Abuja denies Eni refinery deal

22 June 2017 , Week 24, Issue 311

Abuja remains in the process of shortlisting potential bidders for contracts to finance and implement the rehabilitation of the three dilapidated and under performing state-owned refineries. Minister of State for Petroleum Resources Ibe Kachikwu was forced to clarify this position in early June – denying reports that an investor team had been selected for such work at the Port Harcourt facility, amidst accusations of a lack of transparency by legislators.

The selection process was initiated in April last year but – in common with numerous efforts stretching back many years by the government to increase domestic refining capacity – had stalled, leaving the country heavily and expensively reliant on fuel imports despite its crude oil wealth.

News circulating for some time that Italy’s Eni had expressed interest in a repair, operate and maintain (ROM) contract at the Port Harcourt refinery in Rivers State – where output is thought to be running at around 30% of the 210,000 bpd design capacity – gained traction in May. Reports emerged that a team of the Italian firm’s local subsidiary Agip and the local Oando Petroleum had been selected for the deal without competition.

Such rumours led the Senate – the upper chamber of the National Assembly – to pass a motion on May 30 demanding suspension of the alleged “non-transparent transaction”. Oando had appeared initially to do little to clarify matters in a response confirming that the firm had agreed to partner Agip in the project without apparently denying that a selection had already been made.

However, on June 8, a statement to the parliamentary committee tasked with investigating the putative deal from chief executive officer Adewale Tinubo spelt out that “no mandate for the concession, sale, equity transfer or privatisation of the Port Harcourt refinery … has been signed with Oando”.

Confusion had been building since January, when a memorandum of understanding (MoU) was signed between Eni and state-owned Nigerian National Petroleum Corp. (NNPC) in which the parties agreed to “co-operate for the rehabilitation and enhancement of Port Harcourt refinery”.

Questioned over the furore on the sidelines of the OPEC meeting in Vienna in late May, Kachikwu reiterated that an award had yet to be made. He said that the aim was to award the ROM contracts for all three of the state-owned refineries by the end of the third quarter and to have full combined capacity of 445,000 bpd improbably restored within 12-18 months, with the need for fuel imports to be eliminated by 2019.

Abuja has been attempting piecemeal state-funded repair of the refineries for many years without a significant improvement in output, leading to controversial fuel shortages and imports that cost the struggling treasury billions of dollars per year.

The minister later clarified the situation more fully in a press briefing in Abuja on June 8. A technical committee was assessing the qualifications of companies which had expressed interest in financing the plants’ rehabilitation, he said, after which a formal bidding process would be launched.

Any decision would be submitted for approval to the cabinet and to Parliament before proceeding to an award, Kachikwu reassured observers – while also denying any intent to privatise the refineries.

The ministry was also said to be considering approaching the original builders of the refineries about participating in the upgrade programme after funding had been secured, the minister revealed. The total cost is anticipated to be roughly US$1.1-1.2 billion, excluding work needed to restore the pipelines supplying crude feedstock to the facilities.

Royal Dutch Shell developed the original Port Harcourt plant in the mid-1960s, while the larger second facility at the site was constructed by Japan’s JGC in the late 1980s.

Snamprogetti – which was subsequently absorbed by Eni’s construction subsidiary Saipem – built the 125,000 bpd refinery at Warri, in the southern Delta State, while Japan’s Chiyoda was responsible for the 110,000 bpd facility at Kaduna, near Abuja in the centre.

IOCs with substantial upstream interests in the country were reported early last year to have expressed interest in upgrade and operation deals – with the US’ Chevron said to be looking at the Warri plant and both France’s Total and Shell believed to be examining involvement at the Kaduna facility.

In April 2016, shortly after such rumours emerged, NNPC issued a tender inviting bids the following month from companies or consortia interested in participating in joint ventures with the state firm to implement the ROM agreements. These would see the partners restore design capacity and operate the plants for an unspecified period to recoup costs.

Seemingly complicating the proposed process, prospective investors would have been required to work in co-operation with firms selected as a result of a separate tender initiated two months previously for contracts to ‘co-locate’ newly installed refining units alongside the existing plants – awards of which remain pending.

Long-mooted moves to license private refineries were revived in the immediate aftermath of President Muhammadu Buhari’s election in 2015 but have likewise failed to yield significant increases in production thus far.

The potentially game-changing exception is the 650,000 bpd refinery near Lagos being developed by local conglomerate Dangote Industries. After years on the drawing board, the project has entered the construction phase and is scheduled for completion in 2019 – promising to eliminate the need for imports before the government’s slow-moving efforts to do so are expected to bear fruit.

 

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Edited by

Ian Simm

Editor

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