Enthroning Transparency In Crude Oil Gross sales (Nigeria)
NNPC’s determination to prune the listing of participants in crude oil lifting contracts to sixteen will for sure, sanitise the state-run oil firm and the oil and gasoline sector as a whole. Ejiofor Alike stories.
From the raft of measures he has to date carried out to reposition the Nigerian National Petroleum Company (NNPC) in the direction of the trail of growth and transparency, the Group Managing Director of the state-run oil firm, Dr. Emmanuel Ibe Kachikwu has left no one in doubt that he is determined to interrupt away from the past and open up the books and operation of the corporate to public scrutiny.
Before he got here on board, the company was plagued by allegation of huge corruption towards 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 income and award of oil and gasoline contracts.
It’s a typical data that in contrast to other national and worldwide oil firms, which publish their quarterly and yearly accounts and statement of results, the operation of the NNPC is just not open to public scrutiny.
The secrecy associated with the NNPC’s budgets and the opaque nature of its financial actions additionally fueled the overall suspicion that the organisation is the centre of corruption.
However, on assumption of workplace, Kachikwu didn’t waste time to begin the restructuring of the company with the retirement of all eight Group Govt Administrators (GED), in a sweeping transfer that has since affected extra senior executives.
As well as to these, Kachikwu has also slashed the variety of directorates within the company from eight to 4.
Other than personnel restructuring, Kachikwu has additionally embarked on raft of measures to change the corporation’s business dynamics to align with finest practices.
He told the UK-based Arise Television that he would vigorously promote transparency within the corporation to arouse investor confidence in Nigeria’s oil and gasoline trade.
“The first thing is to be clear about it. If the foundations are clear to everyone when it comes to what we are doing and the governance system is very clear and simple, you will get a variety of interest. So, that is key: first, be clear and clear about your processes,” he mentioned.
“In addition to that, we’re looking at areas of efficiency. How can we cut down value How can we stay more centered ” he added.
Kachikwu added that he is doing within the NNPC was what he has executed in the oil industry previously 30 years, stressing that the main focus should be on people, processes and the enterprise itself.
“We are starting very dramatically to concentrate on the individuals involved; to wash up the system; to verify we’ve the fitting people in the fitting place. We’ll get them to give attention to the control, transparency and business model after which we get into the processes – how will we approve contracts How do we monitor contracts How do we guarantee that there’s pro-enterprise focus in no matter we’re doing and finally, we’re going into the business dynamics,” he defined.
Cancellation of marine contracts
In one of his latest measures aimed at price discount and strengthening of operational efficiency across the worth chain, Kachikwu not too long ago cancelled the contracts for crude oil deliveries to Warri, Port Harcourt and Kaduna refineries attributable to what he described as the exorbitant price and inappropriate means of engagement.
Earlier than the NNPC awarded the contract for the use of marine vessels to lift crude to the refineries, the company was shedding up to 40 per cent of its crude oil to theft and vandalism of the pipelines.
The contract was first awarded to an Israeli firm to carry crude oil from Escravos to the Warri refinery in February 2011 below a Proof of Concept Agreement, but the company allegedly did not meet the terms of the contract.
Consequently, a good Nigerian firm, Ocean Marine Tankers (OMT) Limited was engaged to elevate crude oil from the Escravos terminal to the Warri refinery.
The company was said to have invested closely in a very giant crude carriers (VLCCs) with the capability to raise two million barrels, which is transferred the oil to smaller vessels and moved to the refinery.
As an example, OMT was said 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 firm, with the ship-to-ship switch mechanism, the Nigerian firm diminished losses to 0.19 per cent in opposition to the 0.5 per cent allowable under the contract.
The previous Group Managing Director of NNPC, Mr. Andrew Yakubu was said to be so happy with the efficiency of OMT that he classified it as safety contract and extended it to incorporate the Port Harcourt refinery.
However, despite the impressive performance of OMT, sure former officials of the NNPC connived with high 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 cease-gap measure, engaged NIDAS Marine Limited, a subsidiary of the NNPC to provide crude supply service on negotiated trade normal fee, pending the establishment of substantive contract.
“We have additionally commenced a rigorous and transparent means 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 stated in a press release.
However, since Kachikwu did not cancel the marine contract executed by Ocean Marine Tankers due to poor performance or lack of capacity however resulting from exorbitant value and alleged lack of due course of in the engagement, it is expected that the NNPC boss will also invite Ocean Marine to participate within the proposed transparent and competitive bid.
The corporation had defined that it resorted to the supply of crude oil to the refineries by marine vessels following incessant assaults on the Bonny-Port Harcourt refinery pipeline and the Escravos crude pipelines by vandals and oil thieves resulting in the entire unavailability of the pipelines in 2013.
Termination of crude lifting contracts
The NNPC has also terminated the controversial Offshore Processing Agreements (OPA) entered into in January, 2015 with three companies, namely- Duke Oil Company Inc. Aiteo Energy Resources Restricted and Sahara Energy Sources (Nig) Ltd.
Beneath the agreement, NNPC allocates a total of 210, 000 barrels of crude oil per day for refining at offshore areas in trade for petroleum merchandise at pre-agreed yield pattern.
In taking this resolution, the company alleged that after detailed appraisal of the operation and the terms of the contract agreement, it was satisfied that the OPA was skewed in favour of the personal firms.
In bp oil company houston tx response to the NNPC, the value of product delivered was considerably lower than the equal of crude oil allotted for the programme.
With the emergence of Kachikwu on board, the NNPC has out of the blue realised that the construction of the settlement didn’t guarantee unimpeded provide of petroleum merchandise as supply terms weren’t optimum.
To address these lapses, the corporation introduced that it has commenced the technique of establishing various OPA based on optimum yield pattern with tender processing fees.
“After due appraisal of efficiency trajectory, we now have invited Messrs. Oando, Sahara Energy, Calson, MRS, Duke Oil, BP/Nigermed and Complete Trading to bid for the new Offshore Processing Agreement whereas we have engaged AITEO, Sahara Energy and Duke Oil to exit the present OPA,’’ the NNPC stated. The company has since prolonged the invitation to Forte Oil Plc and Mobil Oil.
It is gratifying to notice that the NNPC has additionally clarified that other than the listed trade operators whose efficiency trajectory impressed its management to invite them to bid for the proposed OPAs, the corporation has pledged to throw the tender process open for aggressive bidding by strong industry players with observe information of integrity and monetary energy to execute the project.
On the standing of the Crude for product change settlement (SWAP) reportedly entered into by the NNPC and a few oil traders, the corporation revealed that the last SWAP arrangement lapsed in December, 2014 and was by no means renewed.
The corporation 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 equity from bp oil company houston tx the various crude and condensate production arrangements.
Discount of variety of individuals
In furtherance of Kachikwu’s novel transfer to instill transparency and optimise the advertising and marketing of Nigeria’s crude oil and safe new market potential, Kachikwu has pruned the variety of off-takers for the proposed 2015/2016 time period contracts, which might emerge after a planned rigorous aggressive bid from 43 to 16.
With the discount of the variety of contractors that may take part in the crude oil lifting business, Kachikwu is ready to effectively optimise the advertising and marketing of Nigeria’s crude oil and secure new market potential.
The corporation’s spokesman, Mr. Ohi Alegbe, had said that “In the times ahead, we shall place ads for the 2015/2016 time period contracts and the publication will run for one month in main nationwide and worldwide print media to make sure effective message penetration.
“Later the guidelines for the selection of recent off-takers can be published and subsequently a special bid analysis committee would be constituted to conduct due diligence on profitable applicants,” Alegbe added.
The NNPC has additionally revealed that the bidders for the OPAs can be expected to offer proof of capability to raise letters of credit score (L/Cs) for the value of the crude that can be lifted by the businesses and the factors for his or her selection could be stringent to ensure that “arm chair” companies which have brief-changed the federal government prior to now are not chosen.
Before now, the variety of collaborating corporations within the yearly contracts was in excess of 35.
As an illustration, over 38 corporations participated from June 1, 2014 to May 31, 2015.
These embrace 21 indigenous companies; eight international oil traders; two overseas refineries; two subsidiaries of the NNPC and three nations, represented by their state-owned Nationwide Oil Companies (NOCs).
The list confirmed that 21 indigenous corporations have been awarded contracts to elevate a total of 630,000 barrels per day of crude oil through the one-year interval, representing 57 per cent of the 1,179,000 barrels per day awarded to the 38 beneficiaries.
Eight worldwide oil traders acquired an allocation of 240,000 barrels per day, representing 20.5per cent of the entire allocations, while two foreign refineries got 60,000 barrels per day, or 5.1per cent of the allocations.
Two subsidiaries of the NNPC have been awarded contracts to carry 90,000barrels per day, which translated to 7.7per cent, while three countries, represented by their NOCs also acquired ninety,000 barrels per day.
A breakdown of the allocations showed that every of the 21 indigenous traders bought an allocation of 30,000 barrels per day.
These companies embody; A-Z Petroleum Merchandise Restricted; Hyde Power Nigeria Limited; DK Global Energy Sources Limited; Aiteo Vitality Sources; Avidor Oil and Fuel Company Restricted; Azenith Energy Resource Limited; Barbados Oil and Fuel Services Limited; Century Energy Providers Limited and Crudex Worldwide Limited.
Other beneficiaries include, Eterna Plc; Bono Power; Taleveras Restricted; Mezcor SA; Sahara Energy Sources Limited; Tridax Vitality SA and Tempo Vitality SA.
The remaining include, Ontario Buying and selling SA; Voyage Oil & Gas Limited; Elektron Petroleum Energy and Mining Restricted; Ibeto Petrochemical Industries Restricted and Emo Oil and Petrochemical Company.
Additionally included in the list had been eight international oil traders, which bought an allocation of 30,000 barrels per day of crude oil each.
They embrace, Addax Power SA; Elan Oil Limited; Mercuria Power Trading SA; Springfield Ashburton Restricted; Petro/Ietnam Oil Corporation (PV Oil); Sullum Voe; Vitol SA and Delaney.
Two international refineries – Fujairah Refinery Restricted and PTT Public Firm Limited acquired an allocation of 30,000bpd each; while two subsidiaries of the NNPC – Duke Oil and Calson had been awarded 30,000bpd each.
The NNPC had also entered into bilateral commitments with the Republic of Malawi; SINOPEC of China and Indian Oil Company Restricted, with each of these entities receiving 30,000bpd.
Encouraging native firms
It is expected that in the brand new regime of transparency, Kachikwu will intentionally favour indigenous corporations like in the 2014/2015 tender as a part of the efforts to encourage native participation within the oil and gas business.
This doesn’t indicate that the rules will be skewed to favour anybody however shouldn’t be too stringent to exclude indigenous firms.
In the 2012 tender, for example, the first pointers issued by the NNPC for lifting the country’s crude violated the Nigerian Content material Act and effectively excluded native firms from the contracts and it took the intervention of former President Goodluck Jonathan after a report by THISDAY, for the company to overview the rules.
Earlier than the intervention of the Jonathan, the previous Govt Secretary of the Nigerian Content Development and Monitoring Board (NCDMB), Mr. Ernest Nwapa had requested the NNPC to cancel the initial tips but the Corporation insisted that the rules had come to stay, adding that it was meant “to separate the boys from the males.”
NNPC had in the 2011 tender complied with the Nigerian Content Act, as it required members to show evidence of compliance with the Act earlier than being considered eligible for lifting Nigerian crude.
The 2011 tips additionally required applicants to show proof of yearly turnover of $500 million; minimal internet worth of $one hundred million; and investment in the upstream sector to extend national oil reserves and manufacturing capability.
Different requirements had been: evidence of investment in the downstream tasks, refining, petrochemicals, distribution and storage of petroleum products, gas utilisation initiatives; Unbiased Energy Initiatives (IPP); and readiness to spend money on railway.
But in what would have ensured that indigenous companies with massive funding in Nigeria were disqualified within the preliminary tender for 2012/2013, the NNPC excluded investments in the nation as part of the criteria and likewise jacked up the yearly turnover and web value to $600 million and $300 million, respectively.
Also, in what would additional ensure that the scheme favoured largely international contractors with very deep pockets and easy access to worldwide capital, the NNPC had additionally supplied that each applicant would pay a $5 million deposit earlier than buying the primary oil cargo.
Swiss-primarily based Vitol, Glencore and Amsterdam-based mostly Trafigura had been among the overseas traders that would have been favoured if the primary pointers had succeeded.
However, former President Jonathan pressured the company to provide you with new pointers, the place the company adopted part of the 2011 tips, which required that the contractor must show proof of yearly turnover of $500million; minimum net worth of $100million; and investment in the upstream sector to increase national oil reserves and manufacturing capability.
In the primary guidelines, the NNPC had required that every applicant would pay a $5 million deposit before buying the first oil cargo but this deposit was not only decreased to $2.5million in the newest pointers but was additionally included as part cost for the first cargo.
Also to ensure that the rules comply with the Act, the involved candidates have been required to supply commitment from potential shippers to lift Nigerian crude, “that a minimum of five slots per cargo shall be set aside for ocean-going attachment of Nigerian cadets for the aim of obtaining worldwide certification.”
“Interested applicants must submit a Memorandum of Settlement with shippers demonstrating a credible technique to grow Nigerian fairness within the tankers nominated to lift allocated Nigerian crude to 25 per cent by 2014 and 90 per cent by 2017. It ought to be famous that proof of Nigerian fairness within the nominated tankers previous to conclusion of the method shall give trader aggressive benefit,” said the rules.