Woes hit nation's oil sector

N725b local investment under threat

Reps probe panel says oil blocks allocated for third term
By Yakubu Lawal (Lagos) John-Abba Ogbodo (Abuja)
THERE are indications that the implementation of the Nigerian content policy initiated by the Nigerian National Petroleum Corporation (NNPC) may have been hampered by a myriad of problems, including systemic failure and lack of adequate human capacity, facing the National Petroleum Investment, Management Services (NAPIMS).

NAPIMS is a subsidiary of the NNPC charged with the responsibility of monitoring and supervising government interest in the upstream operations of the industry.

With the hitches in NAPIMS, industry operators estimated that investments in excess of $6.2 billion (about N725 billion) put in place by local oil service firms to push government's aspiration in the sector are now at risk.

In another development, it has been revealed that the tenure elongation project of former President Olusegun Obasanjo, besides generating tension in the polity while it lasted, also took its toll on the oil sector.

The ad-hoc committee of the House of Representatives that investigated the operations of the oil sector between 1999 and 2007, in its report, alleged that the award of blocks was used to reward political supporters of the former president during the tenure elongation project.

Specifically, the Nigerian content policy of the NNPC sought to increase participation of local firms in the Nigerian upstream oil and gas industry through allocation of a percentage of contract jobs aimed at domesticating design, engineering and construction jobs in the country.

Unfortunately, the NNPC has repeatedly failed to meet its set targets of 45 per cent local content in oil contracts by end of year 2006, owing to a myriad of problems, including systemic failure over inability of NIPMS to put in place local content policy's execution. This is a manifestation of lack of adequate human capacity in NAPIMS to urgently carry out the necessary contract evaluation and implementation evaluation.

Investigations also revealed that most contracts are currently put on hold by the oil multinationals as approvals are allegedly not coming from NNPC, a situation which may turn to a mirage the 70 per cent local target set for year 2010.

But speaking on the issue in Abuja with The Guardian recently, the Minister of State for Energy (Petroleum), Mr. Odein Ajumogobia, said that the local content issue is complicated by the fact that it is driven by policy that was initiated by the NNPC.

When the local content programme was initiated by the corporation six years ago, the target was that by 2006, 45 per cent of goods and services consumed or utilised in the industry would be sourced locally.

However, by the end of 2006, barely 18 per cent had been achieved and even in the last few days of this year, industry sources said that Nigerian content has actually dropped below the margin achieved in 2006.

Industry source said it is a common knowledge that some upstream oil industry projects have been put on hold indefinitely and indications are that NNPC has not shown any sense of urgency in the corporation. Hence, essential projects may yet take some time coming up and contractors who had secured financing facilities may remain stranded.

The source also believed that with this level of delay in project execution, the dream of realising 40 billion barrels reserve and a daily production of 4.5 million barrels by 2010 may be a mere aspiration.

Some of the projects that are currently on hold but upon which local content enhancement and increased production targets were based include Bonga SW, Bonga NW, Bosi, Bosi North, H Block and the Liquefied Natural Gas projects.

Ajumogobia said that in a situation where it takes NNPC/NAPIMS board about 24 months to approve a project, then such long contract circle couldn't be help for those driving the local or Nigerian content policy.

His words: "Imagine a contractor who has to bid for a project and he is not going to know whether he gets the project or not for 24 months after he has submitted his bid. That is going to affect the dynamics of the contract. First of all, he is likely to over-compensate for that time. So, NAPIMS contracting process is one of the issues that the industry has lived with for a long time that we are trying to address, to try and shorten the contracting period to something that is reasonable, something that is comparable to other countries. The issue of 24 months or more is something that is unacceptable."

The minister noted that the implementation of the policy signposts the ambiguity between the roles performed by the NNPC and the Ministry of Energy (Petroleum).

Meanwhile, in part of the report of the ad-hoc committee of the House of Representatives that investigated the operations of the oil sector, prepared by one of the foreign consultants based in the United Kingdom, Clearwater Research Services, the award of blocks were used to reward political supporters of the former president.

"We believe that the second factor that spoiled the initiative was the concurrent political agenda of the president for a third term. From the research that we have made, including confidential testimony, a clear conflict of interest emerged between a president seeking support for a new presidential term and a president who was conducting exploration rounds as the minister of petroleum. The danger is that the rounds would be seen as a means to reward political supporters even if there are reasons for their inclusion," the report said.

Still faulting the bid rounds, the panel said: "We believe that the 2005 departure in licensing had important strategic economic merits for Nigeria in intentions, but was marred in its delivery for two reasons; execution by the DPR and the ministry and political complications."

It said the award of OPL 332, OPL 276 and 283 did not follow due process.

Also, part of the ad-hoc committee report as approved by members, which might be laid before the House this week, said the award of OPL 227 did not follow due process.

"The Director of Petroleum Resources was wrong in advising the Honourable Minister of State, Energy, Petroleum to proceed with extending time for the consortium to comply with the conditions of the grant when the conditions of grant of OPL227 were clearly stated by the President," the report added.

The committee also frowned at the way and manner the accounts of bid rounds were operated within the period and recommended that "a clear and defined account to which all signature bonuses must be paid into should be statutorily defined."

In the case of the accounts of the Petroleum Technology Development Fund (PTDF), the committee said: "There have been infractions of both the PTDF Act and the constitution by the Minister of Petroleum and his subordinates in designating accounts into which revenue from the bid rounds are deposited."

It would be recalled that following a motion on the floor of the House in April, this year, concerning the operations of the nation's oil sector, the chamber mandated an ad-hoc committee headed by Igo Aguma, to investigate the sector. The committee conducted a public hearing in July this year.