June 3, 2021

Africa needs $15.7bn to upgrade refineries, says ARDA

13% Derivation

By Obas Esiedesa

African Refiners and Distributors Association, ARDA, has stated that for African countries to meet the planned Sulphur level in petroleum product content, about $15.7 billion would be needed to upgrade existing 36 refineries on the continent.

Nigerian National Petroleum Corporation, NNPC, last signed a deal for complete overhaul of Nigeria’s largest refinery, Port Harcourt Refinery, for $1.5 billion. The rehabilitation is being financed by the African Development Bank.

The African Union and the African Refiners and Distributors Association (ARDA) had planned an initiative called AFRI-6, which aimed at reducing Sulphur content in fuels to 10 parts per million (ppm) in the coming years.

Speaking yesterday at a workshop organised by ARDA on ‘Upgrading African Refineries to Produce Cleaner Fuels’, its Executive Secretary, Mr. Anibor Kragha disclosed that North Africa with 17 refineries would require capital expenditure of $5.955 billion for refineries upgrade, West and Central Africa with 12 refineries would  need $6.285 billion while East and Southern Africa with seven refineries would need $3.415 billion.

According to him, without urgent steps on adopting uniform fuel specifications across the continent, health and environmental challenges could worsen existing problems on the continent even as the continent’s population projection is expected to grow exponentially.

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He stated that cleaner, harmonised, Pan-African fuels specifications are required, explaining that there has been uneven progress in tightening fuel specifications across the continent.

Kragha added that the AU and ARDA were collaborating on adoption of AFRI Fuels Roadmap, listing new process units required to improve key fuel specifications to include; Naptha Hydrotreater, NHdT, Diesel Hydro-desulphurisation, DHDS, Benzene Extraction and Sulphur & Hydrogen Plants.

He stated that “major urban population growth would result in increased pollution,” adding that orderly, sustainable transition to cleaner fuels remained imperative to address potential public health issues

“Targeted financing is needed for projects to upgrade refineries and infrastructure to produce and transport Cleaner fuels”.

In his remarks, Director of Project and Structured Finance at the Honeywell UOP, Robert Doyle noted that African marketplace offers many opportunities for investment in the oil, gas and petrochemical sectors.

He stated that attracting capital however remained a challenge due to perceptions of country risk, currency convertibility, economic growth factors, regulatory challenges, etc.

He said: “International lenders have been traditional sources of capital for large mega-projects but it can be a challenge to attract them for smaller opportunities with less recognized sponsor names”.

 Doyle stated that while regional banks are stepping up in this regard, better understanding of market players and local lending dynamics were necessary.

“Fastest path towards success is with sponsor groups featuring strong balance sheet and with well-structured off take agreements (offshore hard currency contracts preferred),” he added.

An Investment Professional at the African Finance Corporation, Ufuoma Adasen disclosed that while access to long-term financing at competitive rates remained a challenge, phased project implementation could represent a way forward.

Adasen said since some refineries do not operate on full cost-reflective basis, a development which contributes to financial losses, strained cashflows, and weak balance sheets, there was need for stakeholders to adopt a fully commercially viable framework.

In the face of shrinking investment into the oil and gas sector, Adasen said there was need to prioritize projects that would improve production of cleaner fuels and increased advocacy by key stakeholders.

Business Development Expert at Vitol Group, Richard Egan said the continent’s sub-economic utilisation and relatively low complexity calls for significant investment in refining, adding however that the world has reached a tipping point whereby in the financing ESG or green projects may be more than that for fossil fuels going forward.