Midstream and Downstream Gas Infrastructure Fund (MDGIF) has said that indigenous companies seeking to partner with it and access its equity must show secured gas supply and a confirmed buyer, because no gas project is bankable without both.
The Fund was established under the Petroleum Industry Act (PIA), and designed as the “master key” for unlocking gas processing, infrastructure and bankability.
Deputy Director at MDGIF in the Nigerian Midstream Downstream Petroleum Regulatory Authority (NMDPRA), Engr Elvis Duruji made this known at the OTL Africa Downstream Energy Week in Lagos. He spoke at a session on: “Scaling Energy Options: Unlocking Gas and Renewables through Processing and Infrastructure.”
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Expatiating further, Duruji said the two conditions decide whether the fund takes an equity stake in a project, since they determine its returns and viability, insisting that the security of the gas feedstock is very important. He further noted that project operators must locate their sites at a gas processing plant or close to a CNG mother station.
The Fund, he added, has used N671 billion to catalyse N1.6 trillion from private Nigerians.
“The Fund has partnered on 31 projects covering 205 infrastructure assets at different stages of execution. Of these, 127 are at different levels of project management, and 10 have been commissioned.
Duruji cited Topline Limited’s mini-LNG plant in Delta State as a success story. “For three years, a Nigerian company, Topline, was looking for a credit facility from InfraCredit, and no one was able to loan them money because they are Nigerian,” he said. “They came to the fund and we partnered with them.”
He said Topline is now the first indigenous mini-LNG operator in Nigeria, with commissioning due before December.
He also cited a programme to convert 20 university campuses to CNG through daughter stations.
“Three CNG stations are operational and 14 more are to be commissioned before December. Duruji added that the fund is working with fuel-station partners, including Ibile Oil and Gas Corporation, which is delivering 15 CNG stations across Lagos.
“These are our success stories,” he said.
He said, for CNG projects, proximity to the gas processing plant “is very important. You must have security of gas supply. We also ensure that you have a gas supply agreement with producers. What is the volume and price that the producer is willing to give to our would-be equity partner? This always affects their credit returns and internal rate of return. This is what will determine the project viability, and this is key,” he said.
Duruji also noted that offtake is equally critical adding that. “We need to know the offtakers and the regasification facility. The same thing for CNG, you need to get a compressor,” he said.
According to him, the MDGIF intervenes in gas projects where commercial lenders will not, because “most Nigerian companies are in trading and operating marginally at the downstream level because the sector is highly capital intensive,” adding that no Nigerian bank would give single-digit loans for exploration and production.
“Nigerian Banks lends at as much as 30 per cent interest, whereas, foreign firms coming into Nigeria to explore, by contrast, have access to cheap loans in single digits from their home country financial institutions,” he said.
The MDGIF, he further explained, intervenes “by pricing the risk, coming up with mitigation and catalytic equity, which we now use to bring that barrier to a level to allow Nigerians who are interested to come into the midstream to partner through the equity finance that we will provide without interest.”
“We bring in the catalytic equity, which is about 49 percent, because we want to allow you to be the operator. We will stay with the private investor and walk them through all that,” he added.
He said MDGIF brings “minority equity, due diligence and risk governance” and uses these as catalytic capital “to make the projects bankable, to make them balanced capital structure that will attract private confidence.”
He identified processing plants, transport, storage and last-mile distribution as the main gaps. Non-associated gas, he said, is “very expertise and capital intensive,” and pipeline networks are needed to move gas from the reserve to the last mile.
“The more gas infrastructure we roll out, the more we are helping the energy system where renewables cannot,” he said.
Duruji identified three mandates of the MDGIF: to increase domestic gas consumption, to aggregate flared gas and bring it into the domestic market, and to mobilise private investors who lack the funds to play in the midstream.
“The MDGIF has three mandates: increase domestic gas consumption, aggregate flared gas and bring it into the domestic market, that is key,” he said. “The other mandate is to mobilise private investors that do not have the funds to be able to play in the midstream, bring their funds.”
He added: “We also have the mandate to reduce gas flare in Nigeria exploration and production sites.”