Exploring Partnerships to Transform Nigeria’s Hydrocarbon Industry

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Glow light of petrochemical industry on sunset and Twilight sky ,Power plant,Energy power station area

By Ikenna Omeje, Jerome Onoja

Beyond the regular oil exploration and production Joint Venture (JV) and Production Sharing Contract (PSC) arrangements that exist between the state-owned company, Nigerian National Petroleum Corporation (NNPC) and a couple of oil majors, the Nigerian Liquefied Natural Gas (NLNG) stands out as the most profitable business enterprise the Nigerian state is credited with. State actors have since been on a search to replicate the successful model and in particular, have the sort of Public Private Partnership which would address the nation’s infrastructural deficit. Some huge traction is being registered in recent times. This write up will highlight the potentials with just a few of such partnerships by Nigerian Content Development and Monitoring Board (NCDMB), the NNPC and a few others.
For Nigeria to achieve industrialisation, experts have been advocating for a financial and business model to be adopted to bring about massive infrastructural development. In this regard, a public-private partnership has been found to be the most effective model for doing this, as the model aligns with the economic goals of government, while not jeopardizing the private sector’s pursuit for profit.
However, in recent years, indigenous firms and agencies like the NNPC, the NCDMB, Dangote Group, and others, are changing the narrative.
Underscoring the importance of Public – Private Partnership in the gas space in developing countries like Nigeria, the World Bank in its publication titled, “Public and Private Sector Roles in the Supply of Gas Services in Developing Countries” in 2004 said that, built infrastructure will lead to economic growth, and reduce poverty.
“Infrastructure services are critical to economic growth, poverty reduction and the achievement of the Bank’s Millennium Development Goals (MDGs). The introduction of gas as an alternative source of energy in developing countries in the recent past is an important development since it often provides a cleaner and cheaper source of energy for industrial and domestic usage than alternative sources of fuels or technologies currently available,” the World Bank said.

“To fully benefit from the utilization of natural gas, developing countries will require private and public financing to develop infrastructure and to create domestic and regional gas markets. Developing countries will also require assistance to create efficient gas market structures and legal and regulatory frameworks that encourage private participation and the efficient utilization of gas. The private sector will have to account for a growing share of providing capital for upstream and downstream gas network development. At the same time, the public sector, public-private partnerships and international donor organizations, such as the World Bank Group,

will continue to play an important investment role, mainly in those parts of the gas chain where international investors are less willing to provide capital, such as the development of downstream gas networks.”
According to John Anyanwu, an energy analyst in a paper titled, “Public-Private Partnerships in the Nigerian Energy Sector: Banks’ Roles and Lessons of Experience” governments at various levels in Nigeria had hitherto basically monopolized the energy sector (especially the power sub-sector), playing a two-fold role, they are policy makers and regulators while they simultaneously own the companies that provide infrastructure services. He noted, however, that the weak financial and poor infrastructure situation of the energy sector and an inadequate access to services have shown that governments (Federal, States, and Local) are not able to adequately fulfill these roles. He said that it is therefore imperative that the private sector has to be largely involved through Public-Private Partnerships. For this to be successful, he said that the different levels of government need to: make energy sector policies and regulations PPP-friendly; develop market instruments and capacity to meet long-term equity and debt financing needed by energy projects; develop credible, bankable energy projects, which could be offered for financing to the private sector and the banking system; and develop the capacity in public institutions and officials to efficiently manage the PPP process so as to maximize returns to all shareholders.

NCDMB Venture Partnership Programme
So far, the Board has committed a total of US$332million under its commercial ventures partnership programme, and targets to attract more project developments in-country valued at US$3.7bn, according to the Executive Secretary of NCDMB, Engr. Simbi Wabote while speaking at the biennial Nigerian Oil & Gas Opportunity Fair (NOGOF) 2021.

Board has committed a total of US$332million under its commercial ventures partnership programme, and targets to attract more project developments in-country valued at US$3.7bn,

Engr. Simbi Wabote

Some of the partnerships undertaken by the Board include the 5,000 barrels per day Waltersmith Modular Refinery at Ibigwe, Imo State; Azikel Refinery in Bayelsa State; and NEDO Gas Processing Company in Kwale, Delta State for the establishment of 80 million standard cubic feet per day (MMscfd) gas processing plant and a 300MMscfd Kwale Gas Gathering hub.
Other investments include the development of 5,000 metric tons LPG Storage and loading terminal facility by Triansel Gas Limited in Koko, Delta State and construction of Energy Park, inclusive of a modular refinery, power plant and 40MMscfd gas processing facility at Egbokor, Edo State by Duport Midstream.
Also, the Board, the Nigerian National Petroleum Corporation and ZED Energy Limited recently signed shareholders agreement on the construction of Brass Petroleum Products Terminal Limited (BPPT), to be located at Okpoama, Brass Local Government Area, Bayelsa State.

The NCDMB and NNPC own 30 percent apiece while ZED Energy – a private firm holds 40 percent. ZED would operate the terminal, which is estimated to cost N10.5 billion upon completion. Some of the benefits of the terminal when it becomes operational, is that it would make refined petroleum products available at riverine communities of the Niger Delta at the standard prices, discourage the operations of illegal refineries and create job opportunities for citizens of the Niger Delta and other Nigerians.
Underscoring the economic benefits of co-locating the BPPT with the Energy Infrastructure Park being developed at Okpoama and the Brass Fertiliser and Petrochemical Company Ltd (BFPCL), at Odioma, Brass, the NCDMB boss, Wabote said: “If you go to developed economies, there are parks for manufacturing and industrialization. When you have the Brass Fertilizer, the BPPT and the refinery that is being built in the same area, you get the benefits of being within a Free Trade Zone. It will bring down the costs of developing those products simultaneously because the raw materials are just behind them. There is no reason to take the investments to distant locations where costs would increase.”
Other milestones that the Board has made include the partnerships with Eraskon Nigeria Limited 45,000 litres per day Lubricating Blending Plant at Gbarain, Bayelsa State; Ladol Services Limited 24 Megawatts Power Plant at Tarkwa Bay, Lagos State; Bunorr 48,000 litres per day Base Oil Plant, at Imogu – Omagwa, Rivers State; Atlantic Refinery 2,000 Modular Refinery with 20MW Power Plant and 2MW Bi-Fuel Plant at Energy Park Brass FTZ, Bayelsa State; Rungas Alfa FTZ 800,000 unit per year LPG Composite Cylinder at Alaro City, Lagos State; and Rungas Prime Limited 400,000 unit per year LPG Composite Cylinder Manufacturing Plant at Polaku, Bayelsa State.

NNPC Partnership Investment
The NNPC in December 2019, achieved a major milestone in its effort to increase  gas production and usage in Nigeria, with the signing of Final Investment Decision (FID) for multi-billion dollar NLNG Train 7 Project  between the national oil firm and its partners.
The FID was followed by the signing of the Engineering, Procurement and Construction (EPC) Contracts  in May 2020, for the project with the SCD JV Consortium, comprising affiliates of Saipem, Chiyoda and Daewoo.
SCD JV will be constructing one complete train and one common liquefaction unit with a total capacity of approximately 8 MTPA, as well as associated utilities and infrastructure.
Train 7 project will be financed partly from NLNG’s balance sheet. It will also be partly financed through the $3 billion multiple-sourced deal which NLNG recently signed with 30 reputable institutions. Sumitomo Mitsui Banking Corp. (SMBC) and Guaranty Trust Bank of Nigeria were the financial advisers on the transaction which involved Export Credit Agencies, development financial institutions, international commercial banks and Nigerian banks
Train 7 will increase NLNG production by 35 percent, and it is expected to attract about $10 billion in Foreign Direct Investment (FID). The project upon completion, will support the Federal Government’s drive to diversify its revenue portfolio and generate more revenue from country’s proven gas reserves of about 206 Trillion Cubic Feet (Tcf).
Also, in December 2020, the NNPC set up NNPC Greenfield Refinery Limited as a subsidiary, with a mandate to oversee the establishment and operation of new refineries. But before now, there was the NNPC Greenfield Refinery Projects Division (GRPD), which came into existence late 2005 as a strategic response to a lack of visible progress on the 18 Licenses issued by Government for Private Refineries in 2002 and also, the negative consequences of massive importation of petroleum products against the backdrop of low capacity utilization in the existing three (3) state refineries with combined capacity of 445,000 barrels per day.

The strategy by the NNPC regarding building the Greenfield Refineries is not on a sole risk basis, but 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.

Male Kyari

Pursuant to this, the Group Managing Director of NNPC, Mele Kyari, in July 2019 announced that the Corporation was set to collaborate with Chevron Nigeria Limited to establish a condensate splinter refinery.

The refineries will be ring-fenced refineries to be operated strictly on a commercial basis; completely market oriented and profit motivated

Kyari noted that it was very important to set up such a refinery in order to put an end to the current importation of over 90 percent of petroleum products used in the country, which costs the country huge foreign exchange, adding that proffering a solution to the problem requires a Joint Venture partnership.
In a statement recently, the Corporation said that the NNPC Greenfield Refinery Limited is working with third-party investors to establish modular refineries and condensate refineries with combined capacity of 250,000 barrels per day.
On gas utilization, the NNPC late August signed a Memorandum of Understanding (MoU) with the Kaduna State Government for utilisation and expansion of gas supply in the state. This is a watershed in the Federal Government’s Decade of Gas initiative which aims at utilising the nation’s abundant gas resources to power the nation’s economy.
There is optimism that this new partnership between the NNPC and the Kaduna State Government will help to revitalize moribund industries in the state. Speaking at the signing of the MoU, NNPC GMD Kyari said, “We all know that Kaduna used to be a hub when it comes to industries. It is our hope that this MoU signing will help provide the gas needed for some of those industries to come back to life.”
Expressing delight with the prospect of having an additional energy source to power businesses in the state, Governor Nasiru el-Rufai said, “We wholeheartedly welcome this project. Gas provides a cost-effective option for powering factories, homes and vehicles. For the Kaduna State Government, this project is a welcome boost to our investment and job creation strategy. It will create jobs and provide skills for artisans who will work on the gas pipelines and associated infrastructure. Beyond that, this project will power the industries that have responded with enthusiasm to our investment promotion campaign.”
Another significant partnership that the NNPC is engaging in, is the ongoing 614 kilometres Ajaokuta-Kaduna-Kano (AKK) gas pipeline project, which Kyari recently said would be delivered on schedule, to create prosperity through massive job opportunities and guarantee peace for the country.
The AKK pipeline is being developed on a build-own-operate-transfer (BOOT) basis under public private partnership (PPP) to be supervised by Nigeria’s Infrastructure Concession Regulatory Commission (ICRC).
Speaking at Gas Sector Stakeholders’ Forum which held in Kano, Kano State, recently, with the theme: “Optimizing the Economic Development Capacity of Ajaokuta-Kaduna-Kano (AKK) Gas Pipeline Project”, Kyari, stated that the AKK gas project would help revamp about 232 industries creating massive employment opportunities and prosperity for the people.

NNPC Greenfield Refinery Limited is working with third-party investors to establish modular refineries and condensate refineries with combined capacity of 250,000 barrels per day.

“This project has been on the drawing board for 30 years and the dream was to have gas delivered to Europe across the Trans-Sahara route. What we are seeing today would deliver at least 2billion standard cubic feet of gas to the domestic market at the first instance with the potential to increase it. What this means is that it will debottleneck the gas supply network in the entire country,” he said.
Similarly, the NNPC, China Machinery Engineering Company (CMEC) and General Electric (GE) signed contract for Maiduguri Emergency Power Project. The three firms executed the Engineering, Procurement Construction (EPC) contract and Procurement Equipment contract for the 50MW power project.
The project, which aims to combat the perennial power challenge in the Borno State capital and its environs, is an integral part of ongoing efforts to deepen NNPC’s gas utilization for numerous socio-economic benefits across the country.


NNPC’s 20 Percent Partnership Stake in Dangote Refinery
The ongoing partnership between Dangote Group and the NNPC, which will make the Dangote Group to cede 20 percent stake to the NNPC in its refinery, is one that gladdens the hearts of many Nigerians.
The NNPC in May announced its plans to acquire 20 percent stake in the 650,000 barrels per day Dangote refinery, currently under construction in Lekki, Lagos State.
The NNPC’s Group Executive Director, Refining and Petrochemicals, Mustapha Yakubu, had made the disclosure while speaking at the Nigeria Oil and Gas Opportunity Fair (NOGOF), 2021, with the theme: “Leveraging Opportunities and Synergies for Post Pandemic Recovery of the Nigerian Oil and Gas Industry.”
Yakubu had said: “We have what we call the Greenfield refinery and the Greenfield Refining Projects Division (GRPD) of the NNPC. What we do, our strategy is to collaborate and seek strategic partnerships with private investors.
“At the moment, we have Dangote Refinery, which is the 650,000 barrels per day capacity,

plus a mini 80,000 tonnes per annum petrochemical plant.
“What are we doing there? I can tell you today that we are seeking to have a 20 percent minority stake in Dangote Refinery as part of our collaboration and you know that there’s a huge quantity of crude for that refinery.
“That’s 650,000 barrels, going into a single crude distillation unit (CDU). When that comes on board, it will also wet the nation for us.”

For the Kaduna State Government, this project is a welcome boost to our investment and job creation strategy. It will create jobs and provide skills for artisans who will work on the gas pipelines and associated infrastructure.

Mustapha Yakubu

Subsequently, the former NNPC’s Group General Manager Group Public Affairs Division, Dr. Kennie Obateru, in a statement noted that the move was in line with Federal Government’s policy.
In an interview with Channels Television in June, Kyari said, “We are taking 20 percent equity in the Dangote Refinery. There is a valuation process. This business is very regulated. It is an international business.
“No bank will lend money to you to buy equity in a business of this scale if you have not followed the basic valuation process.
“The reality is that we have a valuation of this refinery about $19 billion. I don’t have the exact figure. We haven’t closed on this to answer your question straight”.
According to Kyari, the NNPC will not spend the Federal Government funds to acquire the equity.
“Even for this Dangote Refinery, we are not going to take our (Federal Government) money and buy it. They think we are going to take our money and pay for this refinery,” he said during an interview.
“We are going to borrow for the cash flow of this business. We know that this business is viable, it will work, and that it will return dividends. It has a cash flow that is sustainable because it is a refinery business.
“In the short term, it will continue to be sustainable. And that is why banks have come up to lend to us so that we can take equity.”
Speaking in a documentary aired on Arise News Channel recently, the President Dangote Group, Aliko Dangote, informed that the 20 percent stake acquisition by the NNPC will be paid for in tranches split into three. According to him, the first part of the $2.7 billion deal would be paid in cash, the second would be through crude sales and the third would be through profits made by the corporation.

What we are seeing today would deliver at least 2billion standard cubic feet of gas to the domestic market at the first instance with the potential to increase it.

He stated that the refinery is capable of meeting the country’s entire petrol, diesel and jet fuel needs, adding that the country expends about 25 per cent of all its import bills on bringing in petrol products into the country.
Dangote who expressed optimism that the newly signed Petroleum Industry Act (PIA) will attract investors into the country, however, noted that the country lost between $50 to $60 billion in investments to the delayed passage of the Bill into law.
He said, “So, these are the things that people don’t really understand and I want to really clarify it. When they talk about the $2.7 billion, you know, they (NNPC) are paying one third of the money.
“Another one third of the money, again, will actually be paid through supply of crude, with the deduction of maximum of about $2 and some cents. And then the one third of it, which is another $850 to $900 million will be paid from the profit they are going to make from the business.
“So it’s not a cash transaction where they are paying all cash. You can see that if we don’t have confidence in what we are doing, we would have asked them to pay all cash.”

Aliko Dangote,

On the reason Dangote Group decided to cede 20 percent equity to the NNPC, he said, “People keep talking about the refinery, they didn’t buy only the refinery, they bought refinery with petrochemicals. I could have actually decided to do like some of my my mates here in Nigeria and just keep my money in the bank or keep the money abroad.
“But you know I’m very, very passionate about Nigeria and making Nigeria great. If it’s just Dangote group making money, I would have just kept that money and participate in capital markets abroad where my money is in dollars and I am making money, but no.
“We know as a country we have challenges, how do we address these issues. The only way for me is not to sit and be criticising, no, I should be part of the problem solvers and part of the change. My prayer is that I will give most of my wealth when I am alive.”

According to Dangote, the project currently employs 29,000 Nigerians and 11, 000 foreigners with plans to ramp up the number to 57,000 in the coming months.


NNPC Ventures as a Commercial Outfit
In mid-August, President Muhammadu Buhari assented to the Petroleum Industry Bill (PIB), which is now known as the Petroleum Industry Act (PIA), thus ending a long wait since early 2000s.
Under the Act, the NNPC Limited is now a profit-making entity without the control of the government. As it stands, the national oil firm can sell shares to the public as a registered public liability company under the Companies and Allied Matters Act (CAMA), just like the Saudi Arabia’s Aramco.
Late August, Buhari announced that sequel to the completion of the statutory annual audit exercise for year 2020, the NNPC made a profit after tax of N287 billion in 2020.

Muhammadu Buhari

The President said, “I am pleased to announce the declaration of Profit after Tax of Two Hundred and Eighty Seven Billion Naira (N287 Billion) in Year 2020 by the Nigerian National Petroleum Corporation. This is sequel to the completion of the statutory Annual Audit exercise for Year 2020.
“The NNPC losses were reduced from N803 Billion in year 2018 to N1.7 Billion in year 2019 and the eventual declaration of Net Profit in Year 2020 for the first time in its 44-year history.
“This development is consistent with this administration’s commitment to ensuring prudent management of resources and maximization of value for the Nigerian people from their natural resources.
“I have further directed the NNPC to timely publish the Audited Financial statements in line with the requirements of the law and as follow up to our commitment to ensuring transparency and accountability by public institutions.

“We are going to borrow for the cash flow of this business. We know that this business is viable, it will work, and that it will return dividends. It has a cash flow that is sustainable because it is a refinery business.

“I congratulate the Board, Management and Staff of the Corporation and look forward to greater value creation for the Nigerian people.”
What this suggests is that with full operationalization of PIA, the NNPC Limited will become more profitable, and have more freedom to engage in fruitful partnerships that will help drive infrastructural development in the country’s energy space, boost the country’s economy and help it achieve industrialization.


Conclusion
Through the current efforts to deepen Public-Private Partnership, Nigeria is on the right track towards achieving infrastructural development in the energy space, and becoming an industrialised nation. But more needs to be done.

To enhance gas production and revenue generation in the country, the Minister of State for Petroleum Resources, Chief Timipre Sylva inaugurated a new Nigerian Gas Transportation Network Code (NGTNC) in February 2020, at the Nigeria International Petroleum Summit (NIPS) in Abuja.

Timipre Sylva

During an interactive session with the media to mark the first year of operationalising the network code in the country recently, the Director of Department of Petroleum Resources (DPR), Engr. Sarki Auwalu, said that the Agency has received about $500 million gas development investment proposals.
According to Auwalu, the strict implementation of the NGTNC  has improved investors confidence in the evolving domestic gas market, adding that it has helped to grow Nigeria’s gas market coverage with a pricing regulations now in place.
The NGTCN is a specialised set of rules developed by the DPR to guide the implementation of a fair and non-discriminatory open access for gas transportation in Nigeria.
“Confidence of investors across the domestic gas value chain has shown positive trend through specific requests for DPR’s support for gas supply to the tune of over 500 million standard cubic feet per day and for investments of over $500 million,” Auwalu said.
 “The network code investment areas that the DPR has received proposals on include power generation, ammonia for fertiliser, methanol plant and domestic liquefied natural gas.
 “Others are virtual pipeline systems, new gas hubs and the establishment of a Nigerian Gas Trading Exchange.”

According to Dangote, the project currently employs 29,000 Nigerians and 11, 000 foreigners with plans to ramp up the number to 57,000 in the coming months.

Engr. Sarki Auwalu

Auwalu also noted that the NGTNC has also improved domestic gas market linkage between downstream demand points and upstream gas supply opportunities, adding that the construction of gas pipelines across the country and the increased investment brought by the NGTNC would create job opportunities for Nigerians.
The NGTNC is a contractual framework between the gas transportation network operator and gas shippers that specifies the terms and guidelines for operation and use of the gas network.
It aims to provide open and competitive access to gas transportation infrastructure and would help to grow gas infrastructure, expand gas utilisation, curb flaring and provide codes to standardise gas value chain in line with global best practices.
Going forward, the Federal Government needs to adopt Public-Private Partnership model in the development of frontier basins outside of the Niger Delta. Some of these basins include Anambra Basin, Benue Trough, Bida Basin, Dahomey Basin and so on.
Speaking in this regard, the Managing Director/Chief Executive Officer of an indigenous oil and gas firm, ND Western, Eberechukwu Oji,  has advocated for more private investment participation in the frontier basin exploration.
Oji who stated this in an interview recently with the Punch said that considering the fact that Nigeria has abundant oil and gas reserves, it is important that the country maximizes the known and existing potential whilst making further investments in exploration.

“The NNPC losses were reduced from N803 Billion in year 2018 to N1.7 Billion in year 2019 and the eventual declaration of Net Profit in Year 2020 for the first time in its 44-year history.

Eberechukwu Oji

He, however, averred that mandating a percentage for frontier basin exploration as contained in the PIA, is “a mistake and should be corrected.”
According to Oji, the country’s focus should be on diversifying its economy by building a strong and well-funded sovereign wealth fund to drive the diversification agenda.
The PIB mandates that the NNPC Limited should be spending 30 per cent of its profits on oil exploration in the frontier basins.
“In my view, capital allocation is best handled by competent managers of any corporate organisation of the size of the new NNPC. Mandating a percentage for frontier basin exploration is a mistake and should be corrected,” Oji said.
“If anything, we should be seeking to diversify the Nigerian economy by building a strong and well-funded sovereign wealth fund to drive the diversification agenda. We need to invest more in gas as a transition fuel, invest in renewables to future-proof our economy and channel our available funds to the most important resource that Nigeria has which is her people.
“Aggressive human capacity development in the frontier basin is guaranteed to pay more long-term dividend than a certain per cent profit allocation for exploration in the same basin.”
Adopting a Private-Public Partnership in the frontier basins will not only drive investments. It will also help the Federal Government to generate enormous revenue to build infrastructure that will support economic growth and development as well as speedy the industrialisation agenda of the government.

“Confidence of investors across the domestic gas value chain has shown positive trend through specific requests for DPR’s support for gas supply to the tune of over 500 million standard cubic feet per day and for investments of over $500 million,” Auwalu said.

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