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Bridging the Gas Deficit for Power Generation

Chika Amanze-Nwachuku writes that the recent project finance facility signing between Accugas and some financial institutions will go a long way towards addressing the problem of gas shortage gripping the country

Perhaps, the only significant investment in the Nigeria’s oil and gas industry since the beginning of this year was the last month’s signing of a $225million syndicated medium-term facility between Accugas Limited, a wholly subsidiary of Seven Energy International Ltd and five Nigerian financial institutions.

The deal, which involved United Bank for Africa Plc, First Bank of Nigeria Plc, Stanbic IBTC and FCMB Plc, would enable Accugas complete some critical gas infrastructure projects that would deliver gas to both existing power stations and those under construction.
FBN Capital Limited, a subsidiary of FBN Holdings Plc, acted as the global coordinator bank, financial modeling bank and also undertook the role of de-facto financial adviser to the borrower, while the four banks jointly acted as Mandated Lead Arrangers on the transaction.

Domestic gas obligation
Epileptic power supply across the country has often been blamed on inadequate supply of Gas and against this backdrop the government in 2008, launched a domestic gas supply policy, which mandated International Oil Companies (IOCs) operating in Nigeria to strictly provide adequate gas for power supply and other domestic uses. However, efforts to get the IOCs to fully comply with the domestic gas obligation has not yielded the desired results, as perennial shortage of gas has continued to take a toll on electricity generation in Nigeria.

But in a renewed effort to get the oil companies comply with Nigeria’s domestic gas policy, the new draft Petroleum Industry Bill (PIB) provided inter alia that any lessees who fail to comply with the domestic gas supply obligation as directed by the Nigerian Petroleum Inspectorate (to be established) shall not be entitled to supply gas for exports and shall also be suspended from production. Aside the problem of gas shortage, another major challenge was gas infrastructure dearth. Most of the existing gas-fired power plants had been built without provisions for their gas pipelines and other infrastructure that would aid in delivering gas to them. To address this problem, the ministry of petroleum had embarked on construction of gas pipelines to transport gas to the both existing power plants and those under construction.

Government had envisaged an unprecedented growth in gas supply for power supply by 2015, when most of these critical infrastructure that would deliver gas to power stations would have been completed. It is however regrettable that most of these projects, which had been scheduled to come on stream between 2012 and 2015, had not even taken off owing to funding constraints.

Seven Energy’s investments
To remedy the situation, Seven Energy, a leading indigenous oil and gas company, with focus on developing gas for the domestic market and its subsidiary, Accugas had taken a proactive step to ensure availability of adequate gas supply for power generation and other industrial uses, by investing over $500 million on some gas infrastructure projects in the South East Niger Delta axis. These include: construction of gas pipelines; gas central processing facility and associated infrastructure in Akwo Ibom State.

Medium-term facility
The $225m syndicated medium-term facility obtained by Accugas, a gas processing, marketing and distribution company recently would be used to refinance an existing $55 million debt secured for the Akwa Ibom gas pipeline project, while part of the balance of $170 million would be utilised for financing the cost of expanding its gas processing facilities and building a new gas pipeline to supply gas to the Calabar National Integrated Power Plant (NIPP).

The Calabar Project is the second phase in Accugas’ gas processing and distribution development programme aimed at bringing the substantial gas reserves from the South East Niger Delta market to meet the growing energy demand from power plants and industrial users in the region. It involves the construction of a 37km gas pipeline from the Uquo gas field in Akwa Ibom State to Oron for delivery of 131 MMscf/pd of gas to the 560MW power plant in Calabar. Construction of this new pipeline is scheduled to be completed in July 2014.

Speaking on the transaction, Chief Executive Officer, Seven Energy International, Mr. Philip Ihenacho noted that “the successful signing of the Accugas financing clearly shows the confidence the financial institutions have in Accugas and Seven Energy, as well as the prospects for the Nigerian gas market”.

He however expressed worries that companies channel their investments on gas for exports, whereas the country has huge demand for energy. “Nigeria is a country with 160 million people. Nigeria has huge demand for energy, yes, and she has significant amount of money that can be invested in gas, but all that investment is for Liquefied Natural Gas (LNG). And Nigeria is the second largest importer of diesel in the world, yes, and diesel costs about 10 times what gas cost, so why?” Ihenacho rhetorically asked.

The Seven Energy boss however attributed the lack of interest on gas for the domestic market to government policies, positing that government fixed gas prices in such low and uncommercialised manner while the power sector became moribund. He argued that only a fool would invest in the gas sector for the domestic market under the current unattractive gas pricing policy.

He continued: “There have been huge moves to make all the various sector of the power sector work so that all those that want to invest in the power sector can do so. This indicates a new beginning and new dawn in the power and gas sectors with private interest capital being invested along with the efforts of the government in trying to get Nigeria to where it should be”. He said this means that some have the gas molecules in the ground and to get the consumer to use the gas what is needed is infrastructure and this is what AccuGas Limited is all about.

Ihenacho explained that the company’s key focus is gas, adding “as a company, we have a unique focus on the emerging Nigerian domestic gas market. As such, we have invested in the region of $500m in the South East Niger Delta alone”.

Giving further clarification on the company’s business model, the CEO said:“We actually build and own pipelines and gas processing plants. What we do is as well as drilling for gas, we actually process the gas. So, a gas processing plant is like a refinery to refine the gas so that it’s suitable to be put into pipelines and delivered to the consumers. What we do is we drill for the gas, process the gas and put it into a pipeline and deliver to the customers”.

He explained that his company signed the deal with the financial institution because “We don’t want to lose money; we want to make money hence we have to work with financial communities to ensure we get the much need financial assistance that we needed.”

Shedding more lights on the deal, the company’s Chief Financial Officer, Bruce Burrows described the completion of the AccuGas financing as a major milestone in the project’s evolution. “With construction of the Ibom gas pipeline (Phase 1) now complete and on track to deliver gas to Ibom Power Plant from April 2013, we are now embarking on Phase 2 with construction of the Calabar gas pipeline already commenced”, he added.

On her part, the Executive Vice President, Institutional Banking, First Bank of Nigeria Plc, Mrs. Bashirat Odunewu said, “First Bank is very proud to invest in Accugas Limited, as the project is uniquely aligned with the Federal Government’s vision of harnessing the nation’s immense gas reserves, and developing the country’s domestic gas supply infrastructure.’

She noted that the project would assist in bridging the gas deficit for power generation in the country. Speaking in the same vein, Managing Director/Chief Executive Officer, FBN Capital Limited, Mr. Kayode Akinkugbe, said, “FBN Capital is very proud of the instrumental role it played in assisting Accugas to structure and arrange the financing for the project.” He affirmed that “the successful signing of this financing shows that lenders see Accugas as a robust project that will bring sound economic benefits to Nigeria.”

Seven Energy International Limited is an independent Nigerian oil and gas exploration, development and production company founded in 2004. The company, which has a unique focus on the emerging Nigerian domestic gas market, has joint venture interests in the Uquo and Stubb Creek fields, onshore in the Niger Delta, as well as a participating interest in Oil Mining Leases 4, 38 & 41 through a service contract with Nigerian Petroleum Development Company.

SOURCE: This Day Online

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