AN INVESTOR’S GUIDE TO MODULAR REFINERY INVESTMENT IN NIGERIA

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.

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[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.

Tanzania: Tanzania Overhauls Legal And Regulatory Regime For The Extractive Industry

Article by Mwanaidi Maajar and Tabitha Maro

Tanzania has enacted three pieces of legislation that introduce sweeping changes to the legal and regulatory regime governing the natural resources extractive industry.

The new laws are the Natural Wealth and Resources Contracts (Review and Re-Negotiation of Unconscionable Terms) Bill, 2017; the Natural Wealth and Resources (Permanent Sovereignty) Bill, 2017 (the "Permanent Sovereignty Bill") (awaiting assent by the President); and the Written Laws (Miscellaneous Amendments) Act, 2017. The latter extensively amends the Mining Act, 2010 and, to a limited extent, the Petroleum Act, 2015.

The Permanent Sovereignty Bill reasserts that control and ownership of natural wealth shall be exercised by the people of Tanzania through the government and held in trust by the President on behalf of the people. Unlike the old regime, the Bill extends state ownership to production arising from extraction of natural wealth resources. It further provides for:

• abolishing the export of raw minerals for beneficiation outside the country;
• abolishing the retention of mineral earnings in banks outside the country;
• prohibiting proceedings in respect of national wealth and resources in foreign courts or tribunals; and
• the review of new and existing agreements by the National Assembly, subsequent to which the government may be ordered to renegotiate terms deemed unconscionable.

The laws will affect licence tenure in view of the provision empowering the Executive to declare certain areas that are the subject of mining operations "controlled areas" without excluding areas that are the subject of granted mining licences. This issue may be clarified in the regulations, which the law requires the Minister to introduce to operationalise the process pursuant to which such declaration may be made.

The government will have at least 16% equity in all mining operations under a mining licence or a special mining licence, and such equity cannot be diluted. The government is further entitled to up to 50% equity of the shares of a mining company in proportion to tax benefits enjoyed by the company. The law provides that such a tax benefit, defined as "tax expenditures", will be the quantified value of tax incentives granted to a mining company by the government. The law makes no reference to the mandatory listing requirements for mining companies, which must list 30% of their equity on the Dar es Salaam Stock Exchange. Further clarification will likely be provided in the regulations that will be made by the Minister of Energy and Minerals.

While existing agreements such as mining development agreements ("MDAs") and petroleum sharing agreements ("PSAs") have been preserved, they are nevertheless subject to review by the National Assembly. All new agreements must be approved by the Cabinet and the National Assembly, which may direct the government to renegotiate them should they be deemed to contain unconscionable terms.

Disputes must be settled pursuant to Tanzanian laws and in Tanzanian courts or judicial bodies. There will be no reference to international arbitral processes. Existing agreements that contain provisions allowing international arbitration may be of no effect, because the law regards such provisions to be unconscionable terms. If the National Assembly requires the government to renegotiate an existing agreement containing unconscionable terms, the government will be obliged to initiate negotiations within one month. Should the mining company and the government fail to reach agreement within 90 days, the law provides that the terms will be expunged. This will affect all existing MDAs and PSAs, taking away guaranteed access to international arbitration.

All proceeds from mineral sales must be maintained in local banks. Under the old regime, mining companies could, subject to Bank of Tanzania's approval, maintain funds in foreign banks to service foreign loans.

Export of raw minerals and concentrates are now banned. Similarly, all won minerals may be held at the mine site for five days only and thereafter must be sent to government minerals warehouses (to be established in due course). Gem and mineral clearing houses for auction and exchange will also be established.

There is an increase in royalties for uranium from 5% to 6%, and gold from 4% to 6%, while the rate for other minerals (building and industrial) remains at 3%. There is an additional 1% clearing fee on all minerals exported with effect from 1 July 2017, which was introduced by the Finance Act, 2017.

More stringent local content requirements, obligatory corporate social responsibility, commitment by mining companies to reinvest profits in the national economy, engaging and training local staff, and planning and reporting requirements to monitor compliance are enshrined in the law.

Stabilisation provisions lasting the life of a mine are prohibited and, where permitted, there must be provision for periodic review and renegotiation. The value of any tax exemption under such agreements must be quantified and provision must be made for the government to take shares in the company commensurate to the tax benefit enjoyed. The freezing of applicable laws (stability clauses) is prohibited, as this is deemed as taking away the government's sovereign powers to legislate. Nevertheless, the government has said that mine development will now be made pursuant to mining licences alone and there will not be new agreements. It is unclear if this will apply to petroleum licences as well.

The transfer of interest in mining companies of licences is restricted to the extent that consent to transfer will be granted only if there is evidence of substantial development by the transferor. A repealed consent provision has stated that consent would not be unreasonably withheld.

The government also announced on 4 July that the issuance and processing of licences have been suspended until a full evaluation is undertaken. We will continue to monitor this matter and update our clients accordingly.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Source: Mondaq.com

Nigeria: Ministry Of Petroleum Resources Releases Draft National Petroleum Fiscal Policy

The Ministry of Petroleum Resources has released a draft fiscal policy for Nigeria's petroleum industry. This is a fall out of the Ministry's roadmap tagged "7 Big Wins" for the petroleum industry which was launched last year (Deloitte Tax Alert – FG launches new roadmap for Oil and Gas Sector).

The release is in line with the objective of addressing the policy and regulation issues with a view to gaining a robust fiscal policy instrument for the industry, as part of the 7 major focus of the roadmap.

The purpose of the policy is to provide a fiscal framework that will guide the planning and development of petroleum activities in an efficient manner and ultimately lead to the socioeconomic development of Nigeria. Federal Government is also interested in increasing revenue generated from this sector of the economy.

The policy covers all sectors of the petroleum industry – upstream, midstream and downstream, and includes all petroleum related products.

Highlights of the policy document include:

• Detailed outline of FGN's policy, vision and purpose for Nigeria's petroleum fiscal resources
• Short, medium and long-term goals for fiscal development
• Strategies to be pursued to ensure the successful implementation of the policy

The policy is still a work in progress and therefore open to consultation with stakeholders. If gazetted and implemented, the policy will bring about various tax implications e.g.:

• Changes to Petroleum Profits Tax (PPT) by introducing Nigerian Hydrocarbon Tax (NHT) which is considered to be a simplified form of PPT
• Companies Income Tax (CIT) will be applicable to all petroleum companies (not only downstream)
• Reduction of deductible items for NHT purposes
• Elimination of upstream investment allowance
• Increased collection of royalties; etc.

Please be on the lookout for our newsletter on this subject where we will analyse in detail, the proposed provisions in the policy. A copy of the policy can be accessed HERE.

Article by Deloitte Nigeria as published on mondaq.com

Angola and Mozambique Enact New Legislation

Both Angola and Mozambique’s governments have enacted legislation that affects their respective oil and gas industries. In Angola,Order No. 475/16, of October 18 incorporated an oil industry union. The order approved the by-laws of the Luanda Oil Industry Workers Union (Sindicato dos Trabalhadores da IndústriaPetrolífera e Afins de Luanda-STIPAL).

The order confirms the conclusion of STIPAL’s incorporation process, as well as its legal capacity to operate as a union in the Luanda Province.

Meanwhile, a resolution in Mozambique regarding concession contracts has been approved. Mozambique, by means of Resolution No. 25/2016, of October 3 has a new exploration and production contract model. The Council of Ministers approved the new Petroleum Exploration and Production Concession Contract Model, which will henceforth serve as a basis for the negotiations with the concessionaires.

Source: Petroleum Africa