The Nigerian Oil and Gas sector has been the lifeline of the economy over the years and this has been a source of concern to both local and foreign stakeholders.
Dr. Jide Agunbiade, Director, National Oilwell Varco, Houston, Texas, the largest Oil and gas equipment manufacturing company in the world, has shared his views on the nation’s dependency on the sector, the Petroleum Industry Bill among other industry issues
Below is the full interview
How would you assess the Nigerian petroleum industry?
The petroleum industry in Nigeria is the largest and main generator of GDP in Nigeria. The primary laws and regulations which govern the Nigeria oil and gas industry are the Constitution of the Federal Republic of Nigeria, the Petroleum Act, the Nigerian National Petroleum Corporation Act, the Oil Pipelines Act, Petroleum (Drilling and Production) Regulations 2019 and the Nigerian Oil and Gas Industry Content Development Act. The government bodies charged with regulating the oil and gas industry include the Ministry of Petroleum Resources (headed by the Minister of Petroleum Resources), the Department of Petroleum Resources, as well as the Nigerian Content Development and Monitoring Board.
The Constitution, the Petroleum Act and the Exclusive Economic Zone Act vest the rights to, as well as the control of, all minerals, mineral oils and gas in Nigeria and its territorial waters and exclusive economic zone in the Federal Government. The Minister of Petroleum has absolute discretion under the Petroleum Act to grant oil exploration, prospecting and mining licenses to companies incorporated in Nigeria.
The Federal Government participates in the oil industry through the Nigerian National Petroleum Corporation (NNPC). The NNPC oversees and governs all activities in the Nigerian petroleum sector, whilst the Federal Ministry of Petroleum Resources acting through the Department of Petroleum Resources (DPR) is the regulatory authority. The National Petroleum Investment Management Service, a business unit of the NNPC is responsible for the management of government investments in the petroleum sector.
An assessment of the Nigerian petroleum industry reveals that the NNPC is one of the inefficient government institutions in Nigeria, with heavy political interference, ambiguities, corruption and nepotism. Recent investigations and probes into government corruption in Nigeria reveals that a substantial part of government corruption, originates from the activities that relate to the management of the oil and gas proceeds, supposed to be channeled towards the growth and development of the nation.
Despite the monetary resources remitted to its coffers, NNPC has since been facing challenges in funding its upstream operations and obligations. NNPC has also failed to effectively manage the downstream sector, which is characterized by moribund refineries, scarcities, inconsistent and uncompetitive fuel prices. Despite the abundance of petroleum commodities in Nigeria, the country’s largest import is from the petroleum products, which increases the supply and reduces the value of the Naira in the foreign currency market.
Consequently, NNPC has lost its international goodwill, because of its inconsistency and political interferences, and this has caused doubt and high business risk in the Nigerian oil industry. Though an oil rich country, Nigeria is the world headquarters of poverty, which explains further the poor management of the oil resources in the country.
Furthermore, in recent times the Nigerian petroleum industry has also been negatively impacted by a number of external factors such as a surplus of global crude supply leading to global oil price decline, competition from renewable energy, the devastating impact of the Covid-19 pandemic on the global oil economy, as well as the 2020 fracturing of the OPEC+ alliance (with Russia) leading to a sharp decline in oil prices in 2020. Many of these challenges though near to medium term have the potential to continue for the longer term.
In September 2020, President Muhammadu Buhari proposed the scrapping of the NNPC and the creation of NNPC Limited, in the new Petroleum Industry Bill 2020 submitted to the National Assembly.
The hope is that with the proposed scrapping and commercialization of the NNPC, this will mark a turning point for the petroleum industry in Nigeria and that the challenges that the sector has faced for many years will be addressed and remedied.
Former President Obasanjo decided to privatize the nation’s refineries but was reversed by former President Yar’adua. Today, the nation has spent hundreds of millions on them. If you are the President, how will you address the issue?
More than 55 years after Nigeria started producing and exporting crude oil and gas, the government-owned refineries — located in Port Harcourt, Kaduna and Warri, are sitting idle. Prior to their shut down, the refineries were performing minimally due to years of neglect, mismanagement and pillage, leaving the country almost wholly dependent on imported petroleum products. Claims from successive governments, of turnaround maintenance and rehabilitation of these refineries have yielded no positive results.
The Government has deviated from her traditional role of providing social services, law and order etc., to conducting businesses. She has channeled her funds and energy into business ventures such as running the refineries which has led to spending hundreds of millions with no significant change. Since the de-privatization of the sector by Yar’adua, the nation has suffered decline in oil-revenue despite the amounts been spent on running these refineries.
If I were the President of Nigeria, I would take the following steps –
a) Relinquish government control of the operation and management of the nation’s refineries by divesting a majority of its 100 percent equity to competent, resourceful and experienced independent private refining firms with the requisite capital and technical expertise needed for the development and maintenance of the refineries.
b) Establish a governmental agency which would have a board made up of external and independent stakeholders, that would govern and regulate the activities of these independent private refining firms.
Privatizing the refineries, the government and the nation as a whole stand to gain several advantages which includes but not limited to the following
a) Improvement in the efficient allocation of resources, for mobilizing investment and for stimulating private sector development.
b) Reduce corruption and parasite mentality of Nigerians towards government owned sectors.
c) Infuse capital and modernize technology in our refineries, many of which have not seen any improvement for years.
d) Strengthen capital market by increasing the number of companies traded.
e) Privatization would allow the government to perform its primary function that is administration and maintenance of law and order and leave the actual running of business enterprises to private sectors.
f) Create more employment opportunities as a result of expansion in these privatized sectors and will also will bring change of attitude in workers as private management does not tolerate the attitude that prevails in the public sector.
g) Parastatals were characterized by gross inefficiency, corruption and mismanagement. Conversely, the operational dynamics of privatization favors efficient management.
What is your take on the PIB, have you observed any gap?
The Petroleum Industry Bill (PIB) is an oil reform bill which has been in the works for about 20 years. Successive administrations have tried without success to pass the bill into law, due to political and legislative issues. The PIB is currently under legislative consideration and represents the most comprehensive review of the legal framework for the oil and gas sector in Nigeria, since the industry began commercial operations in the 1960s. The PIB has been formulated to regulate the entire sphere of the industry and repeal most existing oil and gas legislations.
The PIB seeks to increase government revenue from oil, as well as lay down a strengthened legal and regulatory framework for the Nigerian oil industry, set up establishment of commercially driven petroleum entities; and promote transparency in the administration of Nigerian petroleum resources. The bill seeks to address the problem of administering petroleum resources in line with global best practices and to provide for efficient and independent sector regulation.
In September 2020, President Buhari transmitted the much awaited PIB 2020 to the National Assembly. A notable feature of the PIB 2020 is that it proposes the scrapping of the Nigerian National Petroleum Corporation (NNPC) and makes way the creation of the Nigerian National Petroleum Company Limited. The assets, interests and liabilities of NNPC shall be transferred to NNPC Limited. It is further stated in the PIB 2020, that the Minister of Petroleum Resources shall at the incorporation of NNPC Limited, consult with the Minister of Finance to determine the number and nominal value of the shares to be allotted which shall form the initial paid-up share capital of the NNPC Limited and the government shall subscribe and pay cash for the shares. Thus, ownership of all shares in NNPC Limited shall be vested in the government at incorporation and held by the Ministry of Finance incorporated on behalf of the government.
It is envisaged that approval of Nigeria’s Petroleum Industry Bill would turn the NNPC into a limited liability corporation and in turn open a new avenue for fund-raising by allowing the sale of NNPC’s Limited’s shares to investors.
A major gap in the PIB 2020 is that the government’s continued control of the new NNPC raises concerns of a likely continuation of old practices such as corruption and weak accountability. Also, the PIB 2020 does not specifically require the government to sell shares in NNPC Limited and this may stifle the much needed fund raising required for the growth of the sector. Furthermore, unlike previous reform proposals the PIB 2020 does not set a specific deadline for when the privatization/commercialization will be completed.
Finally, the passage of the PIB is being pursued without matching the goals and vision of the PIB and the country’s energy policies. Without linking the PIB to a clear energy policy direction that responds to the troubling issues of epileptic power supply, security of local consumption of gas, reform of the downstream sector and refineries, enhancement of local content, linkages between the Oil and Gas (O&G) sector and local economy in order to unleash the industrialization potentials in Nigeria, Nigeria may never be able to harness the full development potentials in the O&G industry. And for so long, it is unlikely to free the sector from instability that threatens the revenue peace in the Niger Delta.
What is your take on the alleged unbundle of the NNPC under the draft of the new PIB?
NNPC was established on April 1, 1977 and currently has a mandate in exploration and production, gas development, refining, distribution, petrochemicals, engineering and commercial investments, all in the oil industry. NNPC has sole responsibility for upstream and downstream developments, and is also charged with regulating and supervising the oil industry on behalf of the Nigerian Government. NNPC activities basically involve, upstream and downstream operations, including:
• Crude oil production (SBUs)
• Supervision and management of government investment in the oil and gas industry
• Conversion of crude oil/gas into refined petrochemical products (PMS, DPK, AGO, etc.)
• Transportation and marketing of these products.
NNPC achieved the functions listed above through subsidiaries. These subsidiaries are made up of twelve strategic business units and the Department of Petroleum Resources. The twelve SBUs are:
• National Petroleum Investment Management Services (NAPIMS)
• Nigerian Gas Company Limited (NGC)
• Nigerian Petroleum Development Company Limited (NPDC)
• National Engineering and Technical Company Limited (NETCO)
• Integrated Data Services Limited (IDSL)
• Pipeline and Product Marketing Company (PPMC)
• Kaduna Refining and Petrochemical Company Limited (KRPC)
• Port Harcourt Refining Company Limited (PHRC)
• Warri Refining and Petrochemical Company Limited (WRPC)
• Duke Oil
• Hydrocarbon Service Nigeria Limited (Hyson)
• Nigerian Liquefied Natural Gas Limited (NLNG).
Although the functions of the NNPC have been distributed amongst its subsidiaries, it has under-performed significantly in various areas of its responsibility. With allegations of corruption and financial impropriety; legal complexities due to outdated laws; poor maintenance of assets and a burdensome federal character charter necessitating national spread in recruitment, asset locations and resource distributions which has resulted in incompetence and irrational and unprofitable business decisions; its performance in developing the oil industry is arguably woeful.
The extant regulatory frame work and governmental bodies of the oil and gas sector have not promoted a culture of transparency in the oil and gas sector and they have not created the right opportunities or taken the required steps to tackle systemic corruption, oil spillage, petroleum products pricing and supply, amongst others.
There is a strong indication that if the PIB is passed into law by the National Assembly, the NNPC would be unbundled/scrapped (the DPR and Petroleum Products Pricing Regulatory Agency may also be scrapped) and the following new entities would be established –
a) The Nigerian Midstream and Downstream Petroleum Regulatory Authority, which shall be responsible for the technical and commercial regulation of midstream and downstream petroleum operations in the petroleum industry.
b) The Nigerian Upstream Regulatory Commission, which will be responsible for the technical and commercial regulation of upstream petroleum operations.
c) NNPC Limited, which shall assume the duties, assets and liabilities of the scrapped NNPC.
I believe the unbundling of the NNPC would make for clear separation of powers, increased statutory and sectoral funding, operational autonomy, transparency in appointments and dismissals, and insulation from political influence, within the newly established governmental entities.
If unbundled, what structure do you suggest should be implemented to further block holes in the sector?
I believe the structures/new entities proposed by the PIB 2020 (as discussed above), should be adequate to block holes in the Nigerian oil and gas sector.
Globally, one key structure that helps block holes in the oil & gas sector is sustainable finance. International experience shows that NOCs need flexible, reliable options for accessing capital while maintaining checks and balances that prevent them from becoming states within the state. Of particular importance is developing a workable revenue retention model that allows the kind of medium and long-term planning needed for effective commercial operations. This can be achieved by publicly listing the NOC shares. If managed well, public listings can enforce market discipline. They have encouraged innovation and efficiency in Petrobras (Brazil), Statoil (Norway) and KMG (Kazakhstan).
As a case study, Brazil partially privatized Petrobras in 1997 with the ratification of Law 9.478. At the same time, the state established a regulatory body, the National Petroleum Agency, to guide Petrobras through its transition to a mixed public-private entity, and in particular, to assist in the sales of its shares abroad (notably on the New York Stock Exchange). Proceeds from the sales then went back into the sector, principally in offshore drilling and exploration.
This exercise served Petrobras’s stated goal of increasing revenues in three ways. First and most obvious, the share sales raised cash up front. Second, compliance with stringent U.S. stock exchange reporting requirements incentivized better, more efficient management, which in turn reassured investors when Petrobras went out to raise capital. Third, the share sale helped reduce fuel subsidy costs, which were ballooning Brazil’s public debt and inflation. By creating new and binding obligations to maximize Petrobras’s profits for shareholders, Brazil gave itself a fresh legal argument against entrenched interests around subsidies. Phaseouts were then done gradually to reduce political fallout, with price controls on products with smaller market shares (jet fuel, lubricants and kerosene) reduced ahead of the big gasoline and diesel subsidies. Within a period of years, Petrobras’s production levels, proven reserves and revenues increased substantially, and the company has further enhanced its skills and reputation as a world leader in deepwater exploration and production.
The Bill provides for a 10% Host Community Fund for inhabitants of communities hosting oil and gas resources but failed to disclose how the fund will be sought. Do you think this will create issues in the future?
The PIB 2020 has proposed that the host communities will receive 2.5% of the actual operating expenditures of E&P companies (working in such host communities) for the preceding year and such funds will be placed into the Petroleum Host Communities Fund (PHCF).
The previous versions of the PIB that were not passed had provided for the creation of PHCF, into which the companies will contribute 10% of their operating expenses.
The PIB 2020 states that the funds will be sought from contributions received from E&P companies operating within the community. The issue I foresee arising is how the payment of the 2.5% of the actual operating expenditure of these E&P companies will be enforced, in terms of if the E&P companies can be made to accurately disclose their actual operating expenditure for the preceding year. However, this may be resolved by ensuring they submit their audited accounts for the preceding year for confirmation.
That being said, the creation of PHCF is arguably not the solution to the Niger Delta crisis and it is indeed incredulous that so much agitation has arisen in this regard. Prior to the proposal and subsequent inclusion of the PHCF in the PIB, various government intervention have been put in place in addition to the allocation of derivation, such as the Niger Delta Development Board, the Oil Mineral Producing Areas Development Commission (“OMPADEC”), the Niger Delta Development Commission (“NDDC”), and the Ministry of Niger Delta Affairs (“MNDA”). Rather than identify and address the root cause of why the various government interventions in the past have not yielded the desired result, there is a shift towards either placing an additional layer of responsibility on oil companies and/or creating another layer of institution which would likely be bogged down with the same problems plaguing the existing institutions.
Of course, the underlining problem is not a mystery, aside from inadequate government funding, a pervasive culture of corruption has contributed largely to the intervention programs making little or no impact over the years (however, this is not a forum for this discuss). The establishment of the PHCF in itself is not untenable and indeed may be a welcome development to bring resource dividends to the oil-producing region. However, the debate should not hinder the progress of the PIB and the creation of the Fund need not be included therein. Rather than creating a totally new avenue to further tax oil and gas companies, why not revamp the structure of the existing institutions particularly the NDDC and the MNDA? These institutions were established primarily to execute Federal Government’s projects for the development and environmental sustainability of the region and are funded mainly by the government and oil and gas companies. Restructuring of an institution like NDDC such that a large portion of the funds accruing to them can be channeled towards creating a PHCF or a Fund with similar characteristics should be considered.
It has been suggested that a good way to prevent mismanagement of such a Fund would be to involve international agencies such as the United Nations (“UN”) in its management. In this instance, the administration of the PHCF would involve representation from relevant stakeholders such as the Federal Government, Governors from the oil-producing States, traditional rulers, Oil Companies, reputable NGOs, the UN as suggested, and more importantly, community-level participation. Such direct grass-root/community level involvement of the people would calm their agitations and ensure that the people have a strong voice in deciding what projects and interventions are required for each of their communities and be able to monitor the implementation process until execution.
Such a partnership initiative would reduce the layer of corruption by ensuring that disbursements from the Fund are utilized for the specific community or regional development project it is earmarked for. The Federal Government also has a major role in ensuring that it meets its funding obligations as and when due.
Bill says assets of the subsidiaries of the NNPC listed under the Public Enterprises Privatization and Commercialization Act shall be delisted from the Effective Date of this Act. But the bill does not provide a clear roadmap for the commercialization/privatization of the NNPC or timelines for attendant transition. Don’t you think this will be prolonged?
From the available literature on the PIB 2020, same does not seem to provide that assets of the subsidiaries of the NNPC listed under the Public Enterprises Privatization and Commercialization Act, shall be delisted from the Effective Date of the Act. This was a provision of the PIB 2018 which has been superseded by the PIB 2020.
However, if this provision remain the same as in PIB 2018, without a clear roadmap and target for the commercialization / privatization of the NNPC assets, I am inclined to agree this plan could take forever to be implemented. The Bill splits NNPC into three companies and creates two new agencies to assume many of the corporation’s current regulatory duties, but the Bill omits most of the details needed to actually make the NOCs more profitable and efficient and as such does not make a good business case for potential investors.
The Corporate governance of the companies, prior to privatization, is not thoroughly addressed. This is evident in the proposed dismemberment of the NNPC into different entities which begs additional elucidation. The PIB establishes 9 institutions. The companies that will inherit the NNPC’s assets now consist of the National Oil Company (NOC), the National Gas Company PLC (NGC), and the National Petroleum Assets Management Company LTD (NPAMC). The ownership structure and allocation of assets amongst the institutions still require further clarification in the Bill.
The Bill also fails to provide clear provisions on the shareholding rights of government, or address the composition of the NOC or NGC boards and exposes the companies to no direct legislative oversight. There are also no precise declarations on how the NOC and NGC would fund their operations and the Bill does not discuss the process of domestic sale of crude oil, which is currently handled by the NOC. The regulators also do not appear to have sufficient independence to effectively carry out their functions and are subjected to major Ministerial supervision, which could introduce far-reaching political considerations into decision-making.
Finally, the objectives of the privatization and commercialization program in Nigeria stated out in Act No 28 of 1999 are:
a) To send a clear message to the local and international community that a new transparent Nigeria is now open for business.
b) To restructure and nationalize the public sector in order to substantially reduce the dominance of unproductive government investment in the sector.
c) To change the orientation of all public enterprises engaged in economic activities towards a new horizon of performance improvement, viability and overall efficiency.
d) To raise funds for financing socially-oriented programs like poverty eradication, health, education etc.
It is not very clear how these objectives are realized in the proposed Bill and this in itself will inevitably lead to delay and prolongment of the commercialization of these assets.
Bill also allows the Agency to accept gifts of money or other property upon such terms and conditions as may be specified by the person or organization. Will this not affect the integrity or accountability of the agency?
This is a provision of the PIB 2018 (this provision may also be replicated in PIB 2020). The provision is replicated below –
(27) The Commission may accept grants of money or other property upon such terms and conditions as may be specified by the person or organization making the gift provided, such gifts are not-
a) inconsistent with the objectives and functions of the Commission under this Act;
b) accepted from persons or organizations regulated by the Commission. (2) Nothing in subsection (1) of this section or in this Act shall be construed to allow any member of the Board or staff of the Commission to accept grants for their personal use.
From the above exceptions in a) and b) as well as (2), I believe these clauses adequately limit the ambit of the Commission to accept gifts and also secure the integrity or accountability of the Commission.
What is your take on a modular refinery?
Recent attempts made in driving the growth of refineries through private investment notwithstanding, Nigeria still has a long way to go in establishing refineries that are capable of producing at full potentials. Quite commendably, there have been some efforts and initiatives in recent years to upgrade existing refineries. These initiatives, if executed rigorously, will drive growth and reforms within the sector in the medium to long term.
By way of definition, a modular petroleum refinery is a process plant for refining crude oil that is engineered and constructed on largely skid-mounted structures. Each skid contains a section of the entire process plant and through interconnecting piping the component skids are linked together to form an integrated operable process plant at the site. A modular skid unit houses a process system within a frame so that the system can be transported easily. The modular process skid offers a high level of quality control, efficient use of space and pre-delivery testing to ensure ultimate functionality. Modular refineries are usually available in capacities ranging from 1,000 to 30,000 barrels per day (bpd).
Modular Refineries are ideally suited for remote locations and are viable for investments by Public-Private Partnership (PPP) as a source of rapid production of primary fuel products and raw materials for Petrochemical Downstream Industries. Establishing a crude oil refinery requires approval from the Department of Petroleum Resources (DPR) in Nigeria. Investors may need to apply for oil block allocation or partner with government at different level to guarantee investment and feedstock for the production plant.
The conditions required to make such an investment in modular refinery workable will include:
proximity and access to crude supply;
location to sizable markets with logistics advantages;
project finance on preferential terms from development credit agencies; and
government incentives.
Prospects of Modular Refineries
Modular refinery which is ideal for stranded production fields and remote locations could be sited in the riverine areas where accessibility to the petroleum products at present seems to be very difficult due to logistics. This will allow the dwellers in such areas to purchase the products at cheaper price than what is obtainable there at present. Modular refinery can be put together within a short time span of about 15 to 20 months and can be established within a short period of time at different locations. This ultimately does away with the need for expensive transportation of crude oil through pipeline covering long distance, which more often than not, are susceptible to vandalization as has been the case in several parts of the oil producing States in Nigeria.
In addition to promoting availability of petroleum products and helping to conserve foreign exchange utilization for the importation of petroleum products, establishment of modular refineries in Nigeria will bring about rapid production of feedstocks for downstream petrochemical plants.
Advantages of Modular Refinery Operation in Nigeria
a) Establishment of Oil and Gas Free Zone: Modular refineries proposal should go with the establishment of oil and gas free zones in all oil producing states as a means of diversifying the country’s economy. Siting modular refineries in the oil and gas free zones would cut investment cost.
b) Incentives from Government: Availability of government incentives through a well-balanced legal and regulatory framework to promote investments and guarantee returns on investments. Also, economic incentives such as tax holiday and grants will encourage investors to come into the sector in their droves.
c) Adequate Security: Restoring security and safety would require a multi-faceted approach involving the use of various pragmatic measures. The government has adopted various measures to stabilize and bring about peace within the Niger Delta region. These include: implementation of the amnesty program, the creation of the Ministry of Niger-Delta Affairs, and the establishment of the Niger-Delta Development Commission (NDDC). However, these institutional arrangements have not delivered effective results and therefore are being reconsidered & finetuned. Interventions need to be sustainable and address the agitations of the South-South communities; which range from developmental neglect to environmental degradation. Furthermore, these plans can be more efficient and effective if delivered as a mix of diplomacy and advanced security intelligence measures
d) Friendly and Effective Regulations: Effective Regulations will be a key driver for growth within the refining sector and therefore bold and decisive reforms are necessary. Regulations are pertinent to driving confidence within the refining sector and boosting attractiveness to potential investors.
Challenges to Modular Refinery Operation in Nigeria
a) Regulatory Uncertainties: The Nigerian oil and gas industry is heavily regulated by multiple regulators including the Ministry of Petroleum Resources (MPR), Department of Petroleum Resources (DPR) and even the Nigeria National Petroleum Corporation (NNPC). The effectiveness of these bodies in the refining sector has remained debatable. According to the Nigerian Extractive Industries Transparency Initiative (NEITI), Nigeria loses an estimated $15 billion yearly in foreign investments due to regulatory uncertainty. Uncertainties in regulations have discouraged various institutional and Individual investors in setting up modular refineries in Nigeria.
b) Security: Industrial sabotage, crude oil theft, illegal refining operations, pipeline vandalism and piracy present significant challenges in the oil and gas industry. Modular refinery investors can be swayed by the security condition of the country as investors would, more often than not, desire an environment, where their investment is not only safe but also secure. The several initiatives to curb instability within the Niger Delta Region of the Nigerian government as well as multinationals notwithstanding, security still mains a major challenge. As a matter of fact, instability in the region has compelled some companies to declare force majeure on oil shipments.
c) Infrastructure: Damaged pipelines, shallow channels and the absence of an effective logistics backbone are some major infrastructural impediments that have constrained growth of refineries in Nigeria. For a while now, damaged pipelines have impeded the supply of crude for refining operations. The rail system which can be a viable alternative for transporting huge product volumes, is highly capital intensive and requires huge investment. Furthermore, the inland waterways are too shallow to accommodate safe use of oil tankers to transport crude oil and refined products to the hinterlands. This has not been quite helped with the paucity of considerable investment in dredging and barges.
d) Feedstock Access: One of the biggest challenges which local and new modular refineries are most likely going to be faced with is how to access feedstock supply on a regular basis. Guaranteed feedstock access has not been aided by inadequate infrastructure, insecurity and unstable production.
e) Sanctity of Contracts: Inability to predict whether contractual terms will be honored and not be deviated from pose a great challenge. Every investor is concerned about the performance of contracts and often wary of contractual breach. Past antecedents of the Nigerian government in its disposition in some of the joint venture contracts with some of its International Oil Companies (IOC) partners sometimes leave a lot to be desired. While there is some motivation that the government is desirous of honoring contracts executed by its representatives, more efforts should be put to ensure that agreements entered into are kept.
Lenders in Refinery Project Finance
Like sponsors, there is no limit to the number of lenders in a refinery project finance transaction. The lenders are the debt financiers of the project – they finance the project by providing long-term loans – and they are prepared to accept the risk involved in the venture.
The principal lenders in a project financing are: T
a) Commercial Banks: Commercial banks (especially international banks) represent a primary source of funds for project financings – they are the largest providers of debt capital in project finance. The banks also offer financial advisory services in the project, and seek to have a high level of control over the management of the project because if the project fails, it may damage them heavily.
b) Export Credit Agencies (ECAs): Essentially, an export credit agency (ECA) is owned by a government. An ECA is a public agency or entity that provides a loan guarantee or funding to projects for an amount that does not exceed the value of exports that the project will generate for the ECA’s home country. Notable examples of ECAs are the Export-Import Bank (Ex-Im Bank) of the United States, the Export Credit Guarantee Department (ECGD) in the United Kingdom, and the Nigerian Export-Import Bank (NEXIM). Because infrastructure projects in developing countries often require imported equipment from the developed countries, the ECAs are routinely approached by sponsors and contractors to support these projects.
c) Multilateral Agencies: Multilateral agencies are established by intergovernmental agreements and unlike ECAs are independent of the interests of any single country member or recipient government – they are designed to promote international and regional economic co-operation. They can provide direct lending, political insurance to other lenders and even equity participation. In addition, these institutions often play a facilitating role for projects by implementing programs to improve the regulatory frameworks for broader participation by foreign companies and the local private sector. In many cases, the multilateral agencies are able to provide financing on concessional terms.
No doubt, Nigeria’s refining sector holds great prospects for the future. There have been some government initiatives to increase local refining capacity to offset continued growth of importing finished products for growing consumer demand. The goal is to provide lower cost, steady supply of fuels and products on a local level.
This is very commendable as it will go a long way in increasing local security of supply for transportation fuels, local electricity as well as sustained use of LPG cylinders for cooking and heating fuel obtained in-country, benefiting from lower regional pricing, transportation, and other incentives such as local jobs creation.
Dr. Jide Agunbiade is a subsea engineer with over 20 years’ experience in the offshore industry. Over the past 20 years, he has been involved at a significant level in virtually all the shallow to Deepwater projects in Sub-Saharan Africa and the Gulf of Mexico.
He is a member of The Nigerian Society of Engineer, Society of Underwater Technology and a Fellow of Institute of Industrial & Systems Engineers amongst other. He has a combined honors degree in industrial and Production engineering from University of Ibadan. He is also a graduate of the General Electric (G.E) advanced engineering program, as well as being G.E green and black belt certified. He has a master’s degree in organizational management, an MBA from the prestigious AIU in Houston Texas and Ph.D. in leadership and Business from HPCU Atlanta Georgia. He is also a Ph.D. scholar in Environmental policy at the Texas Southern University.
He started his career in Nigeria with various Engineering firms in Eket, Warri and Port Harcourt before left for the US close to 20 years ago. Over the last 20 years he has worked at Texaco Overseas, Houston as subsea Engineer, General Electric Houston Texas where he was Principal Engineer for the $4billion Duke Energy Edwardsport IGCC (Integrated Gasification in Combined Cycle) project that built the first-ever IGCC plant in Edwardsport, Indiana. He is currently a director at National Oilwell Varco, the largest Oil and gas equipment manufacturing company in the world headquartered in Houston Texas with 600 locations in 5 continents worldwide. He is a Philanthropist, prolific Investor, Energy Consultant and one of the few Nigerian Subject Matter Expert (SME) in Subsea Production Systems. He has attended and presented at several Conferences, Seminars, and Workshops all over the globe. He has interest and ownership in in several enterprises including one of the largest shipping and Logistics Company in Africa, Oil field and real estate.
