New Refinery Planned for Lagos Free Trade Zone

Nigeria is a place where many more deals are announced than are ever completed. But July saw progress towards the construction of one of three new Nigerian refineries expected to reduce imports of refined petroleum products, a costly and ironic feature of the oil-rich nation's economy.

The memorandum, signed in May 2010, proposed the building of three refineries at a total cost of $25 billion dollars. Speaking to IPS in June, American University professor of development Deborah Brautigam said she doubted the deal would ever be completed.

"I think it will be very brave Chinese bank that takes on a 20 something billion dollar project in Nigeria because, yes, Nigeria is much more stable than the Democratic Republic of Congo [where China has also invested heavily], but the DRC projects are much smaller."

Brautigam told IPS that the need for the refineries is clear, but the obstacles to the deal are political. "A few people at the top benefit from having some control over the imported oil products, and they don't want that situation to change. So it's a challenge for this deal to be consummated."

But she also suggested that the wisest course of action would be to come up with a practical funding model and partnership for just one refinery to begin with.

The various players seem to have been thinking along the same lines.

Not surprisingly, it's in the bustling economic engine of the country, Lagos, that concrete details of funding of a public-private partnership to build a refinery have emerged.

The project is be co-funded by a Chinese consortium called the Chinese State Construction Engineering Corporation which will put up 80 percent of the capital, and the Nigerian National Petroleum Corporation stumping up the rest.

The Lagos State government will provide necessary infrastructure including land, new roads and an adequate electricity supply.

The eight billion dollar refinery will be located in the southeastern state's Lekki Free Trade Zone, and NNPC Executive Director in charge of Engineering and Technology, Billy Agha, commended Lagos State Governor Babatunde Fashola for incorporating an oil and gas project into the LFTZ.

"On its part, NNPC will support the LFTZ by assisting with the arrangements for the supply of natural gas feedback to the zone for the manufacture of petrochemicals, fertilizer and other much desired industrial products," Agha said.

He said that the project would create an estimated 2,000 skilled positions and construction work for an additional 5,000 labourers.

Babatunde Ogun, president of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) which represents skilled workers in Nigeria's oil industry, welcomed the joint venture.

"That is what we have been clamouring for; to have refineries run by the private sector. This government is going the right direction by inviting the Chinese consortium to build and run the refineries," Ogun told IPS in Lagos.

He blamed government interference in the running of the existing facilities for the problems that the country was currently facing the supply of refined petroleum products.

Despite ranking in the top ten producers of crude oil, Nigeria imports 85 per cent of the fuel used in the country. According to the NNPC, Nigeria spends $10 billion a year on importing refined products.

Ogun advised the Chinese investors who will manage the refineries to ensure fair wages and good industrial relations with workers when the project takes off.

"We are sending a signal to them that Nigeria is as state that respects labour and so they must ensure fair wages and good industrial relations in the refineries. They must know that we operate under the International Labour Organisation standards."

The deal bears the hallmarks of what Brautigam describes as resource-backed infrastructure loans from China to Africa. The Chinese consortium will find the bulk of the financing for a project that it will then build and operate as a majority partner, thus securing both the construction contract and a reasonably safe revenue stream to recover the loan.

"Deals like this have happened across the continent," says Brautigam. "It's not altruism, it's not foreign aid: it's about business, but looking at Africa in a different way."

Refined response to energy needs

The Memorandum of Understanding signed in May between the Nigerian National Petroleum Corporation and a Chinese consortium committed the parties to jointly seek financing for the funding and construction of three new refineries and a petrochemical plant.

The refineries, with a combined capacity of 885,000 barrels per day, are expected to cost $25 billion. They are planned for Lagos in the southeast, the central state of Kogi, and in Bayelsa, in the oil-producing Niger Delta.

The Chinese State Construction Engineering Corporation, the sixth largest engineering firm in the world, also pledged to assist in procuring funding on competitive terms, ensure that bona fide Chinese investors take up at least 25 per cent of equity holding in the project.

When completed, the Lagos refinery is expected to produce 300,000 barrels of crude oil per day.

"It will also produce 500,000 metric tonnes of liquefied petroleum gas (LPG) per annum that if properly harnessed would facilitate households from firewood, charcoal and kerosene, to LPG in Lagos and environs.

"With the Lagos State Government as a co-investor, the Lekki refinery will alongside other refineries enable Nigeria to eliminate completely, the current flood of imported petroleum products over the next decade," said NNPC official Billy Agha.

[Source: By Toluwa Olusegun, IPS, Lagos, 18Jul10]

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