The Cameroon government is planning to complete the first phase of the expansion and modernisation works at national refinery company Sonara’s refinery later this year, which will lead to an increase in production.
According to local media, the refinery – the only one in the country – has been in the process of expanding and modernising its equipment since 2013. The long-term objective is to increase production and, most importantly, to acquire a hydrocracker to refine the local crude oil.
Though the volume of this anticipated production increase has not been revealed, it is expected that after the completion of both phases of the expansion and modernisation works at Sonara, yearly production of this refinery should increase by about 1.4-million tons.
Cameroon’s Ministry of Public Procurement in June launched an international call for tenders, for the recruitment of a company for the construction of a new tanker loading station at Sonara. The project, which will have to be completed within 24 months of the tender being awarded, will cost about €21.9-billion. Interested parties were invited to submit their bids at the Ministry before August 12, and asked to ensure that they secured collateral worth €369.8-million.
To finance these works, specifically the purchase of the hydrocracker, government has requested the support of local banks, including Afriland First Bank, which took part in the financing of Phase 1.
Additionally, the local subsidiary of Gabon finance institution BGFI Bank Group, BGFI Cameroon, was recruited by the State in 2013 to act as a financial consultant and assist Sonara with its increasing debt by providing additional funding for capital expenditure.
BGFI Cameroon has been instrumental in keeping the refinery afloat while seeing this expansion project through to completion, and provided bridge financing of about €218.7-billion to Sonara in February last year.
This resulted from the Finance Ministry’s efforts to secure funding from banks to refinance the refinery and fund other development projects, according to two Presidential decrees, signed by President Paul Biya. Projects for construction, infrastructure and agriculture were also covered by the decrees.
The State’s decision to secure project funding from local banks can be attributed to the drop in oil prices, which adversely affected the refinery’s finances. Further, a significant portion of Cameroon’s gross domestic product (GDP) comes from its oil industry. Therefore, government revenue was also adversely affected by the oil price, which drastically limited the amount of assistance it could offer.
On August 5, credit rating agency Moody’s Investors Service released an assessment of Cameroon’s economic prospects. The country received a subinvestment, highly speculative B2 grade. This decision was largely owed to Cameroon’s diminishing oil reserves, low income levels and lack of competitiveness.
Further, Moody’s noted that Cameroon’s fiscal strength remains “challenged by the accumulation of arrears and contingent liabilities with respect to financially challenged State-owned enterprises in recent years, including the majority State-owned Sonara oil refinery”. However, it does commend the government’s decision to increase fuel, diesel and gas prices in 2014 and to reduce subsidies, which is expected to substantially reduce oil-subsidy expenditures and cushion increased security-related expenditures.
In its assessment, the rating’s agency stated that Cameroon’s oil production peaked in 1985 at over 180 000 bbl/d, and has been on a declining trend ever since, owing to depletion of mature oilfields, despite new wells and recovery techniques for mature oilfields temporarily boosting oil production, and partially offsetting the impact of lower oil prices.
“The oil sector accounted for 7% of GDP in 2014, for 50% of total exports and for 23% of fiscal revenues,” Moody’s stated. It added that while Cameroon had the potential to develop estimated natural gas reserves of 1.6-trillion cubic metres, the recent announcement by French electricity utility company Engie stating that it will put its Cameroon onshore liquid natural gas project – with a 3.5-million-tonne-a-year capacity – on hold, represents a setback for Cameroon’s investment and growth outlook.