June 22, 2015:

Bharat Petroleum (BPCL) will proceed with funding a multibillion-dollar expansion of the Bina refinery after its partner, the Oman Oil Company, stalled on investing in the project.  The state-run Indian company will spend Rs35 billion ($557 million) by 2018, and a further Rs180 billion-200 billion ($2.86 billion-$3.18 billion) over the following five to six years to expand the refinery’s production capacity.  This capacity stands at 6 million tonnes per year (tpy).

The expansion, announced in January 2015, will raise this figure to 7.8 million tpy by 2018, and 15 million tpy in the second phase.  Located in Madhya Pradesh, the Bina refinery was built as a joint venture between BPCL and the Oman Oil Company, with each holding a 50-percent stake.  BPCL runs four refineries in India, including Bina, Kochi, Mumbai and Numaligarh. An expansion and upgrade of the Kochi refinery (pictured) is scheduled for completion in 2016.  

By TO&GY

June 21, 2015:

With Oman Oil Company (OOC) reluctant to put more money, Bharat Petroleum Corporation Limited (BPCL) has decided to fund the Rs180-200 billion expansion of the Bina refinery in Madhya Pradesh on its own.    Bharat Petroleum, India's second-biggest state refiner, plans to raise Bina refinery capacity to 15 million tonnes in two phases — to 7.8 million tonnes a year from current six million tonnes at a cost of Rs350 billion by 2018 and then to 15 million tonnes at an additional investment of Rs180-200 billion in 5-6 years.   

Oman Oil Company (OCC), which holds 26 per cent stake in the Bharat Oman Refineries (BORL) — the firm that built the refinery, is willing to participate in the first phase expansion but not in the second phase, a top official said.    "We are close to firming up plan to go ahead with the second phase expansion on our own. BPCL will fund the project," he said. Oman Oil Company in 2009 paid a 50 per cent premium for a re-entry into the Rs11,397-crore Bina refinery project. The project was originally conceived through a joint venture company, BORL but the OCC did not contribute equity beyond the initial Rs750 million  The Omanese oil major came back to pick up 26 per cent stake in the project for an additional Rs12.20 billion.

The BORL was formed as an equal joint venture company way back in 1993. However, following inordinate delays in the implementation of the project, OOC froze its investment in the company at Rs750 million for a two per cent equity stake.    BPCL, which holds 49 per cent stake in the project, provided the unbridged portion of the Rs 40-billionequity in form of loan. The state-run firm got its loan back once OOC made payments for its 26 per cent share.    The remaining 25 per cent is with financial institutions. BPCL also operates a 12 million tonnes a year refinery at Mumbai and 9.5 million tonnes Kochi unit. It also has majority stakes in the 3 million tonnes Numaligarh refinery in Assam.    The official said BPCL is expanding and upgrading its Kochi refinery in Kerala to process high sulphur crudes by 2016. Kochi refinery capacity is being raised to 15.5 million tonnes from current 9.5 million tonnes.    Crude grades with a high sulphur content are cheaper, and refineries that have installed speciality secondary units to process them can lower feed costs and increase their margins. Besides boosting margins with the upgrade and expansion, the refinery will also be able to produce fully Euro IV compatible petrol and diesel.    Also, Numaligarh refinery capacity is being planned to be raised to 9 million tonnes.

The expansion, however, is still at the drawing-board stage and it would hinge on tax concessions and other benefits from the central and state governments, he said.  

By Times of Oman

June 21, 2015:

The Crude for Petroleum Products Exchange Agreements, better known as crude oil swaps, and Offshore Processing Agreements (OPAs), entered into by the Nigerian National Petroleum Corporation (NNPC) and oil traders between 2011 and 2014, are to blame for the abysmally low output from NNPC’s refineries and the high importation of petroleum products into the country, THISDAY has learnt.         Extensive interviews with officials of NNPC and industry operators revealed that contrary to the perception that has been created for some time that the nation’s four refineries were operating at suboptimal capacity, thus necessitating the massive importation of petroleum products, certain elements within the system, with endorsement of the former Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, ensured that the refineries were starved of crude oil.        

Last Thursday, NNPC’s public affairs unit announced that its four refineries would resume operations next month.   Spokesman of the corporation, Ohi Alegbe, said the refineries – the 210,000 barrels per day (bpd) Port Harcourt plant, 110,000 bpd Kaduna plant and the 125,000 bpd Warri plant – would commence operations after a successful overhaul of their facilities.   He said: “The turn-around-maintenance has been on (going) for some time. We did not just want to make any noise about it. The refineries will start production as soon as they have delivery of crude oil for refining.   “Even when the refineries work at full capacity, they can only produce around 19 million litres of petrol per day.”         With Nigeria consuming 40 million litres daily, to make up for the remaining 21 million litres, Nigeria will still have to rely on importation, he added.   Expectedly, NNPC’s announcement aroused interest and questions were asked as to how come the plants, which had not functioned almost two decades, were suddenly ready to be brought back to life under the administration of President Muhammadu Buhari.         Investigations showed that efforts to repair the refineries started when the management of the plants, under the supervision of the former Group Managing Director (GMD), Mr. Andrew Yakubu, and a former Group Executive Director, Refineries and Petrochemicals (R&P), Mr. Tony Ogbuigwe, worked surreptitiously to ensure that the plants were functional. Ogbuigwe was before his promotion to GED R&P, the Managing Director of Port Harcourt refinery.        

THISDAY learnt that after the nationwide protests over the removal of fuel subsidy in 2012, Alison-Madueke had promised to fix the plants using the original equipment manufacturers (OEMs) instead of awarding the contracts for their repair to journeymen contractors.   However, after protracted negotiations with the OEMs, NNPC failed to go ahead with the rehabilitation due to the exorbitant fees they had demanded for the repair of the plants.        

With no progress made with the OEMs, Alison-Madueke, in November 2013 announced that the refineries would be privatised under the supervision of the National Council on Privatisation (NCP).         But the NNPC chapter of the Nigerian Union of Petroleum and Natural Gas (NUPENG), whose members threatened to go on strike if the refineries were privatised, resisted her push for the sale of the plants.         Frustrated with the impasse, Yakubu, using his approval limit as the NNPC boss, but without the knowledge of Alison-Madueke, started making $2.5 million monthly to the management of the three refineries and encouraged them to revamp the plants with local and external engineers.         Under this arrangement, the refineries were fixed about a year ago and ready to churn out petroleum products, which would have slashed the volume of imported fuel by more than 50 per cent and significantly reduced pressure on the country’s foreign reserves.   In addition, the construction of a power plant for the Port Harcourt refinery was concluded at the beginning of the year to enhance its ability to operate efficiently.         However, instead of ensuring that crude oil was made available to the refineries for domestic consumption, Alison-Madueke, in conjunction with the Pipelines and Products Marketing Company (PPMC), increased the crude oil swaps and OPAs from some 270,000 bpd to 445,000 bpd, thus starving the refineries of crude oil.        

The swaps and OPAs were awarded to Aiteo, Ontario Oil & Gas Limited, Sahara Energy, Taleveras Petroleum Trading BV and Swiss firm, Trafigura, among other oil traders.   When contacted on the issue, an aide of the former minister claimed that the reason crude oil was not made available to the plants was because of frequent crude oil theft and vandalism of the pipelines, resulting in losses of up to 30 per cent.  “Also, when the crude oil got to the refineries, the Fluid Catalytic Cracking (FCC) units were not working, so we were getting mainly base oils such as naphtha, low pour fuel oil (LPFO), kerosene and diesel.       

 “Meanwhile, petrol, which is PPMC’s major requirement and accounts for more than 70 per cent of all petroleum products consumed in the country, was not being produced.   “The lack of production of petrol, which is one of the lightest distillates from the refining process, also resulted in another loss of 30 per cent.         “This in turn impacted on NNPC’s ability to remit funds to the Federation Account since monies from the procurement of crude oil meant for domestic refining by NNPC is supposed to go to the federation for sharing by the three tiers of government.   “It was based on this that the former minister called a meeting and increased the allocation for the swaps and OPAs such that little or no crude oil was made available to the refineries,” the aide explained.         Yet, further investigations by THISDAY revealed that even though there were frequent cases of crude oil theft and vandalism, the crude oil swaps and OPAs could have been largely avoided because there is a subsisting contract to move crude oil from Chevron’s Escravos oil terminal to the Warri and Port Harcourt refineries by marine vessels.         Despite the subsisting contract, the operator was not allowed to lift crude oil to the refineries since last year but continues to be paid by NNPC.   An oil industry operator, conversant with the lifting contract by marine vessels, explained that elements within the petroleum sector that preferred the swaps and OPAs ignored this arrangement because of the loopholes that allowed traders to lift crude oil and under-deliver petrol including the derivatives or base oils to PPMC.         He explained that the recent probe by the Department of State Security (DSS) into the swaps and OPAs had scared the traders into importing outstanding cargoes, resulting in the increased arrival of fuel-laden vessels at Nigeria’s seaports in recent weeks.

The operator, who preferred not to be named, confirmed that before the marine vessel lifting contract was awarded, NNPC was losing up to 40 per cent of its crude oil to theft and vandalism of the pipelines.         In order to stop the theft, a contract, he said, was awarded to an Israeli company to lift crude oil from Escravos to the Warri refinery in February 2011 under a Proof of Concept Agreement, but it was unable to meet the terms of the contract.         “Subsequently, a Nigerian firm, Ocean Marine Tankers (OMT) Limited founded by Captain Hosa Okunbor, Tunde Ayeni and others, took over the job. At first, OMT started moving crude oil from the Escravos terminal to the Warri refinery.   “OMT invested heavily in a very large crude carrier (VLCC) with the capacity to lift 2 million barrels, then transferred the oil to smaller vessels that moved to the refinery and offload their content at the plant.         “You would recall when OMT commissioned MT Abiola and MT Igbinosa in 2013 in Warri to convey crude oil to the refinery.   “In spite of this arrangement with OMT to circumvent oil theft, this was stopped with the swaps and OPAs,” he said.   Confirming the development, an official of OMT said his company had not been allowed to convey crude oil with its tankers since last year but continues to be paid by NNPC.         “When we took over the contract from the Israeli firm, with the ship-to-ship transfer mechanism, we reduced losses to 0.19 per cent as opposed to the 0.5 per cent allowable under the contract.   “In fact, the former GMD of NNPC (Yakubu) was so satisfied with the arrangement that he classified it as security contract and extended it to include the Port Harcourt refinery.       

 “But since last year, we have stopped conveying crude oil to Port Harcourt and Warri due to the swaps and OPAs,” he said.   When asked how NNPC ensured that crude oil was not diverted under the marine lifting contract, the OMT official said a shipping letter was issued to his company, permitting it to obtain a bill of lading to load from Escravos.   “Like all crude oil lifting contracts, officials of Chevron, Department of Petroleum Resources (DPR), NNPC, the Navy and other security agencies must verify that we have loaded 2 million barrels to our VLCC.         “Owing to the shallow draft at the refineries, the VLCC stays offshore and transfers to the smaller vessels which then move to refineries to offload. Then checks are done to verify that the quantity lifted from the terminal is the same as the quantity of crude oil offloaded at the refineries,” he said.         The OMT official added that at the end of the month, the refineries also undertook a reconciliation process to ascertain that the crude oil delivered was the same as what was lifted at the terminals, “because the yield from the crude oil that is delivered to the refinery is accountable to PPMC”.         “But like I said, this has stopped since last year because of the desire to sustain the swaps and OPAs,” he said.   The company official also alleged that oil theft and vandalism by criminal elements that hot-tap the pipelines have continued unimpeded while persons who want to disrupt OMT’s marine vessel lifting contract recently attacked their vessels.   Further enquiries from NNPC revealed that its officials are presently confident that the FCC units at the refineries have been fixed and have the capacity to produce petrol and other products.         One official informed THISDAY that crude oil accounts for almost 90 per cent of refining cost, and if the refineries were allowed to function, this would significantly reduce the federal government’s subsidy bill, because at current crude oil prices of slightly over $60 per barrel, the plants could operate at a profit.   

By This Day Live

June 21, 2015:

The National Treasury Cabinet Secretary Henry Rotich is in a fix over a controversial order from President Uhuru Kenyatta’s Cabinet to pay Sh490 million to a Mauritius-based subsidiary of an Indian firm that ran down the region’s sole oil refinery.    The trouble for Mr Rotich is that while on one hand his boss has approved the payment – the Cabinet actually said the money had to be paid eight month ago, the National Assembly has warned him that should he pay, MPs will hound him forever. MPs claim that the contract for the refinery between the Government and Essar Energy Oil Limited was flawed. The Public Investments Committee (PIC), which handled the meeting said the execution of the 50-50 ownership deal of the Mombasa-based Kenya Petroleum Refinery Limited was also skewed, and therefore Kenya lost out.

PIC chairman Adan Keynan (Eldas) said Rotich and the mandarins at the National Treasury will be held personally liable if they try to implement the Cabinet decision. “I want to go on record on this that any attempt to pay that exit fee will be fraudulent and robbery on the part of the people of Kenya. Therefore, those who are interested in looking after the public coffers should be careful because history is going to haunt them. They should make sure that, that exit fee of $5 million is not paid at all. The entire process was fraudulent and not transparent,” said Keynan as he rallied MPs to adopt the PIC report on the deal.   The exit clause obligates Kenya to pay Essar $5 million, which is about Sh490 million given that the US dollar was trading at 98 on Friday—as soon as they part ways.

The colossal amount being paid to what MPs called ‘a briefcase company’ is equivalent to what the Auditor General needs to audit the Sh35 billion Constituency Development Fund kitty for all the 290 constituencies. Deed of Settlement “How the Government of Kenya just accepted an undertaking by a briefcase company and gave away a critical entity called the Kenya Refineries for no penny is incomprehensible,” said Keynan. The PIC chairman added that Essar too failed to honour part of the deal where it was to modernise the refinery and make Kenyans benefit from cheaper oil. But as Keynan and the MPs breathed fire, the Cabinet Secretary told Weekend Business that the money had not been paid yet. “Essar had raised an issue which is being addressed before the execution of the transaction,” said Rotich on phone. The Cabinet Secretary said an Inter-ministerial committee from the Ministry of Energy, the Office of the Attorney General and the National Treasury were thrashing out legal queries about the Government of Kenya-Essar deal on the refinery, and once that is done, the money will be paid. “The negotiated Deed of Settlement by both parties and cleared by lawyers addresses all issues including liabilities incurred during management of the company by Essar,” said Rotich.

That means things to do with debts, loans or any other thing that was not conceived during the initial deal, but which may have arisen at the time of Essar’s operations, will have to be worked out before the exit clause is executed. “I have not seen the report adopted by the National Assembly yet, but probably the issues raised may have been addressed in the Deed of Settlement,” the CS said. For the MPs, there was no point why Essar paid very little for goodwill, yet it is getting Sh490 million for parting ways. The whole transaction to them is dubious.       

“Here is a company you have handed over a facility. You have given them 50 per cent shareholding without it contributing a penny; you allow them an exit clause and $5 million for having done nothing. That in itself is a mystery we could not understand. It is just like allowing an individual, or an entity to come into a company, become part of the directorship and then the individual gives himself a clause that once he exits the company, even without investing a penny, will give him this amount of money,” said Keynan. For the chairman of the Public Accounts Committee in the National Assembly Nicholas Gumbo (Rarieda) all the public officers who were involved in the deal have to be punished for the dubious decisions they made to commit a country and run down a crucial facility. “We have people who are clearly culpable and who should be an example to others.

They should know that when they are made to be in charge of public resources, they are nothing but custodians,” said Gumbo. Those indicted in the PIC report, whom the committee wants investigated are former Energy Permanent Secretary Patrick Nyoike; the Investments Secretary Esther Koimett and the current governor of Taita Taveta John Mruttu who was a former KPRL boss. Mr John Mbadi (Suba) added that the way the $2 million (Sh196 million) that was being paid for goodwill was delayed for a long time without being cashed, was perhaps evidence that key officials had conspired to loot the public coffers. There is even cheque kiting here where a cheque is drawn in favour of the Government of Kenya between the National Treasury and the Kenya Petroleum Refinery Limited and no one knows who should bank the cheque. Just imagine that! The money is written in favour of the people of Kenya to use for development and for a whole year, the National Treasury does not know where that money should be banked and then we claim to be a responsible country,” said Mbadi. The crossroads for Rotich will be whether to honour his bosses at the Cabinet or to please MPs who will eventually have to okay the payment.      

By Standardmedia.co.ke

June 19, 2015:

The Iraqi military, along with coalition forces, conducted an airstrike on Islamic State targets at the Baiji oil refinery in northern Iraq on Friday, June 19. Iraqi forces have been engaged in a protracted battle over what is the country’s largest refinery for over a year. Fighting in the area earlier in the week had left some Islamic State militants stuck inside the refinery.

By Reuters: