FG to fund $2.8 Ajaokuta-Kano pipeline project with gas tariff


Activities leading to the proper take off of the $2.8bn Ajaokuta-Kano pipeline project are in top gear as a new financial arrangement has been secured for the project.

The project is now to be financed through a forward sale agreement, an arrangement which will ensure that the entire tariff on gas pipelines nationwide would be collected into an escrow account and be used to pay contractors doing the jobs the project, an industry source told BusinessDay.

The initial plan of getting some financial institutions in china to provide funds for the project failed because the institutions contacted, BusinessDay learnt were demanding for a sovereign guaranty from the federal government before they would put money down.

By this arrangement it is no longer going to be contractor financing anymore as the fund is coming from the government.

With the new funding arrangement means that money being paid as tariff by all those using gas pipelines across the country is going to be used to finance it.

Having secured this funding arrangement the source told BusinessDay that the front end engineering and designs (FEED) for the project has started.

The Nigerian National Petroleum Corporation (NNPC) plan to extend its major gas pipeline infrastructure to connect various parts of the country got a major boost when it signed of contracts for the engineering, procurement, construction, commissioning and financing for two lots of the Ajaokuta – Kaduna – Kano (AKK) gas pipeline.

Read: NNPC to Establish 4600MW Power Generating Plants in FCT, Other States

Described as the single biggest gas pipeline project in the history of oil and gas operation in Nigeria, the singing of the contract between the NNPC and a consortium of indigenous and Chinese companies was initially suppose to be a 100 per cent contractor financing model for the 40 inch by 614km gas pipeline .

The $2.8 billion AKK gas pipeline is among three unique projects – the Egina $15 billion, Bonga $10 billion, expected to generate up to $40bn investments to revive particularly Nigeria’s gas infrastructure.

Specifically, the AKK project will come with other auxiliary projects like the 1350 megawatts (MW), 900 megawatts and 2350 megawatts of power generation plants planned to be built in Abuja, Kaduna and Kano, respectively, in the next three to 10 years.

The power plants would be built by incorporated joint venture (IJV) companies that would involve NNPC, International Power Companies and other Nigerian investors to be structured after the Nigerian Liquefied Natural Gas (NLNG) business model.

The AKK section has suffered setbacks due to scarce resources for government to fully finance the project.

In 2008, the Federal Government approved the Nigerian Gas Master Plan (NGMP) to accelerate the development of gas pipeline infrastructure for domestic and export markets.

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The major intent of the government is to maximize the effect of gas in the domestic economy, ensure long-term energy security while optimizing the country’s export gas capability.

The AKK Gas Pipeline Project thus constituted Phase 1 of the Trans-Nigeria Gas Pipeline (TNGP) Project. The pipeline will originate from Ajaokuta traversing Abuja, Kaduna to terminate at a terminal gas station in Kano. The proposed pipeline will be supplied with quality gas sourced from various gas gathering projects.

After a painstaking technical and commercial evaluation process, the Federal Executive Council (FEC) at its 46th meeting on 13th December, 2017 approved the contract valued at over $2.8 billion.

Explaining further during the contract signing for lot 1&3 of the pipeline, maikanti Baru, said the AKK gas pipeline was a section of TNGP under the gas infrastructure blueprint designed to enable the industrialization of the Eastern and Northern parts of Nigeria.

Upon completion, 24 months from now, the AKK gas pipeline would enable connectivity between the East, West and North, which is currently non-existent.

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Also speaking on the importance of the pipeline after the FEC on 13th December, 2017 approved the contract, Kachikwu said the gas pipeline would enhance movement of gas from the southern corridor to the North, increase power generation and enable utilization of gas up in the hinterlands.

He said: “One of the things we have suffered is the reaping of gas. We presently have trapped power – trapped gas all in the southern corridors that is going nowhere because of lack of infrastructure. So, that has now been awarded. You remember that was partially done, this is a contract that has lasted over 13 years. We got approval for that today and that is going forward very nicely.”

With the award of the contract the Federal Government and the NNPC are also providing opportunities for indigenous companies to flourish through the AKK project.

Lots for engineering, procurement, construction, commissioning and financing have been contracted to indigenous consortiums.

Under the terms of contract signed last week, Lot 1 with total length of 40inch x 200km stretching from Ajaokuta to Abuja Terminal Gas Station was awarded to local firm, OilServe/Oando Consortium.

Lot 3 which runs from Kaduna Terminal Gas Station (TGS) to Kano TGS with total length of 40inch x 221km was awarded to the Brentex/China Petroleum Pipeline Bureau (CPP) Consortium.

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