The Nigerian National Petroleum Corporation (NNPC) has disclosed plans to raise about $1 billion for the refurbishment of its largest refining complex at Port Harcourt, in collaboration with trading firms through prepayment method.
This was made known in a report by Reuters which marks Nigeria’s second oil-backed financing since the COVID-19 pandemic that triggered difficulty in sourcing for investors, just as the demand for fuel is sapped by lockdowns while renewable energy is gaining ground over fossil fuels.
When concluded, the long overdue rehabilitation of the refinery would reduce Nigeria’s hefty fuel import bill, the report by Reuters revealed.
The money would be repaid over a 7-year period through the deliveries of Nigerian crude and products from the refinery once the refurbishment is complete, the sources said.
Cairo-based Afreximbank is leading the financing.
“Afreximbank is looking into a facility for the refurbishment of the Port Harcourt Refinery. However, the borrower is yet to be determined,” a spokesman for the bank told Reuters.
Though NNPC declined to comment on the issue but sources said that discussions were taking place with a range of foreign and Nigerian trading houses, including some who had previously worked with Nigeria, and who pleaded anonymous.
Apart from the problems of the pandemic and increased investor preference for carbon-free energy, defaults and fraud in commodity trading mainly in Asia, have reduced the appetite of foreign banks for exposure to commodity trade finance.
A source at one foreign bank, who spoke on condition of anonymity said that they are unlikely to participate in Nigeria’s latest effort because of lower credit availability and increased reluctance to take out exposure in a high-risk country.
Nigeria has four refineries with a combined capacity of 445,000 barrels per day (bpd); one in the north, Kaduna State and three in the oil-rich Niger delta region at Warri and Port Harcourt. The Port Harcourt complex consists of two plants, with a combined capacity of 210,000 bpd.
In 2019, the refineries lost some 167 billion naira ($439.47 million), and only Warri processed any oil. In April 2020, they were all shut pending rehabilitation.
Nigeria had struggled with the poorly maintained units for decades. Successive NNPC chiefs and politicians have announced a series of unsuccessful plans to revamp, privatise or expand the refineries.
NNPC abandoned a similar attempt in 2019 to partner with oil traders, producers and engineering firms to fund refinery revamps after more than a year of talks, saying it would fund the projects itself.
The barely functional plants leave Nigeria completely dependent on imports, and subsidy schemes also cost the country billions of dollars. Though the federal government said it eliminated subsidies, NNPC is effectively the sole gasoline importer, using some 300,000 barrels per day of oil to swap for fuel.
In December, 2020, NNPC opened a bid for a contract to rehabilitate the Port Harcourt complex. NNPC chief, Mele Kyari also said last year that private companies would run the refineries once they were rehabilitated.
In July, 2020, global energy trader, Vitol and Nigerian firm Matrix backed by banks agreed to lend NNPC $1.5 billion to support its upstream arm, NPDC, although the discussions that led to the deal predated COVID-19.