A Review of the Nigerian Energy Industry

Subterfuge, misinformation characterise Egina $13.35bn project award

*NAPIMS, Total, NNPC GMD indicted
*Nigerian Content undermined

Hector Igbikiowubo

22 January 2013, Sweetcrude, Lagos – Investigations have revealed that the recommendations of the Group Executive Committee, GEC, of the Nigeria National Petroleum Corporation, NNPC to the Board, regarding award of the Egina project valued at $13.35 billion has been characterised by subterfuge and deliberate misinformation to justify imposition of particular contractors.

The NNPC GEC noted that there was the need to re-align the faulty FPSO bid evaluation process and award of the contract to the actual lowest, most competitive bidder in line with the original contracting strategy and due process requirement.

Investigations also revealed that the NNPC GEC recommendation to the Board grossly undermines the Nigerian Content Act leaving expectations of growth in capacity, job creation, among other benefits in the lurch.

The NNPC GEC also touts Samsung’s $3.3 billion bid for the Egina FPSO as the lowest bid, whereas the bid submitted by Hyundai and duly recommended by both NAPIMS, Total and endorsed by the NCDMB is for $3.1 billion.

The NNPC GEC claims that it arrived at the $3.3 billion at a negotiated price for the FPSO ranging between 5% and 10% of Samsung’s quoted price.

When contacted, two former group managing directors of the NNPC who did not want their names in print described the actions of the GEC as frightening – ‘it sets a very bad precedence’, one of them noted.

“You just can’t jettison the recommendations of both NAPIMS, Total and the NCDMB, and invite a contractor to negotiate on your own, it runs against the grain of due process. If you are not satisfied with the processes, the best thing would have been to demand a re-tender exercise,” the other GMD noted.

The recommendations and observation of the GEC also indicted NAPIMS, Total and the tenure of Mr. Andrew Yakubu as group executive director; exploration and production. Mr. Yakubu is the current group managing director of the NNPC .

Although the NNPC GEC claims that $238 million (taxes, VAT, NCD) was calculated and added by Total and NAPIMS, to the Samsung tender on the basis of 7% as against 6% or $186.9m and zero per cent to Hyundai, investigations revealed that Samsung did not quote taxes, Vat and NCD in its commercial bid submitted in December 2011.

Hyundai’s commercial bid however included all the taxes, Vat and NCD Fund in line with the bid requirements. The 7% represents Nigerian Withholding Tax 6% and 1% statutory contribution to NCD Fund.

The NNPC GEC had also claimed that $525m was added to Samsung’s bid, while $336m was added to that of Hyundai, but failed to explain to the Board that the different additions were a result of a post bid clarification meeting with each bidder in February 2012.

NAPIMS, Total, NNPC GMD indicted
In a submission that completely indicts all those who superintended the bids evaluation, including NAPIMS, Total and Mr. Andrew Yakubu, the NNPC group executive director in charge of exploration and production at the time, the GEC claimed that the evaluation team compromised the tender process.

“The FPSO package analysis revealed several issues and inconsistencies in the evaluation prices, especially the differences in values between the initial round and subsequent rounds of bids evaluation.

“We noted that the FPSO tender evaluation team opened negotiation process during the commercial evaluation exercise, which compromises the entire tender process where ridiculous figures were assigned to one of the two bidders in order to arrive at a conclusion.

Our investigations further revealed that even though these submissions appear far -fetched and designed to justify the imposition of Samsung, Mr.  Yakubu endorsed the indictment of his tenure as GED exploration and production.

Efforts to reach Mr. Yakubu proved abortive at the time of filling this report, and even a text message urging him to respond was not answered.

Nigerian Content undermined
Although the NNPC GEC asked the Board to approve the statutory 10,000 tons of Topside fabrication to be consigned to yards in-country, it was discovered that Hyundai had actually committed to 15,000 tons of Topside fabrication in-country.

Whereas Hyundai, the preferred bidder recommended by NAPIMS and Total had gone through and meets all the requirements of the NCD Act, having constructed an engineering and fabrication yard in Bayelsa state, Samsung on the other hand does not have a presence anywhere in-country.

Indications are that most of the engineering and fabrication work for the Egina project would be done in Korea.

The Egina main field is a 1993 production sharing contract located offshore Nigeria within OML 130 in water depths ranging 1150-1750m. The block is operated by Total Upstream Petroleum Nigeria 24% on behalf of the NNPC in partnership with Brasoil 16%, Sapetro 10%, on the PSA half side of the block and NNPC 50%.

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