A request from the Liberian government through the Liberia Electricity Corporation, requesting the banking institutions’ views on the potential for a single source leasing out of the excess capacity of the storage tank at Bushrod Island, on a short-term basis to Aminata Petroleum, has been rejected by the global body because it would hurt the capacity of the LEC to deliver electricity.
Even more complicated for the request, is what industry observers fear could put the Liberia Petroleum Refining Company (LPRC) at a disadvantage.
LPRC is the state-owned enterprise with the exclusive mandate to refine, store, distribute, and supply petroleum products to the Liberian market.
On July 31, 1989, an Act of the Legislature granted the Liberia Petroleum Refining Company (“LPRC”) exclusive rights for the importation, sale and distribution of petroleum and petroleum products within Liberia.
Section 1 of the Act states that “The importation of all petroleum products for the Liberian domestic market, for internal use within the Republic of Liberia, and/or for transaction through the commerce of Liberia, shall be the sole and exclusive right of LPRC, and that NO entity, individual, concessionaires, public or private corporation nor any governmental entity, foreign or otherwise, shall import petroleum products into the territorial confines of the Republic of Liberia, except with the written consent of the Liberia Petroleum Refining Company duly approved by the President of Liberia”.
$US11M Storage Tank Already at LPRC
Today, the LPRC owns storage tanks at its Product Storage Terminal (PST) near the Freeport of Monrovia where it stores and handles petroleum products for wholesale distribution.
In August 2017, the World Bank funded the Heavy Fuel Oil (HFO) storage facility of approximately 5,280,000 gallons in enhance and support the continuous operations of the LEC’s thermal generation plants on Bushrod Island for a period of 90 days during the dry season.
The project, valued at US $ 11 million, is a component of the Liberia Accelerated Expansion Project (LACEEP) with an objective of increasing access to electricity and strengthening the institutional capacity of the energy sector.
As part of that project, the Government of Liberia, through the Ministry of Lands, Mines and Energy (MLME), on behalf of LEC, entered into an agreement with China Harbor Engineering Company (CHEC) for the demolition of the old LEC tanks and pipelines and the construction of the new facility.
The project was divided into two lots. Lot -1 handles the demolition of damaged Pre-war Storage Tanks and pipe lines, site cleaning and preparation of waste disposals. This phase of works commenced May 15, 2015 and due to adverse weather conditions of the rainy season, implementation was delayed but was finally completed on January 2016.
Lot-2 handles construction of two new 10,000 cubic (2,640,000 gallons) capacity of HFO storage tanks; Construction of one HFO storage tank base for future expansion; Construction of one 1000 cubic meter (264,000 gal) capacity diesel storage tank; Construction of 1.8 km pipeline of transport HFO from Bong Mines Pier to the tank farm at LEC Bushrod Island Compound; Install several auxiliary but critical systems including the future the fire protection and Environmental Oil/Water Separator system and Construction of one new 2,500 cubic meter capacity water storage tank for the fire protection system.
The World Bank undertook the project with the goal of saving Liberia money.
Prior to the construction of the facility, the LEC was spending more money because of the lack of storage facility. The goal of the storage tank was to relieve the entity from paying rental fees for storage facilities.
Additionally, the storage facility gave the LEC the capability of transporting Heavy Fuel Oil directly from a vessel dock at the China Union Pier to the storage tanks and provides storage of approximately 5,280,000 gallons of Heavy Fuel Oil (HFO) that can support continuous operations of 38 Megawatts of Thermal Generation of existing Thermal Power Plants for a period of 90 days.
CHEC is a subsidiary of China Communications Construction Company Ltd (CCCC) and on behalf of CCCC to explore the oversea market. China Communications Construction Company is the world’s leading integrated service provider of large-sized infrastructure construction project.
CHEC entered the Liberian market since 2011 and actively participated in local infrastructure construction, including airports, ports, power plants, oil tanks etc
After investing US$11 million in the project, the World Bank and other international stakeholders are now baffled as to why the Weah administration would now want to wrestled that responsibility away from LPRC and give it to Aminata.
Likely Competition LPRC vs. Aminata
The move will in effect, make LPRC, a government entity, a competitor with Aminata.
On July 4, 2020, Minister of State for Presidential Affairs, Nathaniel McGill, wrote Mr. Gesler Murray, Minister of Mines & Energy, who is also the Chair of the Board of the LEC, argued that the storage tanks will increase Aminata’s storage capacity and enable them import additional petroleum products in the country to avoid the recurring shortages experienced in recent times. “This will improve service delivery and help to minimize the security issues in the country,” the minister wrote.
Mr. Paschal Buckey, Chief Executive Officer of the LEC, in a letter dated February 14, 2020, also in possession of FrontPageAfrica, to the World Bank, sought the Bank’s blessing on the request.
The Bank’s country Manager, Khwima Nthara, in response to the request on the potential for leasing out the excess capacity of the storage tank at Bushrod Island, on a short-term basis to Aminata, said: “The Storage Tank Facility is financed under the ongoing Liberia Accelerated Electricity Expansion Project(Cr. 5252-LR and 5680-LR(the Project). I would also like to draft refer to your subsequent email communication dated July 20, 2020, forwarding a draft lease agreement for a proposed lease of the entire Storage Tank Facility for a period of 20 years to a third party. We understand that the third-party lessee is being selected through a single source process.”
Mr. Nthara added: “I would like to thank you for seeking our views on the new proposed lease arrangement as this is required under the Financing Agreements for the Project, including applicable IDA General Condition for Credits and Grants dated July 31, 2010, (General Conditions)which constitute an integral part of the Financing Agreements. Specifically, Section 6.02(i) of the transfer, sale, lease or otherwise disposal of any property or assets financed wholly or in part out of the proceeds of an IDA Credit.”
World Bank’s Rejection Letter
The World Bank official said based on the team’s technical review, the proposed transactions as presented would materially and adversely affect the financial condition and operation of LEC. “Therefore, I regret to inform you that the Bank would not at this time be able to provide the consent, or its no objection, to proceed with the proposed lease of the Storage Tank Facility.
Mr. Nthara, specifically expressed concerns since the proposed lease would be granted on a single source basis, it is not clear how it would yield maximum value for money to LEC vis-a-vie a competitive.
“We have the following concerns: Since the proposed lease would be granted on a single source basis, it is not clear how it would yield maximum value for money to LEC vis-à-vis a competitive bidding tender. Unlike the earlier plan of leasing only excess capacity, the proposed new arrangement envisages the entire bank farm facility to be handed over to the third-party operator for a period of 20 years without any recourse to LEC should it require to use the full capacity of the storage tanks for its own needs. The proposed arrangement would allow the operator to import and store other fuel products(not just HFO) in the storage tanks, and it is not clear how LEC’s HFO needs will be safeguard.”
The World Bank official said the proposal from the Weah administration also poses a significant financial risk to LEC. “For example, the proposed investments by the third party(book value of which is to be recovered from LEC in the event of an early termination of this 20-year-contract) seem excessive. These include US$7.5 million investment by the third party for upgrading and maintenance of a relatively new facility has already been constructed under the Bank project). Besides these investments are in addition to US$28.5 million for working capital as well as US$2.5 million for other associated facilities. We note that the entire tank facility(2 storage tanks including the foundation for the third tank, and the associated
Facilities including the connection to the port and to the LEC HFO plants) cost less than US$10 million financed under the project.”
Additionally, Mr. Nthara said, the proposed arrangement does not guarantee that LEC can purchase fuel for its own needs competitively from the international market to ensure competitive cost of fuel for LEC. “Under a previous budget support program that was approved by the World Bank Board on November 17, 2016, one of the prior actions that the Government of Liberia committed to was the introduction of an open and competitive procurement process for the importation of HFO for LEC’s own generating plants and mandating of all international competitive bidding process. The proposed arrangement, if implemented, would constitute a reversal of the prior action putting at risk future budget support operations which require continued commitment to the adherence or implementation of previously agreed prior actions by the government. As we work with the government and LEC towards the achievement of the objectives of the Project, we would be happy to consider the outcome of a competitive process for leasing the Storage Tank Facility based on careful consideration of the potential excess capacity as previously proposed.”
CONEX, SRIMEX in Similar Boat
This is not the first time an attempt has been made to create a competition for the state-owned LPRC.
During the presidency of Madam Ellen Johnson Sirleaf, CONEX Petroleum Group, headed by Cherif M. Abdallah was granted the rights for the importation, storage, sale and distribution of petroleum and petroleum products within the Republic of Liberia. This has created a direct competition with LPRC. This has put both the Liberian government and LPRC at a huge disadvantage because CONEX, unlike LPRC who doesn’t import, now has the advantage to earn massive revenue through direct importation and storage fees from their massive Product Storage Terminal.
Then Managing Director, T. Nelson Williams who signed the contract on behalf of LPRC, was immediately hired by CONEX to run their operation.
Additionally, SRIMEX headed by Musa Bility is also in direct competition with LPRC. Like CONEX, they were also given the rights for the importation, storage, sale and distribution of petroleum and petroleum products within the Republic of Liberia.
Despite the World Bank’s objection, FrontPageAfrica has been informed that the administration is insisting on moving ahead with the project. While there are no strings attached to the objection from the World Bank at the moment, one senior diplomat said Tuesday, it could hurt Liberia’s ability to secure future loans or grant from the international banking institution.
Source: Front Page Africa