• Dormant institutional funds must be unfrozen to fund petroleum investments
• Africa Energy Bank still on course for activation by December

Sopuruchi Onwuka

Imposing global quality standards for Nigeria’s fledgling domestic midstream petroleum industry migh prove counterproductive by draining the commercial viability of ongoing investments conceived to permanently displace fuel importation with locally refined products.

Thus, panel debaters at an industry conference hosted at Eko Hotel, Lagos, on Tuesday demanded that government should reconsider adoption of the Afri-6 fuel quality standards for local modular refineries; warning that no practical need on ground makes the new quality requirement urgent for implementation in the Nigerian domestic fuel market.

They also called on government to leverage huge institutional funds in the country as well as dormant cash reserves domiciled with the Central Bank of Nigeria (CBN) to finance big ticket petroleum industry projects in order to quickly achieve the dual objectives of achieving oil production boost and the trillion dollar economy.

Panel discussants comprised the Chief Executive Officer of HSI Energies, Mr Chikezie Nwosu; Deputy Director at Africa Finance Corporation (AFC), Begna Gebreyes; Managing Director of Rainoil Limited, Mr Emmanual Omuojine; Chairman of Signature Bank Limited, Mr Tijani Borodo; and Technical Adviser to the President on Economic and Financial Inclusion, Dr Nurudeen Abubakar Zauro.

In discussing Financing and Scaling Refining Infrastructure in Nigeria, panel members agreed on the need for the government to intervene with resolution of critical challenges that stand against viable commercial investments in Nigeria, arguing that it behooves on the state to provide investors with stable social environment.

The government, according to the pundits, could pave way for smooth operations and flow of investments through enabling regulations that enhance processes and unlock dormant funding for investors at acceptable rates.

Mr Chike Nwosu who provided clear explanation of the business model for scalable refinery models listed key enablers to include access to feedstock, closeness to source of crude, simplified offtake logistics and takeoff financing.

Mr Nwosu is former Managing Director of Waltersmmith’s Ibigwe Refinery in Imo State which proved Nigeria’s second modular refining venture after Aradel’s Ogbele refinery. Both refineries are currently scaling up processing and output capacity as the domestic fuel market gets increasingly liberalized and commercially deregulated.

Mr Nwosu pointed at emerging threat to the business, warning against plans to upgrade local fuel quality standards to Afri-6 which, he explained, is benchmarked against the low sulfur content of the Euro-5 quality standards currently used in Europe.

Such a requirement, he clarified, would further command additional investment in desulfurization modules in low output plants that are already challenged with very narrow financing opportunities. He described refining margins as scale driven, adding that meeting Afri-6 fuel quality standards would further mount intense pressure on modular refinery operators to rapidly expand in order to grow the viability profile of the investment.

He made it clear that the Afri-6 fuel quality standards would kill the modular refinery dreams in the country, adding that only large capacity refineries would comfortably meet the new quality standards because, he explained, that already have all modules integrated in the original design concept.

For every refiner in the country to b regulated with the same quality requirement, he said, the project budget would proportionately escalate and impose greater strain promoters who, according to him, are under funding requirement to drive the project through pre-development stages.

He said banks and equity financiers only find it comfortable and attractive to stake funds in projects when all the commercial viability indicators are clear. He stated that the players must derisk the projects by driving them beyond the proof-of-concept stages before banks, government and equity financiers begin to intervene.

On financing, Mr Borodo proposed stronger collaboration between commercial and Africa focused development banks in financing energy projects  in the continent, pointing out that such collaboration was already active in the emerging Africa Energy Bank (AEB)  which, he stated, would be commissioned by the end of the year.

He also pointed at trillions of Naira in pension funds and CBN cash reserves as veritable sources of funding energy projects as part of possible collaborations in meeting government’s objectives in growing $trillion economy for Nigeria and boosting oil output to meet domestic demands and also earn significant foreign exchange income for the country.

Mr Gebreyes made it clear to the audience that international development financing flows to jurisdictions with stable social environment for the supported enterprise to thrive.

In supporting diversification of refineries in the country, he pointed out that policy, regulatory and funding measures must ensure that is large number of players driving the refinery industry in the country. He incentives for investors should include access to feedstock as well as opportunity to muster adequate operating capital to boost the confidence of lenders and equity participants.

In commenting on the reluctance of multilateral financial institutions to stake funds on refining investments, Mr Gebreyes emphasized that the indigenous modular refineries must be encouraged to derisk the investments by demonstrating capacity for sustainable operations.

In his contribution, Mr Omuojine called on government to enhance the operating environment by investing on common infrastructure for distribution of products, saying that cost of infrastructure development is too prohibitive for individual refinery builder in the country. He said the burden would logically be too heavy for small modular refiners.

He proposed that government opens up more seaports and quays along the coasts of the country for distribution of fuel products with marine vessels. He explained that existing ports in Calabar, Port Harcourt, Warri and inland terminals could be optimized for fuel distribution.

Other virtual pipeline models, according to him, include use of rail tankers to efficiently ship petroleum products across lone distances across the country.

In responding to propositions emerging from the debate, Dr Zauro made it clear that government through the regulators would continue to show support to local refineries. With the target to build a trillion dollar economy alongside the immediate need to boost oil production, he added, government has remained open to engage and address issued affecting the economy.