lagos and Bayelsa – and a 150,000 b/d refining plant in Kogi and a gas refining/petrochemical plant based on the gas pipeline network envisaged under the Gas Master Plan. The estimated cost of all four projects had been put at $28.5 billion in which NNPC was to foot only 20 percent of the cost as equity contribution.

Initial request for the extension of the MoU was turned down by the CSCEC on condition that any such decision must be approved by its board.

The foreign firm had also categorically stated that securing the loans for all the projects would be difficult in view of numerous requests for project financing from the Chinese Government from other African countries.
The letter for extension of the MoU was signed by the Group General Manager, Greenfield Refineries Engineering and Technology Directorate, at the NNPC, Mr. Adebayo Ibirogba.

He gave the update of the feasibility studies for the three refineries as follows; that detailed feasibility study for Lagos refinery would take place in July, 2011, pre-feasibility study for Bayelsa refinery in July, 2011 and that of Kogi Refinery in July, 2011. He also stated that detailed feasibility studies for Bayelsa and Kogi refineries as well as executive summary report for all the 3 refineries would be ready in October this year. The corporation also stated that Wood Mackenzie and Foster Wheeler were working as joint Consultants on all 3 reports.

Currently, Nigeria’s four refineries located in Port Harcourt, Warri and Kaduna, with combined capacity to refine 445,000 barrels a day, operate far below their capacity utilisation.