Government should not just revoke licences but understand project challenges

The Federal Government has concluded plans to revoke all the expired licences for private refinery in Nigeria. Although government is acting within its powers, based on the terms of the award of the licences, but the licencees are calling for caution, given the numerous challenges inhibiting the commencement of the projects. In this interview with Clara Nwachuckwu, the secretary of the Association of Private Refineries Licences, Eche Stephen Idoko, elaborates on the challenges, particularly regarding funding and the downstream regulation. Excerpt:

In the light of the Minister’s and DPR’s comments, what are your members going to do?
The Licence to Establish (LTE) was granted to the first set of companies around June 2015. The Licence originally has a two-year life span. A licence holder is expected to move to the next stage of the project (which s the engineering design stage within this period), and upon the completion of this stage, a company would be issued an authority to construct (ATC). So it is not exactly new to hear that licences, which haven’t been worked on will be revoked; they are meant to expire after two years anyway.

However, I will need to add that like all other major sector, the refinery licencees have had difficult challenges with advancing their project (especially against the backdrop that all transactions pertaining to the projects are done in foreign currency. Accessing funds for investment from financial institutions have been very difficult, and the Nigerian banks aren’t solvent enough or do not have enough confidence in the midstream sector to invest. We have approached the DPR , the CBN and even the Ministry of finance for some type of intervention either by way of guaranty, or floating of special bonds for the refining projects but  we are yet to get a response  from them. A meeting was scheduled to hold between the modular refinery licence holders and the Minister of Petroleum shortly before his trip to the OTC; the meeting was called by the DPR but was put off at the last minute, and we are waiting for a new date to be communicated to us. We are hoping that if that meeting holds, we will be able to discuss more with the Minister in this regard.

In particular, what is Clarigold doing with its upgraded ATC licence?
Like I explained earlier, granting us the ATC means that we have completed the first two major stages in the refinery project, which included the acquisition and preparation of the site for installing the refinery, carrying out the environmental impact assessment (EIA), obtained all other necessary statutory approvals for such project including permits from National Inland Waterways Authority (NIWA) , the State Government, and producing the Front End Engineering Drawings ( FEED) for the project. DPR haven certified that we have done all these issued us an ATC, which means we can begin fabrication of the refinery equipments and commence civil works at the site. We have written to the DPR requesting for a project team to be nominated to work with us in line with the Refinery Guidelines. We have also received coprate proposal from designers of modular refineries for the project. RefTexa is billed to send us a project schedule by Monday. We have reached some financial agreements with an investor to finance the first face of the fabrication and equipment procurement. As soon as the DPR responds to our request, the fabrication process will start. And we hope that at least 12 months from the fabrication date the refinery’s components will be in Nigeria.

In the light of the challenges faced by licencees, do you think the government is right in its decision to revoke the expired licences?
Well, the LTEs come with a two-year life span after which it expires. This is clearly written on the licences so it is not like its coming to the licencees as a surprise. And I am aware that upon the expiration of the licences, the licencees can apply for a renewal. However, given the peculiar economic situation presently, it won’t be out of place or too much to ask for the DPR and the Ministry of Petroleum, to grant some period of grace to licencees to enable them sort out their issues. Especially against the backdrop that appreciable amount of funds has been committed to the process of obtaining the licence. Besides, a threat to revoke licences could scare investors away or jeopardise ongoing discussions between licensees and potential investors

What would you then advice government to do in the alternative instead of revocation?
First, the government should sieve through the licencees to identify those who are making advancements with their projects. For instance, a few of the licencees (about five of us) have obtained the ATC, and are at the stage of fabrication and civil works, and try to aid them in speeding up their projects through meaningful interventions. This could come by way of guarantees, loans, or acquisition of equities in their projects like it did with the production companies.

Licencees can also be aided to access hedge funds for their projects; the Ministry of Petroleum can work with the CBN, and the Ministry of Finance to facilitate access to such funds for the licencees with the DPR, and the Debt Management Office handling the prequalification process. The government needs to give investors confidence through its actions.

What are the challenges inhibiting licencees from progressing with their projects?
One of the major challenges we face is access to funds, the local banks do not possess the capacity to fund refinery projects, and even if they do, they do not have a risk management team that can effectively evaluate this sector, foreign funds available require some form of guarantee from the federal government especially or a minimum of 30% equity investment in cash from the licencees amounts, which we do not readily have.