Nigeria’s state oil firm has finally secured funding for its nationwide refinery rehabilitation project.

What: The loan with Afreximbank will cover work to overhaul the 210,000 bpd refining complex at Port Harcourt.

Why: With all four state-owned refineries currently closed ‘for maintenance’, NNPC is set to embark on a long-awaited project to return refining capacity to 90% of its theoretical 445,000 bpd nameplate.

What Next: Prior to the closure of the refineries, the units were running at around 5%, and turnaround maintenance (TAM) work has not been carried out for around 44 years. With so much ground to make up, the ambitious project is likely to take at least two years to complete.

Nigerian National Petroleum Corp. (NNPC) has agreed a deal for a loan to allow the company to carry out rehabilitation work on the Port Harcourt refining complex.

Speaking to S&P Global Platts on condition of anonymity, the sources said that the work was now set to begin at some point during Q1 2021. One source was quoted as saying: “Talks on securing the loan, which is about $1bn, actually began late last year and I can tell you that terms have now been agreed and [it] ready to be disbursed.”

One source told Platts said: “NNPC initially was not favourably disposed to the terms proposed by the lenders, but the terms have been sorted out and agreement reached” on funding led by Cairo-based African Export-Import Bank (Afreximbank).

NNPC now intends to proceed with commercial bidding from pre-qualified engineering, procurement and construction (EPC) companies for the overhaul job, with the pre-qualification process being overseen by NNPC subsidiary Netco and KBR.

The Port Harcourt complex is comprised of two units, built roughly 25 years apart, with joint total capacity of 210,000 barrels per day (bpd), making it Nigeria’s largest refinery.

In March 2019, Italy’s Maire Tecnimont was awarded a contract to for the work with the company explaining that the deal involved two phases. The roughly $50mn first stage included a six-month ‘integrity check’ and equipment inspection at the site, as well as ‘relevant engineering and planning activities’. Fellow Italian firm Eni was contracted as technical adviser.

Subject to completion of phase one, the Italian company was due to carry out the EPC contract on the required rehabilitation. At the time, the second phase would be fulfilled in collaboration with an unnamed ‘partner’, which was later revealed to be Japan’s JGC, which with Italy’s Saipem was the original builder of the larger of the two Port Harcourt refineries.

The deal was part of an 18 to 24-month, $1.2bn project across the four state-run refineries designed to restore output to at least 90% of nameplate capacity, with work originally anticipated to be completed by 2023.

With the coronavirus (COVID-19) pandemic having slowed progress on agreeing the EPC deals, this target is unlikely to be met.

Pipelines

NNPC subsequently invited investors to bid for EPC contracts to repair pipelines and depots that serve the refineries at Kaduna and Warri as well as Port Harcourt. The refineries, built in the 1970s, are in need of extensive repairs and modernisation. The company announced in December that it had received seven bids from local and international companies for the repairs.

The pipelines that feed the plants with oil are also in a state of disrepair, as a result of years of what NNPC described as “incessant” oil theft and vandalism. Their refurbishment is to be carried out separately to the work at the refineries.

In mid-January, NNPC said that it had received bids from 96 companies for the rehabilitation work following a virtual public opening round for companies pre-qualifying for the work.

The work is being offered in four lots: Lot 1 covers infrastructure around Bonny and Port Harcourt, including a 210-km products pipeline; Lot 2, meanwhile, relates to facilities around Escravos and Warri; Lot 3 is for infrastructure in Kaduna and Kano, including a 604-km oil pipeline from Warri to Kaduna, while Lot 4 is for work in the Atlas Cove and Mosimi areas.

The bidders will be required to fund the repairs themselves and operate the pipelines for a period so that they can recoup their investments. In that time, they will also receive oil transit fees. Companies can bid for two of the lots but can only be selected for one.

Suspended operations

The launch of bidding for work on downstream infrastructure followed the revelation in April by the head of NNPC, Mele Kyari, that the company had suspended operations all four refineries so that it could seek funding for the refurbishment of the associated refineries. Mele Kyari added that it would not continue to act as operator of the facilities once they resume operations.

The NNPC’s four facilities have a combined nameplate capacity of 445,000 bpd, with the Kaduna and Warri facilities having a theoretical throughput capacity of 110,000 bpd and 125,000 bpd respectively.

After years of under-investment, the ageing facilities have recently typically run at less than 10% of capacity, and a general update on operations by NNPC in January 2019 disclosed that full turnaround maintenance (TAM) at the plants had not been carried out for 42 years.

Four months later, the company released data showing that the refineries were operating at just 5.55% of their capacity, with that figure being a six-month high. “The lower operational performance recorded is attributed to the ongoing revamping of the refineries, which is expected to further enhance capacity utilisation when completed,” NNPC said. The utilisation rate has since dropped to zero, with the four units not having operated since early 2019.

NNPC is understood to still be considering offloading the majority of its stakes in the refineries, while looking at operational models to increase efficiency as well as “more scrutiny of shareholders”.

Despite the positive news of the loan deal, Abuja will continue to rely on fuel imports in the short term, with the start-up of the 650,000 bpd Dangote refinery at Lekki near Lagos having been pushed back to early 2022.

Meanwhile, a ray of light continues to shine from the rise of modular refining. While the scale is not yet comparable with the potential impact of the Dangote refinery, modular facilities located near oilfields provide improved fuel distribution in remote areas while reducing reliance on infrastructure that is susceptible to vandalism.