How the Brass Fertilizer & Petrochemicals deal is structured

The Brass Fertilizer and Petrochemical Company Ltd (BFPCL) is a Special Purpose Vehicle set up to monetise Nigeria’s gas resources through the development and construction of 5,000 tonnes per day of methanol plants in a free trade zone in Bayelsa state.

The project whose final investment decision was announced on January 29 could be the first successful methanol plant in Nigeria after previous plans by other investors failed to materialise.

“Before FID, contracts for Engineering, Procurement, Construction and Commissioning (EPCC) on a Lump Sum Turnkey Basis (LSTK) and Project Management Consultancy had been awarded to World Class entities Messrs China Tianchen Engineering Corporation (TCC) and TATA Consulting Engineers Limited (TCE), India respectively and works have been progressing extremely well,” the company said in a press release.

Financing

The BFPCL Project being an LSTK of $3.6 billion has a funding structure of 70 percent debt and 30 percent equity and is expected to be operational by 2024, the company said.

Project sponsor comprises government and private entities. The NNPC, NCDMB, and DSV Engineering will contribute 30 percent of the equity. According to a project document seen by BusinessDay, the project currently has an equity commitment of US$670 million from DSV, NNPC, and NCDMB, and intends to attract an equity balance of US$300 – US$380 million from other strategic investors.

The rest of the equity will be financed by debt expected to come primarily from a consortium of Chinese banks led by China Exim. Other possible lenders include AfDB, European ECAs, International Commercial Banks, and regional and local banks.

Project viability

Wet gas, the critical feedstock for the project would be supplied by a joint venture comprising Shell, Total, NNPC and Agip on a 25-year long term supply contract at a fixed/real price adjusted for inflation, gas-liquid margin, lean gas volume, among others.

Brass Fertilizer said it is has concluded an agreement for International off-takers on a ‘Take or pay’ basis. The contract also provides for cover damages in the event of failure to lift.

There will be two trains producing 5,000 tonnes per day (MTPD) of methanol. It will also include a 500 million standard cubic feet per day (MMscf/d) gas processing plant to extract condensate from the natural gas, before feeding the balance lean gas to the methanol plant. It will also include gas manifolds and pipelines to connect the gas processing plant to the gas fields and an export facility.

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According to the organisers, the methanol project is of strategic importance to Nigeria on account of its ability to support human economic development through skills acquisition, employment opportunities, (creating about 30,000 jobs during construction and about 5,000 to 6,000 during operation) and reduce overall carbon emission to the environment.

“The Project is consistent with the aspirations of the Federal Government of Nigeria for industrialisation through the exploitation of the nation’s huge gas reserves to generate even more revenue from gas monetization beyond crude oil for the sustainable economic growth of the country

“Equally important to the project is the Gas Sales and Purchase Agreement (GSPA) initialled between BFPCL and the Shell Petroleum and Development Company Joint Venture (SPDC JV) for the supply of 270 MMscfd of gas over 25 years to the project.”

Milestones

Investor confidence in the success of the project will no doubt be boosted by the conclusion of the off-take agreement by international buyers.

Supply agreement, EPCC contracts have been signed and China Exim Bank is serving as mandated lead arrangers (MLA) – who will determine the terms and conditions of the syndicated loan for the project.

Equity participation from all the investors is one aspect that is yet to fully realised. It is currently at 67 percent completion according to the document seen by BusinessDay.

Previous plans

Nigeria has the 9th largest proven natural gas reserves in the world with approximately 200 trillion cubic feet (tcf). Despite having the largest reserves in Africa, only about 25 percent of those reserves are currently being developed.

This has led to successive governments’ efforts to deepen gas exploitation. In 2011, Indorama Corporation, the core investors in Eleme Petrochemicals Company Limited (EPCL) announced a plan to build world-class Fertilizer and Methanol plants in its Port Harcourt complex.

The investment was worth $1.8 billion (N275 Billion Naira then) and was supposed to commence production in the next three or four years. The project is yet to materialise.

In 2012, the Gulf of Guinea Oil Exploration Limited (GGOEX) tried to monetize natural gas in Nigeria through its purposely established subsidiary Gulf of Guinea Methanol Limited (GGML) to develop a world-scale methanol plant in the Niger Delta.

GGOEX wanted to invest $1.1billion to build the first methanol plant of that scale in Africa with a capacity of 5,000 tonnes per day (t/d) out of local natural gas. It planned to produce high-quality methanol to provide feedstock to the local petrochemical industry.

The expectation was to use this supply of methanol to produce solvents from acetic acid, gasoline additives like methyl tertiary butyl ether (MTBE) or formaldehyde-based resins. The project was not successful.

Some attempts did not progress far including a discussion with some investors from Isreal to build a methanol plant.