Nigeria's next wave of energy investments will focus on making projects bankable, rather than just securing capital, according to energy experts. They cite the financing of the Dangote Refinery as a major lesson for the sector. The experts note that while there are many potentially viable projects, weak project structures, execution risks, and uncertainty over returns discourage investors and lenders.
The Chief Executive Officer of Petrovision, Dr Lekan Aluko, highlights the Dangote Refinery as evidence that large energy infrastructure can be privately financed in Nigeria without sovereign guarantees. The 650,000 barrels per day refinery was developed with critical infrastructure, including a port, power plant, and roads, addressing potential constraints. This approach made the project more attractive to investors and lenders.
Aluko emphasizes that Nigeria's effort to revive its existing refineries requires a different approach. The challenge lies in rehabilitating brownfield assets with uncertain technical and commercial liabilities. Investors need to know the actual condition of the facilities, rehabilitation costs, required technology, implementation period, and the plants' economic viability after rehabilitation. These questions must be answered before determining the best investment option.
According to Aluko, investors require robust projects, strong governance, sufficient sponsor commitment, credible execution track record, and transparent risk management. The Dangote project provided lenders with comfort due to its technical and commercial proposition, identified project risks, and the promoter's substantial financial commitment. However, Aluko warns against applying the same financing model to state-owned refineries in Port Harcourt, Warri, and Kaduna.
The refineries in Port Harcourt, Warri, and Kaduna have a combined nameplate capacity of 445,000 barrels per day and have undergone years of rehabilitation efforts. The Nigerian National Petroleum Company Limited (NNPC) now seeks technical and financial partners to restore their operations. Aluko notes that proposals like the African Refinery Port Harcourt Limited (ARPHL) underscore the need for a commercial assessment of alternatives.
The experts stress that the decision to rehabilitate or build new refineries should be based on technical and economic merit, rather than sentiment. The bankability challenge extends beyond refining to electricity, where inadequate grid reliability has pushed industrial operators towards captive power generation.
Chief Executive Officer of Mudozangi, Mr Chidi Amudo, also comments on the scale of the Dangote project, demonstrating the potential for large-scale energy infrastructure development in Nigeria. The experts' insights highlight the need for a comprehensive approach to energy project development, prioritizing bankability and robust project structures to attract investors and lenders.
Key points
- Experts emphasize that Nigeria's energy investments will depend on project bankability, not just capital availability.
- The Dangote Refinery serves as a model for privately financed large energy infrastructure in Nigeria.
- Reviving state-owned refineries requires a different approach, considering technical and commercial liabilities.