Five years on, $23b Greenfield refineries remain a mirage

THE intrigues of international and local politics may have hit hard on the Federal Government’s move to build a $23 billion petroleum refinery in three states of the federation-Lagos, Kogi and Bayelsa – by the China State Construction Engineering Corporation (CSCEC) .

Several inquiries into the state of the projects have been turned down, while investigations showed that international politics and local intrigues may have been brought to bear on the matter.

The project was envisaged to add 750,000 barrels per day of extra refining capacity to Nigeria’s current 445,000 barrel per day (bpd) refining capacity as well as stem the tide of imported refined products into the country. Conceived in 2010, the project was expected to be completed and ready for operations in 2015. However, five years after, the fate of the laudable idea is yet unknown.

The stakeholders who spoke to The Guardian on the matter believed that there is more than meet they eye in the process of constructing the Greenfield refineries, such as issues of private refineries have also lingered over the years.

An industry analyst, and consultant on good governance in development, Ademola Oshodi, said: “The failure and the delay in completion of the Greenfield refineries summarises the challenges faced in the oil and gas sector during the past five years.

“Though CSCEC is meant to pick up 80 per cent of the bill, with NNPC the rest, refineries were unusually still meant to operate strictly on a commercial basis. A joint partnership with the unreliable government-run NNPC was always going to be fraught with difficulty.

“However, the biggest reasons for the delay are the non passage of the Petroleum Industry Bill (PIB) and its resultant hesitation for the sector to attract foreign direct investment, the unsettling international oil market with the prevailing drastic fall in prices, and the slowdown in the Chinese economy,” he said.

Oshodi stressed: “The Chinese are no longer that quick to drop their money as before. This was all manifested in the Kalu Report as it recommended the jettisoning of the Kogi and Bayelsa projects for a single Lagos refinery. Basically, accepting the new reality, the implication to the Nigerian economy is what we are experiencing as we spend long hours lining up for fuel while paying above the N87 pump price with the associated corruption and mismanagement, with the continual importation of processed fuel and its enormous cost to the government and populace.”

The House of Representatives had last year mandated its Committee on Petroleum Downstream to investigate why the Federal Government failed to construct the $23 billion refinery project.

The order followed a motion brought before it by Abbas Tajudeen who observed that in spite of the agreement signed by the Federal Government since May 13, 2010 with the China State Construction Engineering Corporation (CSCEC) for the construction of Greenfield refineries with a completion period of five years, nothing has been done.

Some months down the lane, the project has remained a mirage and the planned probe seemed to have been swept under the carpet.

Worried by the situation, the Conference of Nigerian Political Parties, CNPP, had also petitioned the Minister of Finance and Coordinating Minister of Economy, Dr Ngozi Okonjo-Iweala, requesting for full disclosure of transactions concerning the contract for three Greenfield refineries and petrochemical plant awarded by President Goodluck Jonathan five years ago.

A copy of the letter obtained by The Guardian, reads: “May I under the Freedom of Information Act 2011, request for the full disclosure of transactions concerning the three Greenfield refineries and petrochemical plant contract awarded on May 13, 2010, by President Goodluck Jonathan to Chinese State Construction and Engineering Corporation Limited, CSCEC at $23 billion meant to be located at Bayelsa, Kogi and Lagos states.

“Secondly, why are they dead on arrival, as five years down the line, neither the three Greenfield refineries nor petrochemical plant is under construction,” it stated,

The group was worried that the project is expected to create millions of job opportunities and its delay is therefore putting those opportunities off, while the non-realisation of the petrochemical plant was a minus for gas utilisation, food production and the textile industry.

However, The Guardian learnt that 80 per cent of the cost is provided by China Export Credit Insurance Corporation and a consortium of Chinese banks led by the Industrial and Commercial Bank of China, while the Nigerian National Petroleum Corporation is to provide 20 per cent of the remaining fund as equity contribution.

The NNPC, in its feasibility study for the project displayed on its website, said: “Detailed Feasibility Studies undertaken by Messrs Wood Mackenzie Energy Consulting Limited and Messrs Foster Wheeler Energy Limited in 2011 for three Greenfield Refineries to be located in Lagos, Bayelsa and Kogi States confirmed that all three refineries would be economically feasible at the respective sizes of 200,000 bpd for Lagos, 100,000 bpd for Kogi and 100,000 bpd for Bayelsa.”

It, however, added that: “Nigeria is currently deficit in the supply of white petroleum products, most of which are currently imported into the country. Current consumption of gasoline or Premium Motor Spirit (PMS) is estimated at 35 million litres per day, while that of kerosene is 10 million litres per day. In order to meet the deficit in supply, Nigeria currently spends between $12 and $15 billion yearly and it is the desire of government to stem the flood of imports by investing in additional refining capacity along with interested equity participants.”

Recent studies by stakeholders in the industry have revealed that a new refining capacity of at least 420 KBPD would be required to meet the existing refining gap. If this gap is projected to 2016 at the growth rates of between 3 per cent and 5 per cent per annum, the estimated refining gap in Nigeria by 2016 would be 500-560 KBPD. This forms the basis of the current effort to establish at least three (3) new refineries of approximately 400-550 KBPD capacity in Lagos, Bayelsa and Kogi States.

On why it engaged the Chinese firm to partner in the project implementation, the corporation said: “NNPC does not intend to build Greenfield Refineries on a sole risk basis. The strategy is to develop investment consortia (in partnership with other prospective local and foreign investors) for these projects while holding reasonable but minority interests. The refineries will be ring-fenced refineries to be operated strictly on a commercial basis; completely market oriented and profit motivated and as such issues of location, configuration and shareholding structure will be determined not solely by NNPC but by the consortia collectively.”

Meanwhile, some other stakeholders believed that the international politics caused a major setback for the project.
Sources, who preferred anonymity, alleged that the Western policy on Nigeria is driven by the super-profits generated from the extraction of oil and its processing. While publicly the United States (US) and its allies proclaim the need for democracy and openness, this is window dressing.

“Anything that impedes their drive for profits, whether from local opposition or from a rival nation, will be dealt with ruthlessly when required. The latest moves by China will have caused consternation in the boardrooms of the big oil companies, and counter measures are all but inevitable.”

Citing the oil deal signed by former President Umar Musa Yar’Adua in 2009, the source said: “Plans by the state-owned China National Offshore Oil Corporation (CN O OC) to buy up to six billion barrels of Nigerian reserves. Yar’Adua, the president at the time, received a letter from the CNOOC expressing an interest in the 23 prime offshore fields where Shell, Total, Chevron and ExxonMobil currently operate. If this were to succeed, it would mark a significant change in policy for the Nigerian government. The price of the deal is reported to be between $30 billion and $50 billion. The Chinese deal may well lead to further tensions with the U.S.”

According to the source, Nigeria’s opening to China, initiated by these two deals, would be a beginning of Nigeria’s economic liberation and therefore the incoming government led by Muhammad Buhari should pursue the goal vigorously.