Coronavirus: Buhari’s First Quarter plans face threats
.Affected: Take off of AKK gas pipeline, others ....FG’s $2.56b Sovereign guarantee notwithstanding
As the global outbreak of CoronaVirus and poor economic outlook continues with its negative impacts, there are indications that several infrastructure projects listed for take off in the first quarter may be affected by the disruptive effects on global economy.
Many of the projects, with strong economic impact on the populace, were listed by President Muhammadu Buhari in his January new year letter to Nigerians as those to be executed starting from the first quarter of 2020
The projects include 47 road projects scheduled for completion in 2020/21, including roads leading to ports; Major bridges including substantial work on the Second Niger Bridge.
Others include the completion of 13 housing estates under the National Housing Project Plan, the Lagos, Kano, Maiduguri and Enugu international airports to be commissioned in 2020 and launching of an agricultural rural mechanisation scheme that will cover 700 local governments over a period of three years.
Others include flag off of the Livestock Development Project Grazing Model in Gombe State where 200,000 hectares of land has been identified; training of 50,000 workers to complement the country’s 7,000 extension workers;
The Lagos – Ibadan and Itakpe – Warri rail lines was listed for commissioning in the first quarter,as well as commencement of the Ibadan – Abuja and Kano – Kaduna rail lines also in the first quarter; and further liberalisation of the power sector to allow businesses to generate and sell power;
Worrisome also is the likely effect of the downturn on takeoff of construction of the Mambilla Power project, listed to take off in the first half of 2020; as well as commencement of the construction of the AKK gas pipeline, OB3 gas pipeline and the expansion of the Escravos – Lagos pipeline in the first quarter of 2020.
Minister of Transportation, Rotimi Amaechi whose ministry is supervising several infrastructure projects being undertaken by Chinese Consultation firms, however, revealed that ongoing construction works on the Lagos-Ibadan rail project has been put on hold due to the outbreak of the novel coronavirus.
Amaechi blamed the development on the inability of employees of the China Civil Engineering Construction Corporation, CCECC, who are handling the project, to return back to Nigeria due to the Coronavirus outbreak in their country.
This is coming after several assurances from the government that the rail line will be commissioned in the first quarter of this year.
The crash in the global crude oil prices, Nigeria’s main source of budget funding, from $53 per barrels last week to $31 per barrels, this week, have compelled President Buhari to inaugurate a committee headed by Minister of Finance, Budget and National Planning, Zainab Ahmed and supported by Minister of State Petroleum Resources, Timipre Sylva, and his colleague Minister of State, Budget and National Planning, Clement Agba, the CBN Governor, Godwin Emefiele as well as the Group Managing Director of the NNPC, Mele Kyari to finding a lasting solution to the crisis which may affect the nation’s budget this year.
Oil price has already fallen below the $57 per barrel crude oil benchmark approved by the National Assembly, necessitating the need to review it downward.
These challenges are coming on the heels of Federal government’s recent approval of the Sovereign guarantee for the $2.56b Ajaokuta-Kaduna-Kano project (AKK) gas pipeline project which raised hope for the early take off of the gas to power and other infrastructure projects listed for take off in the first quarter of 2020.
The Minister of Finance, Budget and National Planning, Zainab Ahmed had announced that the federal Executive Council FEC, approved the issuance of Sovereign guarantee for the Ajaokuta- Kaduna- Kano pipeline, engineering, procurement and construction, EPC, contract.
The new sovereign guarantee arrangements reduces the cost of the contract by about 10% from the previously approved cost of $2.89b in 2017, to the new sum of $2.56b
The memo revised cost to 2.59,equivalent, a 10% discount of the original sum, which was on a contractor financing model
The Minister said the contract was approved as an EPC lump sum contract with the NNPC required to pay 15% of the contract amount while the 85% would be provided by Sinosure of China in the form of a loan facility with a sovereign guarantee, by the Federal government of Nigeria.
“This is a facility that has an interest rate of the London Inter-bank Offered Rate (LIBOR ) plus 3.7% with a 12 year repayment period and a 3 year moratorium.
“We have done an extensive review of this project and we are satisfied that the cash flows from the Ajaokuta-Kaduna-Kano gas pipeline will be sufficient to repay the facility.
“This project is one of the cardinal policies of this administration and it is very strategic to national development”
Amongst the several benefits, the AKK natural gas pipeline is intended to boost Nigeria’s electricity generation capacity, as well as strengthen the industrial sector within the country’s eastern and northern corridors.
Nigeria labour activist and former Vice President of the Nigerian Labour Congress, Isa Aremu, described the AKK gas project as a necessary development that will help to restore the lost glory of many industries in the north is
The former General Secretary, National Union of Textile, Garment
and Tailoring Workers of Nigeria (NUTGTWN), noted that the project will help to bring back many moribund industries in the north , create jobs for the teeming youths, as well as discourage the youths from taking to insurgency.
“Nigeria is happy having a country like China as our development partner. Our relationship with China has been far more beneficial than the one we had with Europe.
“Nigeria, he said “ must be strategic in her relationship with China, by ensuring that China does not dominate the projects with their technology and labour. We should be able to enforce the Executive Order 003 that says we must patronize made in Nigeria goods”
“Any project that will develop our country is welcome, but the partnership must be an equal partnership,. It has to be our own labour.
“ We must Increase local content, they come with their technology and labor, we must demand for the transfer of technology to our citizens in the long run
The project is also expected to promote and increase the local usage of domestic gas, by reducing gas flailing
Additionally, it is anticipated to increase the country’s revenue generation through the export of natural gas.
An investment analyst, Ikemesit Effiong, while speaking with BusinessDay in Abuja, said “ we are not surprised at the development because as we saw it coming”
Effiong who is Head of Research at SBM Intelligence, noted that apart from the Chinese domestic crises occasioned by the CoronaVirus, trade war between China and the United States, will make that country’s commitments to financing international projects take a back seat
“These projects will take a back seat for now because of the current domestic crises faced by the Chinese government
It is unlikely that they will be willing to release such huge money and that might make it unlikely that these project will come on stream this quarter.
“Where is the gas going to come from. The problem of gas supply also need to be addressed
The project covers 614km starting from Ajaokuta, passing through Kaduna and terminating at Kano.
It has a new captive gas-fired plants, to be located at Abuja, Kaduna and Kano and are expected to deliver 3,600MW of power.
The natural gas pipeline is expected to boast new gas-to-power and is projected to further push power generation capacity higher as well as aid government’s projected target of 25,000 megawatts of electricity generation by 2023.
Nigeria’s current power generation is very unstable with constant collapse of the national grid.
The pipeline is expected to supply 2bn ft³/d (56mn ft³/d) of gas, in the short term to domestic customers, “which is quite significant,” according to Mele Kyari, group managing director of the state-owned oil company, Nigerian National Petroleum Corporation (NNPC).
According to Kyari, “Nigeria has 202tn ft³ of proven gas reserves and an additional 600tn ft³ of unproven potential resources”
Despite having the largest gas reserves in Africa, only c.25pc of these reserves are currently productive