Successive Nigerian governments have talked about better utilising the country’s vast gas reserves to drive economic growth with little to show for it, however, President Muhammadu Buhari’s administration looks set to get the sector moving with the kick start of the $2.8 billion Ajaokuta-Kaduna-Kano (AKK) gas pipeline construction on Tuesday, June 30.
The project is a 614km-long natural gas pipeline currently being developed by the Nigerian National Petroleum Corporation (NNPC) is Phase One of the Trans-Nigeria Gas Pipeline (TNGP) project, to be done on a build-and-transfer Public-Private Partnership (PPP) basis.
It will transport 3,500 million metric standard cubic feet per day of dehydrated gas from several gas gathering projects located in southern Nigeria.
The project which will be in three phases includes the 200 kilometres long and is between Ajaokuta and Abuja, at a projected cost of $855 million while the second phase is 193 kilometres long, between Abuja and Kaduna at an estimated cost of $835 million.
The third phase is 221 kilometres-long, between Kaduna and Kano, at a projected cost of $1.2 billion.
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Project financing
The Ajaokuta–Kaduna–Kano (AKK) gas pipeline project is planned to be financed through 85percent debt and 15percent equity.
The loan facility is being provided by the China Export & Credit Insurance Corporation (Sinosure) at London Interbank Offered Rate (LIBOR) interest rate plus 3.7percent with a 12-year repayment period while NNPC will cover the remaining 15percent of the project’s cost.
“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,” Nigeria’s finance minister Zainab Ahmed told Reuters in March.
Benefits of AKK pipeline
The project will result in the establishment of a connecting pipeline network between the eastern, western and northern regions of Nigeria.
It also aims to create a steady and guaranteed gas supply network between the northern and southern parts of Nigeria by utilising the country’s widely available gas resources.
The project is also expected to increase the local usage of domestic gas at the same time increase the country’s revenue generation through the export of natural gas.
Challenges
Despite the numerous opportunities attached to the $2.8 billion Ajaokuta-Kaduna-Kano gas line project, some stakeholders have raised doubt about the economic viability of the project.
They predict that the project might face the same challenges the Kaduna refinery is currently facing. Unlike the Warri and Port Harcourt refinery which was built within the vicinity of crude oil exploration, Kaduna Refinery was built almost 700 kilometres away from crude oil.
“The CAPEX for the crude pipeline to Kaduna, and that of the construction of the refinery could not be recovered, not to talk of profit,” says Lagos-based Alao Abiodun, head of energy research at New Nigeria Foundation.
Some have also argued about the availability of gas in the southern region as some of the power plants in the region have always complained about inadequate gas supply.
For example, the two power plants in Ajaokuta (Geregu 1 and 2), where the line will take off from, are not getting enough gas to operate at full capacity while Dangote cement plant in Obajana does not get enough gas, so it has to substitute that plant with coal.
But NNPC has always insisted that the project is economical and timely, stressing that its Public, Private Partnership funding makes it viable.
