With refineries operational loss at N164 billion in 2019, there are strong indications that the Nigerian National Petroleum Corporation (NNPC) is reportedly in high level discussion to raise about $1 billion in a prepayment with trading firms to refurbish its largest refining complex in Port Harcourt, Rivers State.
If the financing is concluded, the long overdue rehabilitation of the refinery is expected to reduce Nigeria’s heavy fuel import bill.
The move, according to the report, would also mark Nigeria’s second oil-backed financing since the COVID-19 pandemic added to the difficulty in finding investors as fuel demand is sapped by lockdowns with renewable energy gaining ground over fossil fuel.
The money, according to sources close to the deal, would be repaid over seven years through deliveries of Nigerian crude and products from the refinery once the refurbishment is complete. Cairo-based Afreximbank is reported to be leading the financing deal.
Though NNPC declined to comment, sources close to the deal said discussions were taking place with a range of foreign and Nigerian trading houses, including some who have previously worked with Nigeria, and who asked not to be named.
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 pleaded not to be named, said it was 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 at Kaduna 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 N167 billion ($439.47 million), and only Warri processed any oil. In April 2020, they were all shut pending rehabilitation.
Nigeria has 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.
