683km AKK Gas Pipeline to Improve Power Generation – NNPC

gas-pipeline-1024x683 (2)

To fully deliver the infrastructure master-plan for transportation of gas to all parts of Nigeria, the Nigerian National Petroleum Corporation (NNPC) initiated the northern and eastern pipeline network, with that of the northern axis comprising the Ajaokuta-Abuja-Kaduna-Kano pipeline.

Popularly referred to as the AKK gas line, the project, which includes a 187-kilometre pipeline from Ajaokuta to Abuja, 193 kilometres pipeline from Abuja to Kaduna, 65 kilometres from Kaduna to Zaria, and 238 kilometres from Zaria to Kano, would reportedly cost the corporation about $2.7 billion to complete.

Chinese Interest
The AKK gas line project got a $250 million lifeline from Chinese banks, which were reported to be interested in it. Group Managing Director of NNPC, Dr. Maikanti Baru, disclosed recently that the Chinese interest in the gas line project was conveyed to the corporation in London when he went to sign two key oil investment deals with Chevron and Shell worth $1.78 billion.

Baru stated that the project, which is expected to be executed as a contractor finance scheme, had achieved a lot of milestone in its contracting process. He added that the Chinese banks had made commitments to bring in as much money as might be needed to finance many oil and gas investments in Nigeria.

JV to PPP
According to Baru, the NNPC opted to use Public Private Partnership financing framework to execute the gas line project following its recent gradual exit from Joint Venture Cash Call regime, which is expected to free up a lot of money to enable it commit to the project under the latest framework.

“We have gone far with the development of the project using the same paradigm shift of Public Private Partnership financing. We have also gone far with the contracting process, part of which is to ensure that money meant for the project is raised from the private investors,” he said.

The NNPC GMD explained that the feat recorded in the project would bring a new dimension to gas projects execution in the country, as well as signal a regime of private investors’ funding for such projects.

“On that occasion, I did challenge the Chinese banks that since they have now come on board, they should move from the back seat to the driver’s seat and they gave me their commitment that they have plans to bring in as much money as we need to execute our projects,” he stated. “And if the Chinese tell you that they are going to do it, definitely, they will do it and we will give them a run for their money.”

Potential Benefits
NNPC stated that the AKK gas line, which is expected to serve existing customers along its route, will provide gas to cement firms, compressed natural gas users, power generation plants, and other industrial concerns within the northern axis of the country.

In a prequalification notice for the project, the corporation also stated that construction of the line would be implemented commercially in segments. It said the project will operate as an integrated network where revenues from any part of its segments will be consolidated in one pot, from which liabilities will be serviced. It noted that the network was intended to operate commercially, with revenues coming in the form of commercially determined gas transmission tariff embedded in the Gas Transmission Agreements that will underpin the pipeline flows.

The GTAs, it explained in the notice, will indicate the appropriate revenue securitisation scheme applicable to different categories of customers, while the final structure could be based on the selection of interested parties that are willing to invest equity. It be developed and operated by a special purpose vehicle comprising the NNPC and the selected parties, or selected investors providing debt and engineering procurement and construction only, and then the pipeline operated by the NNPC, the corporation said.

In terms of benefits, Baru, explained that the corporation would leverage the project to grow gas supplies from the east to the north. This would include delivery of gas to energise the 215 megawatts Kudende power plant in Kaduna, as well as gas for a proposed fertiliser company, which the governor of Kaduna State, Mallam Nasir el-Rufai, said would be sited in the state.

 Power Generation Target
Baru stated that the ultimate objective of the gas line project was to support the federal government’s aspiration to increase Nigeria’s electricity generation to 10,000 megawatts, with improved gas generation and distribution nationwide to plants for power production. He noted that the recent debt settlement for arrears of JV cash call obligations by the corporation would have great impact on the gas industry because the initiative was capable of freeing some dedicated funds that could be used to develop the sector.

Baru said, “We have the aspiration of government to raise power generation to at least 10 gigawatts capacity, not just 10GW in terms of installed capacity, but one that will be steady in the grid by 2020. All these will drive our activities to ensure that the gas business is expanded and government’s aspiration to earn as much revenue from gas as oil will definitely be realised.”

Reservation
Notwithstanding the optimistic disposition to the economic impact of the gas line, industry experts have expressed reservations about its economic benefits to Nigeria. They told THISDAY that the project came across as more of a political project than an economic one.

In his appraisal of the project’s economics, as well as the planned $250 million Chinese lifeline, an economic analyst, Mr. Dan Kunle, said the competitive cost advantage of undertaking the project was quite low on account of the factors that were heavily against it.

Referring to the reported failures of the Kaduna refinery to break even for a very long time partly because of lack of crude supplies through its often broken pipelines from the southern part of Nigeria, Kunle explained that the gas project did not look reasonable enough to attract investors’ financing. He said if it ever had such competitive edge, current market fundamentals were quite against it.

He equally expressed doubt as to whether the Chinese banks, which Baru said were willing to put their money in the project, would do that without some sort of sovereign guarantee from the federal government.

Kunle said, “This project has been on since 1970, when the gas line was planned to transport gas up north to be used by the National Fertiliser Company of Nigeria (NAFCON), which is now Notore, to produce fertiliser in the second phase. NAFCON was supposed to have a plant in Gwagwalada and Kaduna, and the line was supposed to provide gas to these plants.”

He further explained, “The spirit with which the crude oil pipeline was taken to Kaduna was a good political one.
But since the refinery came on board, what has it profited us? Apart from its losses, how many northerners have benefited in direct technology transfer from the refinery in Kaduna? What about the steel rolling mill in Katsina, of what benefit is it?”

Besides, Kunle, noted that the average price of gas from Escravos to Lagos was about $7 per standard cubic feet, and wondered what the cost would be from Escravos to the north through the AKK line.

He said, “We’ve not dominated the challenges of the past. Eket to Ajaokuta gas line has not been completed. How then do we intend to go on to the long distant AKK? There is so much sentiment emotion, and political consideration in the way we conceive projects, and these do not make economic sense.

Source: IWIN

(Visited 65 times, 3 visits today)

Top
Powered by Nextier