The Nigerian National Petroleum Corporation (NNPC) is in talks to raise about $1 billion in a prepayment with trading firms to refurbish its largest refining complex at Port Harcourt. The Port Harcourt complex consists of two plants with a combined capacity of 210,000 bpd. In 2019, the Port Harcourt plants including other refineries lost some N167 billion ($439.47 million).

Reuters, which reported this yesterday, quoted seven sources familiar with the discussions, including the spokesperson for Afreximbank. If the financing is concluded, the long overdue rehabilitation of the refinery should reduce Nigeria’s hefty fuel import bill.

This would also mark Nigeria’s second oil-backed financing since the COVID-19 scourge that has added to the difficulty of finding investors as fuel demand is sapped by lockdowns and renewable energy is gaining ground over fossil fuels.

The money would be repaid over seven years through deliveries of Nigerian crude and products from the refinery once the refurbishment is completed, the sources said. Cairo-based Afreximbank is leading the financing. “Afreximbank is looking into a facility for the refurbishment of the Port Harcourt Refinery.

However, the borrower is yet to be determined,” a spokesman for the bank said. NNPC declined to comment. The sources said discussions were taking place with a range of foreign and Nigerian trading houses, including some who have previously worked with Nigeria and who asked not to be named. Apart from the problems of COVID-19 and increased investor preference for carbon- free energy, defaults and fraud in commodity trading, mainly in Asia, have reduced the appetite of foreign banks for exposure to commodity trade finance.

A source at one foreign bank, also asking not to be named, said it was unlikely to participate in Nigeria’s latest effort because of lower credit availability and increased reluctance to take out exposure in a high risk country. Nigeria, Africa’s most populous country, has four refineries with a combined capacity of 445,000 barrels per day (bpd): one in Kaduna and three in Warri and Port Harcourt. In April 2020, all refineries in Nigeria were shut pending rehabilitation. Nigeria has struggled with the poorly maintained units for decades.

Successive NNPC chiefs have announced a series of unsuccessful plans to revamp, privatise or expand the refineries. NNPC abandoned a similar attempt in 2019 to partner with oil traders, producers and engineering firms to fund refinery revamps after over a year of talks, saying it would fund the projects itself. The barely functional plants leave Nigeria completely dependent on imports and subsidy schemes also cost the country billions of dollars.

In December, NNPC opened a bid round for a contract to rehabilitate the Port Harcourt complex. NNPC GMD, Mele Kyari, also said last year that private companies would run the refineries once they were rehabilitated. In July, global energy trader Vitol and Nigerian firm Matrix backed by banks agreed to lend NNPC $1.5 billion to support its upstream arm, NPDC, although the discussions that led to the deal predated COVID-19.