Introduction
Since the development of the
“7big wins” initiated by the Ministry of Petroleum Resources and its subsequent
launching by the President, modular refining is now becoming a part of the
Nigerian petroleum sector.
Recently, the Federal Government
of Nigeria disclosed that it has received thirty-five (35) applications for the
establishment of modular refineries in the Niger Delta region, out of which
thirteen (13) had reached the Licence to Construct Stage.[1]
These are in addition to the several licenses the government has approved for
the setting up of Modular Refineries in the region[2]
and the grant of $1 million approved by the United States Trade and Development
Agency for the detailed engineering design of 20,000 bpd modular refinery in
Lagos.[3]
While there are a lot to be
considered in modular refining investment in Nigeria, this piece will focus on
the General Requirements and Guidance Information for the Establishment of
Modular Refineries in Nigeria issued by the Federal Ministry of Petroleum
Resources.
What are modular refineries?
The Guidelines issued by the
Department of Petroleum Resources considers a modular refinery as a refinery
with a design capacity of not more than thirty thousand barrels per day (30,000
bpd). Where it exceeds 30,000 bpd, it would be considered a full conventional
refinery.
Technically, a modular refinery
is a processing plant that has been constructed entirely on skid mounted
structures. Each structure contains a portion of the entire process plant which
are piped together to form an easily manageable process.[4]
Thus, unlike a full conventional refinery, a modular refinery is easy to build,
manage and operate.
Application for licenses
An application for a license to
construct or operate a modular refinery is made to the Minister of Petroleum
Resources through the Department of Petroleum Resources, in the statutory form.
The licensing process is in three
(3) phases: License to Establish a refinery (LTE), Approval to Construct a
refinery (ATC), and License to Operate a refinery (LTO).
The License to Establish a
refinery is to confirm general feasibility of the proposed project and is the
approval stage of the three-stage process. It is granted for a period of two
years. The statutory fee is USD 50,000 and a DPR Processing Fee of N500,000.
The Approval to construct may be
granted after the applicant has submitted the detailed engineering of the plant/refinery
to the Department of Petroleum Resources and made a comprehensive presentation
on the project design to the Department. Once granted, it is valid for a period
of twenty-four (24) months. However, where the project is not completed, the
approval can be revalidated for a period not exceeding two (2) years, without
an option for further renewals or revalidation. It has a DPR Processing Fee of
N500,000
The license to operate a refinery
will be granted upon mechanical completion of the refinery or plant, an
application for license to operate the plant, and the payment of the statutory
fees. It has a Statutory fee of USD1,000 per 1,000 bpd up to 30,000bpd and a
DPR Processing Fee of N500,000.
What are the laws governing modular refineries in Nigeria?
The legal framework governing
modular refineries in Nigeria are:
a. The
Petroleum Act of 1969;
b. The
Petroleum Refining Regulations;
c. The
General Requirements and Guidance Information for the Establishment of Modular
Refineries in Nigeria;
d. The
Supplementary Guidelines for the Design, Construction and Operation of Modular
(mini) Refinery Plants in Nigeria.
Considerations for modular refineries investment
i.
Location
An investor
seeking to set up a modular refinery should first consider the location of the
refinery. The government intends that the location of a modular refinery be
strategic and influenced by proximity to the source of crude oil, producing
fields and tie-in supply infrastructure or clusters.
ii.
Business Model
The business
model most welcomed by the government is one that will be a private sector led
partnership with equity participation from the state government or its
agencies, registered local cooperative societies and the integration of the
regional refinery stakeholders, with the private investor having majority
equity as well as operate Joint Venture.
iii.
Investment Category
The government has
created three (3) different investor category.
The first
category consists of private investors with financial and technical capacity,
preferable with established Nigerian presence or partnership.
The second is
the Public-Private Partnership category which will have credible participation
from relevant stakeholders such as foreign technical partners, State
Government, MDAs, Local Government Council, organized private organizations,
cooperative societies, community equity contribution, etc.
The third
category consists of Regional Refinery Stakeholders involved in artisanal activities
with focus to converting the vocationally acquired skills to cognitive
technical skills. This third category is meant to give opportunity to illegal
refiners in the Niger Delta region, and give them an opportunity to move from
illegal refiners to refiners with established business models.
Qualifications for investing in modular refineries in Nigeria
To be qualified to receive an
approval for setting up and operating a modular refinery in Nigeria, an
investor must meet the following requirements:
a. Must
be a legal entity duly registered under the business registration laws in
Nigeria;
b. Must
have a three (3) years Audited Account, Financial report and Tax documents. It
must also have a detailed financial plan with proof and source of funding,
sworn affidavit and letter of authority allowing verification of all claims;
c. Must
have Health, Safety and Environment (HSE) Plans, Quality Management System,
Security Plans, Management of Change Procedure, Community Affairs and Corporate
Social Responsibility (CSR) Plans.
d. Must
comply with Nigerian Content requirements in accordance with the Nigerian Oil
and Gas Industry Content Act, 2010.
e. Must
meet up with the technical specifications set out by the Department of
Petroleum Resources
Government support and incentives
In its bid to encourage
construction of modular refineries, the government is willing to give its
support to prospective investors. This will be in the form of facilitation of
crude commercial agreements from marginal and other oil fields, and
facilitation of ownership-joint venture investment vehicles with organized host
communities and State governments.
Such prospective investor will
also benefit from fiscal incentives granted by section 39 of the Companies Income Tax Act, which includes tax
relief for a period of up to five (5) years, accelerated capital allowances,
tax free dividend where capital was in foreign currency, and deduction of
interest on loans obtained with the prior approval of the Minister in
computation of tax.
N.B. This guide is based on the
General Requirements and Guidance Information for the Establishment of Modular
Refineries in Nigeria, and as such is not exhaustive of the considerations for
investing in modular refineries in Nigeria. It does not seek to provide legal
advice and as such potential investors are advised to seek more exhaustive
legal advice beyond the scope of this piece.
About the Author
Harrison Declan, LLM (Aberdeen)
is a Texas based attorney, licensed to practice law in Texas and in Nigeria. He
constantly advises and facilitates business transactions on behalf of clients. Harrison
is well skilled in the business and practice of law, and is also well
published. He is the author of the book Local Content in Africa’s Petroleum
States: Law and Policy, which was sold and read in three different continents.
He also blogs at Afrienergy.blogspot.com.
[1]
The Punch, ‘35 Apply to Build Modular Refineries in Niger Delta’, November 13,
2017 http://punchng.com/35-apply-to-build-modular-refineries-in-niger-delta/.
Accessed November 12, 2017.
[2]
The Nation, ‘Modular Refinery: FG Approves 56 Licenses to Operators’. http://thenationonlineng.net/modular-refinery-fg-approves-56-licenses-to-operators/
Accessed November 12, 2017.
[3]
Vanguard, ‘U.S. Agency Approves N360m for Development of Modular Refinery in
Nigeria’, August 13, 2017. http://punchng.com/fg-approves-modular-refinery-for-pti/
Accessed November 12, 2017.
[4]
Chemex Modular. Chemex Modular is a Texas based modular refinery construction
company which pioneered the new modular refinery manufacturing method.
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