To Oil the Wheel of Progress…
By Simon-Kolawole, Email: firstname.lastname@example.org, sms: 0805 500 1961
I have a story to tell. In the 1970s, three governments set up national oil companies to engage in exploration, production and refining. Nigeria created the Nigerian National Petroleum Corporation (NNPC), Norway set up Statoil, and Malaysia established Petronas. Today, Statoil — now renamed Equinor ASA — and Petronas are among the biggest state-owned oil and gas companies in the world. Equinor ASA and Petronas declare profits in billions of dollars and are among the most valuable companies in the world. Equinor ASA operates in 36 countries while Petronas is doing business in 35 countries. They are doing well home and abroad.
Our own NNPC? Please don’t get me started. Even though many state-owned companies are doing well in many countries, the moment you insert “Nigeria” into the equation everything goes haywire. There is nothing the NNPC knows how to do well, apart from scams. To produce oil, it relies on retrogressive JVs and ridiculous PSCs. Also, NNPC cannot refine its oil because the refineries never work. (NNPC recently popped champagne to celebrate a petrol supply contract it signed with BP, a British company. We are that shameless.) NNPC cannot even import fuel — it has to do this in the form of importation contracts. NNPC outsources almost everything!
The truth is that even though Nigeria is regarded as an oil giant, we are not yet deriving up to 25% of the benefits that reside in the industry — benefits from exploration, benefits from production, benefits from refining, benefits from petrochemicals, and benefits from marketing. Our major benefit is the revenue from oil export that we share in Abuja every month before it grows wings and flies mostly into private accounts and waste bins. We pride ourselves as one of the largest oil-producing countries in the world, but in the real sense we are not the ones producing the oil. We are outsiders and scavengers in the industry. In the abundance of water, the fool is thirsty.
How can we take maximum advantage before fossil fuels become, as it were, fossilised? Two recent reports inspired my article today. The first is the campaign promise by Alhaji Atiku Abubakar, the PDP presidential candidate, to partially sell NNPC if he is elected president. Is that the solution? What is the solution? The second is Nigeria’s local content development policy which, after decades of rhetoric, has produced a major result in the building of the Egina vessel. But this has led to a war between Samsung Heavy Industries Nigeria Ltd, the contractor, and Lagos Deep Offshore Logistics (LADOL), the Nigerian local partner. This is no good news.
First, what can we do to turn NNPC into a world beater and derive more benefits from our oil? President Muhammadu Buhari, the APC candidate, believes in state ownership. He has not been enthusiastic about the reforms meant to free the oil sector from government control. He can argue that if Petronas (Malaysia), Petrobras (Brazil) and Aramco (Saudi Arabia) are doing well under state ownership, why not NNPC? Atiku, seen as more market-oriented, has promised to sell part of NNPC and privatise the refineries. Mrs Oby Ezekwesili, the candidate of Allied Congress Party of Nigeria (ACPN) and a liberal economist of note, has promised full-blast reform and deregulation.
My intention today is not to evaluate the campaign promises of the candidates as they relate to the oil industry. That I will still do at some point. Rather, I am more interested in asking this question: how can we get the NNPC to be productive, innovative and profitable — even if not at the level of the national oil companies that were established around the same time in the 70s? Should we sell or restructure NNPC? What should we do with the now-in-limbo Petroleum Industry Governance Bill (PIGB) which prescribes that government should sell off 40% of its interest within 10 years? Whatever the case is, something has to happen to NNPC. Life can’t continue like this.
This is a debate worth having as the 2019 elections approach. Nigeria must begin to derive maximum advantage from the industry while stock lasts and while the world is still consuming fossil fuels. Our oil sector must be recalibrated to serve the interest of Nigeria, create real jobs and stimulate the growth of its subsectors as well as the other sectors of the economy. As things are today, our oil industry serves more foreign interests than it serves us. Just take a look at the companies making the most out of the various aspects of the chain and you will see that Nigeria and Nigerians do not figure prominently. In the abundance of water, the fool is thirsty.
And that is my second issue today: deriving utmost benefits from the sector through local content development. The world recently celebrated when Egina vessel sailed away to the Total deepwater oilfield, OML 130, which is about 200 kilometres offshore Port Harcourt, Rivers state. The acreage has deposits in excess of 550 million barrels of oil — one of the biggest you will find on the African continent. The deep offshore location means it would need a floating production storage offloading (FPSO) vessel. This was built by Samsung Heavy Industries in “local content” partnership with LADOL, led by Dr Amy Jadesimi as MD.
The good news is that this is the biggest local content project in our history after decades and decades of planning and talking and strategising about the policy. One significant progress we have made was setting up the Nigerian Content Development and Monitoring Board (NCDMB) in 2010, which has seen to the involvement of more Nigerian companies in the logistics and engineering of the oil industry. Same year, Total Upstream, the operator of OML 130, awarded a $3.3 billion contract to the partnership of Samsung and LADOL to build the Egina FPSO. On August 25, 2018, the vessel sailed off to the oilfield. It is expected to add up to 200,000bpd to Nigeria’s oil output.
The bad news, though, is that the “local content” partnership that made this possible has hit the rocks, and this is not what you want to hear at a time we are campaigning for technology transfer to Nigerians so that we can become big players in our own oil industry. The Samsung and LADO crisis, which has produced a series of litigations, is capable of undermining the local content policy. The flagship project should be a thing of joy, a trophy we should display with pride. It should inspire more Nigerian companies to aim higher and become world beaters. A $3.3 billion procurement, engineering, construction and commissioning contract is not a joke.
What then is the problem? Samsung is demanding $1 billion extra payment from Total Upstream as claims for contract variation. The Korean company said there was “extraordinary increase in the quantities of structure and piping materials of the FPSO” because it had to improve on the initial work done by Nigerian engineers on the vessel. Although Total has already paid $500 million extra, Samsung wants an additional $500 million if not it would proceed with its claims of $1.6 billion at the London arbitration tribunal. The controversy almost marred the sail-off of Egina and would have delayed the December 2018 target for the commencement of production from the field.
Samsung had stopped work in July and headed to the courts but lost two cases and was practically forced by Nigerian authorities to complete work on the vessel and allow it sail or face the termination of the contract and a 10-year ban from working in Nigeria. Thankfully, the vessel sailed away on August 25, but the crisis is still ashore. The benefits of the Samsung/LADOL partnership, which are supposed to be long-lasting in the Nigerian oil industry, are now under threat. The partnership, named Samsung Heavy Industries Mega Construction and Integration Free-Zone (SHI MCI FZE), was expected to upgrade LADOL’s fabrication and integration facility at the free zone.
At the heart of Samsung’s dispute with LADOL is the claim by the Koreans that they invested $300 million in the fabrication yard — allegedly hiding the fact that Total had actually paid them $214 million for that purpose as part of the $3.3 billion contract. LADOL, reportedly unaware, was forced to cut down its interest in SHI MCI FZE from 80% to 30%. It also paid Samsung $40.5 million for its interest. However, it has since come out that Total Upstream paid Samsung for it. There are now suggestions that Samsung Heavy Industries is desperately seeking the $1.6 billion bonus in order to return to profit, having been suffering heavy financial bashing in recent years.
Somehow, there must be a resolution somewhere. Samsung no longer has access to the fabrication yard — the “landlord” is LADOL’s sister company, Global Resources Management Free Zone Ltd. While Global Resources says the lease has expired, Samsung maintains that it is valid till 2024. I am seeing a serious crisis here that needs to be resolved to keep the local content development policy smelling of roses. As far as I am concerned, this is the most beneficial policy we have had in the oil sector since we hit oil in 1956. We can argue over whether or not to sell NNPC, but we cannot deny that more local companies need to play big in the oil industry. We need to sustain the progress.
AND FOUR OTHER THINGS…
Anytime the military chiefs boast that they have “technically” conquered Boko Haram, the terrorists strike big — as we saw yet again in the devastating attacks on soldiers in Metele, Borno state, last week. Maybe they should talk less and do more. Maybe President Buhari needs to overhaul the military hierarchy if fatigue has set in. Some of them have been due for retirement ages ago! There is no doubt that we have made tremendous progress against Boko Haram in the last three years, but terrorism is a stubborn thing and we must never take our eyes off the ball. As for those politicising this tragedy, remember we are talking about human lives here. Empathy.
Former President Goodluck Jonathan appeared to have scored an own goal in his recently released book, ‘My Transition Hours’. He listed Dr. Ngozi Okonjo-Iweala, Mr. Mohammed Bello Adoke, Chief Osita Chidoka and Hon. Warpamowei Dudafa as those who recommended “sundry alternatives” to conceding the 2015 election to President Muhammadu Buhari, whereas these were actually the doves who recommended only one alternative — concession — when the hawks were trying to turn him. Jonathan did not mention even one of the hawks, but some of us know them. Jonathan withheld too many vital details and the vague account has now caused a backlash. Blunder.
Celebrated columnist and prolific author, Mr. Olusegun Adeniyi (“chairman” to some of us), released a timely book on irregular immigration (calling a spade a spade, we would say “illegal immigration” but political correctness would not leave us alone). ‘From Frying Pan to Fire: How African migrants risk everything in their futile search for a better life in Europe’ is not the usual “political thriller” that Adeniyi has become master of, but this may be the best work he has done yet in his writing career, coming at a time frustration and desperation are increasingly driving young Africans into their death across the Mediterranean Sea in the search for Godot. Catastrophe.
Ogbeni Rauf Aregbesola, governor of Osun state, on Thursday launched a 10-year development plan “to promote sustainable development through pragmatic, transparent, accountable and inclusive governance that mobilises human and material resources toward making the state a socio-economic and cultural hub of Nigeria.” Mr. Olalekan Yinusa, the commissioner for development, said the Osun Development Plan 2019-2028 was hinged on four pillars of economic development, capital development and security, infrastructure development and environmental sustainability. All this coming five days to the end of Aregbesola’s eight-year tenure as governor. Wonderful.