The Plastics Exchange
Indorama SPL close to buying Nigerian chem co for $225m
Close on the heels of Dr Reddy's acquisition of Germany's betapharm, another company with Indian links is on the verge of a major buyout overseas. It is reliably learnt that the SP Lohia-promoted Indorama SPL group, based in Indonesia, is close to acquiring Nigeria's state-owned Eleme Petrochemicals company for $225m.
Sources said that the deal is for 75 percent of the equity capital of the Nigerian company -- one of the largest petrochemical companies in Africa.
While Indorama SPL belongs to the Lohia business family, it is separate from the India-based OP Lohia-managed Indo Rama Synthetics. When contacted, Indo Rama Synthetics chairman OP Lohia said that while he was aware of Indorama SPL bidding for Eleme, "I can't say anything further on the matter." SP Lohia is OP Lohia's brother.
The move by the Nigerian government to sell its stake in Eleme had attracted big bidders from around the world, including Dangote Chemicals, Korea's LG Chemical, which is a unit of LG Electronics and Transnational Corporation of Nigeria.
Analysts said the deal would catapult the $600-m Indorama SPL into the global league, apart from giving it a big share in the African petrochemicals market. Eleme has a prominent marketshare in the African resins sector and is the only olefin-based plant in the sub-Saharan market.
The Indonesia-based Indorama SPL group has big interests in polyester and textile, which use petrochemicals as raw materials. The company is also involved in chemicals, cement, rubber products, marine farming, real estate development and infrastructure projects.
The Nigerian government has been planning to revamp Eleme's existing plants and the proposed privatisation is likely to finance the completion of ongoing expansion programmes, sources close to the issue said.
Eleme is a subsidiary of Nigeria's National Petroleum and has the capacity to make 300,000 tonnes of olefins, 250,000 tonnes of polythylene and 80,000 tonnes of polypropylene.
The global petrochemicals market has been growing sharply in recent times, driven by huge demand from China. China's share of the global petrochemical demand has grown steadily from about 4 percent in 1996 to 5.5 percent in '00 and is expected to reach almost 7 percent in '06.
Analysts said that the trend is likely to continue as long as China's economy continues to grow at over 9 percent annually.
government delays sale of Port Harcourt refinery to 2005
The Nigerian government Tuesday said the 150,000 b/d Port Harcourt refinery and Eleme Petrochemicals Company would be both privatized next year. "The process started some time ago but was slowed down by several factors. But the process has started again but we are now hoping they will be privatized next year," presidential assistant on petroleum affairs Jafaru Paki told Platts.
The government had planned to sell its equity in each of the four refineries --Port Harcourt I and II, Warri, and Kaduna--last year, but the timetable had to be changed due initially to unrest by workers and then by a lack of interest from potential buyers. President Olusegun Obasanjo at the weekend blamed the delay on hiving off a 51% stake in each of the four plants to core investors on over-staffing. The president said he had asked state-owned NNPC to trim staff at the refineries. "Reduce labour so that people who can help to manage and come in and put their own resources into it can come in," Obasanjo said in a weekend television speech, quoted in local newspapers.
Paki said deregulation of the downstream sector was also partially to blame for the delay in the privatization process. "Nobody wants to invest money unless you are sure you will get your return. I think that was one of the reasons for the delay. But that situation has changed now, the market is already deregulated. If crude oil prices come down, we should see many more players importing product to Nigeria," Paki said. Obasanjo in October last year decided to deregulate fuel sales and halt subsidies as part of a series of economic reforms designed to halt Africa's most populous nation's slide into poverty. Fuel pump prices immediately jumped from Naira 34/liter to Naira 41/liter, sparking outrage and a series of strike threats from the country's powerful central labor movement. Paki said the government was still hoping upstream majors Shell, ExxonMobil, ChevronTexaco and Total, who have so far avoided the process given the enormous investment required to repair the plants, would express interest.
"Some declined but some of them might actually come back. If they do, well and good as it will leave all options open. The good thing is that we have already seen a lot of interest," he said. Chinese National Petroleum Development Corp has already said it in interested in both Port Harcourt and the 140,000 b/d northern Kaduna plant and the government recently set up a technical committee to monitor the Chinese proposal. "The Chinese interest will be set against all the other interest. We want to have open, real competitive bidding and the company that offers real value for money will be where our interest lies. We want a level playing field so at the end of the day, we get the best option," said Paki, speaking by telephone from Abuja. The Chinese government has said it planned to invest $500-mil in Nigeria's upstream sector and a further $30-mil for development of the downstream industry.
The government had spent about $700-mil since 1999 in refurbishing the refineries, with a combined nameplate capacity of 445,000 b/d, but problems such as fire, sabotage, poor management, inter-ethnic violence and lack of turnaround maintenance have resulted in the plants operating well below capacity. "Because the refineries which we have now, even if they are working to full capacity, their installed capacity, we will still have to import 40% of the product we need. And government has said no, we are not going into refineries any more, the refineries we have, we want to privatize," Obasanjo said. The government also wants to see several small, independent refineries and last year awarded 18 private refinery licenses after opening up the downstream sector to private investment. "Only six of the eighteen that were bidding for provisional licenses have shown any interest in really turning the provisional license to a production license," the president said. Nigeria is hoping to require crude producers operating in the country to refine at least 50% of their production in country by 2006.