The Federal Government has secured a $500 million (about N179.9 billion) facility from the Export Import Bank of China (CEXIM) through the Bank of Industry (BOI) for the establishment of modular refineries and the Flare Gas Recovery Programme in Nigeria.
Speaking at the signing ceremony in Beijing, BOI's Managing Director, Mr Olukayode Pitan, emphasised the job creation potential of the partnership saying, "I am delighted to begin the next chapter of a long-term trading relationship with China through CEXIM.
"This agreement is set to create over 100,000 jobs in Nigeria's Oil & Gas sector - a decisive move that will advance the Federal Government's Modular Refineries and Flare Gas Recovery Programme," he said.
As part of the MoU between BOI and CEXIM, the facility will be utilized to finance the purchase of equipment and machinery from China by investors and project owners of modular refineries in Nigeria.
The BOI boss said the aim is to ensure availability of refined petroleum products within the country, monetize gas flare, reduce cost of products in the mid-term and provide employment for Nigerians.
He said establishment of modular refineries is part of the FG's plan to end importation of petroleum products and to discourage illegal oil bunkering activities in the Niger Delta region.
A total of 38 operating licenses have already been granted by the Federal Government to establish modular refineries in the Niger Delta.
BOI stated that the facility can be accessed via letters of credit issued for the delivery of specified modular refineries and gas processing equipment to qualified Nigerian companies establishing petrochemical facilities under the Modular Refineries and Gas Flare Recovery Programme.
A modular refinery refers to a mini refinery which is easier and relatively more cost-effective to build in terms of capital and time than the traditional refinery. According to Cenam Energy Partners, modular refineries are usually available in units from 4,000 to 30,000 barrels per day (bpd), and having lower output capacity than the traditional refineries.
A modular refinery's equipment are manufactured in controlled conditions, fully assembled and tested prior to overseas shipment, and installed at a client's site in much less time than a traditional refinery.
Data obtained from the Department of Petroleum Resources (DPR) showed that 22 modular refineries were licensed in the first quarter of 2017 with about 1.429m barrels daily crude oil refining capacity. Another 10 licences were granted in the second quarter of last year bringing the figure to 32 licenced firms.
At $50,000 per license for modular refinery, a total sum of $1.6m has been generated from the licensing by DPR within the last three years.
In February 2018, the Federal Government at the Nigeria International Petroleum Summit (NIPS) in Abuja revealed plans to provide incentives for investors in modular refineries.
Such incentives include granting duty waivers and tax holidays to investors but its implementation strategies was not immediately clear.
Mr Rabiu Suleiman, the Senior Technical Adviser to the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, at the summit said the discussion on the incentives had reached comfortable stage.
He said in addition to tax and custom duties waivers, government would also guarantee the investors regular crude oil supply.
He explained that the Federal Government was in talks with a number of potential financiers like the Central Bank of Nigeria (CBN), International Finance Corporation (IFC) and Nigerian Sovereign Investment Authority (NSIA) amongst others to provide contributory funding to investors in modular refineries in the Niger Delta region.
Suleiman had noted that the Niger Delta Development Commission (NDDC) and some state governments have equally indicated their willingness to invest in the refineries and gain equity share in them.
In April, Mr Kachikwu said two of the 38 licenced modular refineries would be completed and ready for inauguration by December 2018.
Speaking when he led a joint team from the ministry, office of the Vice President and the DPR to inspect a modular refinery in Kwale, Delta State, he said the Federal Government's resolve to establish modular refineries was part of the long-term plan to end importation of petroleum products and to discourage illegal oil bunkering activities in the region.
A lecturer at the Federal University of Petroleum Resources (FUPRE), Effurun, Prof. Ogbarode Ogbon, said Nigeria will need 75 modular refineries with capacity of about 10,000 bpd by 2020 if the problem of fuel shortage is to end.