President Muhammadu Buhari has approved the implementation of a new commercial model that will allow private investors to invest in restoring the operational efficiency of the country’s refineries, the Nigerian National Petroleum Corporation has said.
According to the NNPC, the presidential approval was given to enable the national oil firm revamp the struggling refineries located in Port Harcourt, Warri and Kaduna.
It stated that Buhari approved the engagement of strategic investors who would come in with refining and funding expertise to partner local investors who understand Nigeria’s downstream oil market so as to enhance the performance of the refineries.
Over the years, the refineries had operated below their various capacities, a development that the Minister State for Petroleum, Ibe Kachikwu, described as worrisome, making him to express fears that the facilities might end up as small scraps if nothing serious was done by government.
The Chief Operating Officer for Refineries, NNPC, Mr. Anibor Kragha, stated that under the new model, this would change as capital investments would come from investors who would be repaid from incremental production of the refineries on agreed terms.
Kragha, who spoke during a plenary at the ongoing Nigeria Oil and Gas Conference in Abuja on Wednesday, explained that the corporation would not sell equities in the refineries to any of the investors, but that the arrangement would be based on invest, operate for a period and earn returns on investments.
The oil firm, according to him, has met with the original builders of the Kaduna and Port Harcourt refineries, Chiyoda and JGC, to undertake technical appraisal of the refineries, from which the final funding model under the new arrangement would be agreed.
Kragha said, “Because of what is happening and the global trend, President Muhammadu Buhari gave approval for strategic investments to be made in the refineries. So, the investment model is basically this way: strategic investors who can bring refining expertise and funding will partner local players with downstream experience to actually go into the refineries, invest money and within 24 months to get us to 90 per cent capacity utilisation.
“We are in the preparation stage. We had meetings with Chiyoda, who is the original refinery builder of Kaduna (refinery) and JGC, who built Port Harcourt, and the idea for going with them is that because they do this consistently, they have access and we expect them to open their supply access to us to enable us get parts and pricing at better rates.”
He added, “We are getting a lot of interests and expressions from a wide range of people. GE has a consortium they are bringing, there is Eni and Oando as well. The ORB (original refinery builder) will sit together and come up with an aligned cost that we will put into financial models.
“The only way we are going to do this is that they will only get paid from incremental revenues that are generated by incremental production from the refineries. Essentially, they have to put their money where their mouth is and because we have technical expertise and funding, we can make these refineries work.”