NNPC’s decision to prune the checklist of contributors in crude oil lifting contracts to sixteen will definitely, sanitise the state-run oil firm and the oil and fuel sector as an entire. Ejiofor Alike reports.
From the raft of measures he has up to now carried out to reposition the Nigerian Nationwide Petroleum Corporation (NNPC) in direction of the path of growth and transparency, the Group Managing Director of the state-run oil company, Dr. Emmanuel Ibe Kachikwu has left no one in doubt that he is decided to interrupt away from the past and open up the books and operation of the company to public scrutiny.
Before he came on board, the corporation was plagued by allegation of massive corruption in opposition to its officials in transactions involving the lifting of the country’s crude oil by oil traders, importation of petroleum merchandise, subsidy claims, remitting of oil revenue and award of oil and fuel contracts.
It is a typical data that unlike different nationwide and worldwide oil firms, which publish their quarterly and yearly accounts and assertion of outcomes, the operation of the NNPC will not be open to public scrutiny.
The secrecy associated with the NNPC’s budgets and the opaque nature of its monetary activities also fueled the general suspicion that the organisation is the centre of corruption.
Nevertheless, on assumption of workplace, Kachikwu didn’t waste time to start the restructuring of the corporation with the retirement of all eight Group Executive Administrators (GED), in a sweeping transfer that has since affected extra senior executives.
As well as to these, Kachikwu has additionally slashed the variety of directorates within the corporation from eight to 4.
Apart from personnel restructuring, Kachikwu has additionally embarked on raft of measures to alter the corporation’s enterprise dynamics to align with finest practices.
He advised the UK-primarily based Come up Tv that he would vigorously promote transparency in the company to arouse investor confidence in Nigeria’s oil and gas trade.
“The first thing is to be clear about it. If the foundations are clear to everybody by way of what we are doing and the governance system could be very clear and simple, you’ll get a whole lot of curiosity. So, that is essential: first, be clear and clear about your processes,he stated.
“In addition to that, we’re looking at areas of efficiency. How will we lower down price? How will we stay more targeted?he added.
Kachikwu added that he is doing in the NNPC was what he has accomplished in the oil industry in the past 30 years, stressing that the main focus needs to be on individuals, processes and the business itself.
“We are beginning very dramatically to give attention to the folks concerned; to clean up the system; to ensure now we have the suitable individuals in the suitable place. We’ll get them to focus on the management, transparency and enterprise mannequin after which we get into the processes – how can we approve contracts? How do we monitor contracts? How will we guarantee that there is pro-business focus in whatever we are doing and finally, we’re going into the business dynamics,he defined.
Cancellation of marine contracts
In one in every of his newest measures aimed toward value discount and strengthening of operational effectivity throughout the value chain, Kachikwu recently cancelled the contracts for crude oil deliveries to Warri, Port Harcourt and Kaduna refineries resulting from what he described because the exorbitant price and inappropriate means of engagement.
Before the NNPC awarded the contract for the usage of marine vessels to carry crude to the refineries, the company was losing as much as forty per cent of its crude oil to theft and vandalism of the pipelines.
The contract was first awarded to an Israeli company to elevate crude oil from Escravos to the Warri refinery in February 2011 underneath a Proof of Concept Settlement, but the company allegedly didn’t meet the phrases of the contract.
Consequently, a reputable Nigerian agency, Ocean Marine Tankers (OMT) Restricted was engaged to elevate crude oil from the Escravos terminal to the Warri refinery.
The corporate was mentioned to have invested heavily in a really large crude carriers (VLCCs) with the capability to carry two million barrels, which is transferred the oil to smaller vessels and moved to the refinery.
As an example, OMT was mentioned to have commissioned MT Abiola and MT Igbinosa in 2013 to convey crude oil to the refinery.
THISDAY gathered that when OMT took over the contract from the Israeli agency, with the ship-to-ship transfer mechanism, the Nigerian firm diminished losses to 0.19 per cent against the 0.5 per cent allowable underneath the contract.
The previous Group Managing Director of NNPC, Mr. Andrew Yakubu was mentioned to be so glad with the performance of OMT that he categorized it as safety contract and prolonged it to include the Port Harcourt refinery.
Nonetheless, despite the impressive performance of OMT, sure former officials of the NNPC connived with top officials of the previous administration to allocate the 445,000 barrels per day meant for the refineries to crude oil swap association with oil traders, thus denying the refineries feedstock.
With the outright cancellation of the contracts by Kachikwu, the brand new helmsman in the NNPC has as a stop-gap measure, engaged NIDAS Marine Limited, a subsidiary of the NNPC to offer crude supply service on negotiated trade standard rate, pending the institution of substantive contract.
“We have additionally commenced a rigorous and transparent process of securing succesful and aggressive contractors for the delivery of crude oil by marine vessels to Port Harcourt and Warri/Kaduna Refineries pending the restoration of the Crude Pipeline infrastructure,’NNPC had mentioned in an announcement.
Nevertheless, since Kachikwu did not cancel the marine contract executed by Ocean Marine Tankers as a result of poor efficiency or lack of capacity but resulting from exorbitant cost and alleged lack of due course of in the engagement, it is anticipated that the NNPC boss will also invite Ocean Marine to take part in the proposed clear and aggressive bid.
The corporation had defined that it resorted to the supply of crude oil to the refineries by marine vessels following incessant attacks on the Bonny-Port Harcourt refinery pipeline and the Escravos crude pipelines by vandals and oil thieves resulting in the whole unavailability of the pipelines in 2013.
Termination of crude lifting contracts
The NNPC has additionally terminated the controversial Offshore Processing Agreements (OPA) entered into in January, 2015 with three companies, namely- Duke Oil Company Inc., Aiteo Power Assets Restricted and Sahara Power Sources (Nig) Ltd.
Under the agreement, NNPC allocates a total of 210, 000 barrels of crude oil per day for refining at offshore locations in alternate for petroleum merchandise at pre-agreed yield pattern.
In taking this resolution, the corporation alleged that after detailed appraisal of the operation and the phrases of the contract agreement, it was satisfied that the OPA was skewed in favour of the private companies.
In keeping with the NNPC, the value of product delivered was considerably decrease than the equal of crude oil allocated for the programme.
With the emergence of Kachikwu on board, the NNPC has immediately realised that the construction of the agreement did not assure unimpeded provide of petroleum merchandise as supply terms were not optimum.
To deal with these lapses, the corporation introduced that it has commenced the strategy of establishing alternative OPA based on optimum yield sample with tender processing fees.
“After due appraisal of efficiency trajectory, we have now invited Messrs. Oando, Sahara Vitality, Calson, MRS, Duke Oil, BP/Nigermed and Whole Buying and selling to bid for the new Offshore Processing Agreement whereas we now have engaged AITEO, Sahara Vitality and Duke Oil to exit the current OPA,’the NNPC stated. The company has since extended the invitation to Forte Oil Plc and Mobil Oil.
It is gratifying to notice that the NNPC has also clarified that apart from the listed business operators whose efficiency trajectory impressed its administration to ask them to bid for the proposed OPAs, the company has pledged to throw the tender course of open for aggressive bidding by strong trade players with track data of integrity and monetary strength to execute the mission.
On the status of the Crude for product trade agreement (SWAP) reportedly entered into by the NNPC and some oil traders, the company revealed that the final SWAP arrangement lapsed in December, 2014 and was never renewed.
The company has additionally secured the approval of President Muhammadu Buhari to kick-begin the tendering process for the 2015/2016 Crude Oil Term Contract for the evacuation of Nigeria’s crude oil fairness from the various crude and condensate manufacturing preparations.
Reduction of number of individuals
In furtherance of Kachikwu’s novel transfer to instill transparency and optimise the advertising of Nigeria’s crude oil and secure new market potential, Kachikwu has pruned the variety of off-takers for the proposed 2015/2016 term contracts, which might emerge after a deliberate rigorous aggressive bid from 43 to sixteen.
With the reduction of the number of contractors that can participate within the crude oil lifting enterprise, Kachikwu is set to effectively optimise the marketing of Nigeria’s crude oil and safe new market potential.
The corporation’s spokesman, Mr. Ohi Alegbe, had said that “In the days ahead, we shall place ads for the 2015/2016 time period contracts and the publication will run for one month in major national and international print media to ensure efficient message penetration.
“Later the guidelines for the choice of latest off-takers would be printed and subsequently a particular bid evaluation committee can be constituted to conduct due diligence on successful candidates,Alegbe added.
The NNPC has additionally revealed that the bidders for the OPAs can be expected to supply proof of capability to boost letters of credit score (L/Cs) for the value of the crude that will be lifted by the companies and the standards for their choice would be stringent to ensure that “arm chaircompanies which have quick-changed the federal government previously will not be chosen.
Earlier than now, the variety of collaborating companies within the yearly contracts was in excess of 35.
As an illustration, over 38 companies participated from June 1, 2014 to May 31, 2015.
These include 21 indigenous firms; eight worldwide oil traders; two foreign refineries; two subsidiaries of the NNPC and three international locations, represented by their state-owned National Oil Firms (NOCs).
The list showed that 21 indigenous firms were awarded contracts to elevate a complete of 630,000 barrels per day of crude oil in the course of the one-year period, representing 57 per cent of the 1,179,000 barrels per day awarded to the 38 beneficiaries.
Eight international oil traders obtained an allocation of 240,000 barrels per day, representing 20.5per cent of the entire allocations, while two overseas refineries got 60,000 barrels per day, or 5.1per cent of the allocations.
Two subsidiaries of the NNPC have been awarded contracts to raise ninety,000barrels per day, which translated to 7.7per cent, while three nations, represented by their NOCs also obtained ninety,000 barrels per day.
A breakdown of the allocations confirmed that each of the 21 indigenous traders got an allocation of 30,000 barrels per day.
These firms embody; A-Z Petroleum Products Restricted; Hyde Vitality Nigeria Restricted; DK Global Vitality Sources Limited; Aiteo Energy Assets; Avidor Oil and Gasoline Company Limited; Azenith Vitality Resource Restricted; Barbados Oil and Gasoline Services Limited; Century Energy Providers Restricted and Crudex International Restricted.
Different beneficiaries include, Eterna Plc; Bono Vitality; Taleveras Limited; Mezcor SA; Sahara Vitality Sources Restricted; Tridax Energy SA and Tempo Power SA.
The rest include, Ontario Trading SA; Voyage Oil & Gas Limited; Elektron Petroleum Power and Mining Limited; Ibeto Petrochemical Industries Limited and Emo Oil and Petrochemical Firm.
Additionally included within the checklist were eight international oil traders, which got an allocation of 30,000 barrels per day of crude oil each.
They embody, Addax Power SA; Elan Oil Limited; Mercuria Vitality Buying and selling SA; Springfield Ashburton Limited; Petro/Ietnam Oil Company (PV Oil); Sullum Voe; Vitol SA and Delaney.
Two overseas refineries – Fujairah Refinery Restricted and PTT Public Company Restricted obtained an allocation of 30,000bpd every; while two subsidiaries of the NNPC – Duke Oil and Calson had been awarded 30,000bpd every.
The NNPC had additionally entered into bilateral commitments with the Republic of Malawi; SINOPEC of China and Indian Oil Corporation Restricted, with every of those entities receiving 30,000bpd.
Encouraging local firms
It is anticipated that in the brand new regime of transparency, Kachikwu will deliberately favour indigenous corporations like in the 2014/2015 tender as a part of the efforts to encourage native participation within the oil and gas industry.
This doesn’t indicate that the rules will be skewed to favour anyone but should not be too stringent to exclude indigenous firms.
In the 2012 tender, for instance, the primary tips issued by the NNPC for lifting the country’s crude violated the Nigerian Content material Act and successfully excluded native companies from the contracts and it took the intervention of former President Goodluck Jonathan after a report by THISDAY, for the corporation to review the guidelines.
Earlier than the intervention of the Jonathan, the former Government Secretary of the Nigerian Content material Growth and Monitoring Board (NCDMB), Mr. Ernest Nwapa had requested the NNPC to cancel the initial pointers but the Company insisted that the rules had come to remain, including that it was meant “to separate the boys from the males./p>
NNPC had in the 2011 tender complied with the Nigerian Content Act, because it required contributors to point out proof of compliance with the Act earlier than being thought-about eligible for lifting Nigerian crude.
The 2011 guidelines also required applicants to show evidence of yearly turnover of $500 million; minimal internet value of $100 million; and investment within the upstream sector to increase national oil reserves and production capability.
Other requirements have been: proof of investment in the downstream initiatives, refining, petrochemicals, distribution and storage of petroleum products, gas utilisation projects; Unbiased Energy Tasks (IPP); and readiness to invest in railway.
But in what would have ensured that indigenous companies with huge investment in Nigeria have been disqualified within the initial tender for 2012/2013, the NNPC excluded investments within the country as a part of the factors and also jacked up the yearly turnover and internet price to $600 million and $300 million, respectively.
Additionally, in what would further be sure that the scheme favoured largely foreign contractors with very deep pockets and quick access to international capital, the NNPC had also offered that every applicant would pay a $5 million deposit earlier than shopping for the primary oil cargo.
Swiss-based mostly Vitol, Glencore and Amsterdam-primarily based Trafigura had been among the overseas traders that would have been favoured if the primary guidelines had succeeded.
Nevertheless, former President Jonathan compelled the company to provide you with new pointers, where the company adopted a part of the 2011 tips, which required that the contractor must show proof of yearly turnover of $500million; minimum net price of $100million; and funding in the upstream sector to increase nationwide oil reserves and production capacity.
In the primary pointers, the NNPC had required that each applicant would pay a $5 million deposit earlier than buying the primary oil cargo however this deposit was not solely reduced to $2.5million in the newest guidelines however was also included as part payment for the primary cargo.
Also to ensure that the guidelines comply with the Act, the involved candidates had been required to supply commitment from prospective shippers to elevate Nigerian crude, “that a minimum of five slots per cargo shall be put aside for ocean-going attachment of Nigerian cadets for the aim of obtaining international certification./p>
“Interested applicants must submit a Memorandum of Agreement with shippers demonstrating a credible technique to develop Nigerian equity in the tankers nominated to lift allocated Nigerian crude to 25 per cent by 2014 and 90 per cent by 2017. It needs to be famous that evidence of Nigerian equity within the nominated tankers previous to conclusion of the method shall give trader competitive advantage,stated the guidelines.