A Review of the Nigerian Energy Industry

Egina project: Samsung toss Nigerian Content Act over-board

Samsung Yard, South KoreaHector Igbikiowubo

06 August 2013, Sweetcrude, Lagos – Total and Samsung appear to have tossed the provisions of the Nigerian Content Act over-board in the execution of the $15 billion Egina oil project scheduled to deliver first oil in 2017, pleading concerns over likely cost overrun and time delay.

Indications to this effect was contained in a letter written to the Managing Director of Total Upstream Nigeria Limited by the Nigerian Content Development Monitoring Board, NCDMB, noting that the work scope for the fabrication and integration package in the Egina field development was not compliant with the Nigerian Content Act.

The letter among other shortcomings, noted that Samsung heavy industries, SHI, proposal to use Ladol yard (with no existing fabrication workforce) for fabrication of 10,000 metric tons would lead to flooding the yard with expatriates.

“The Board cannot rely on assumptions and projections made by SHI (which has no Nigerian experienced and local partners with no fabrication or integration track record).”

The Board also noted that two years after it highlighted the risk of NPA not granting approval and six months after SHI was selected as successful bidder for the EPC contract, NPA approval has still not been obtained for use of Ladol yard for fabrication purposes.

The NCDMB also pointed out that the recommendation to award, RTA, for SHI cannot meet the man-hour target for fabrication and integration set by the Board to meet the employment provisions in the Act.

While noting the preference of SHI and Total’s proposal for awarding the Egina FPSO contract package, the Board said it was unable to support the Total proposal which it considers unrealistic, ‘after noting that three critical statutory approvals have not been obtained from NPA’.

“We cannot rely on projections of parties that have little knowledge of the Nigerian operating environment. Neither Total nor SHI is in control of these approvals and therefore this proposal is fraught with risks that will lead us to the same outcome from previous exercises,” the Board further noted.

In a memo from Samsung detailing the way forward in the execution of the Egina project, the company claims that there is the risk of cumulative project delay time of approximately 10 months which will impact on the FPSO delivery, adding that there is the need to re-evaluate the in-country integration strategy and explore offshore integration.

The company submitted that exploring offshore integration will entail a reducedNigerian Content requirement from 7 modules to a maximum of 3 modules for in-country fabrication, while the remaining will be fabricated at Samsung Yard in Korea.

Samsung also submitted that reducing the present in-country fabrication and integration scope in favour of offshore integration will provide huge financial gain of about $500 million and delivery of the FPSO on schedule.

It will be recalled that the NNPC approval of the Samsung bid for the Egina FPSO contract was based on 10,000 metric tons work scope to be carried out at Ladol Yard in Nigeria and even this was not compliant with the Nigerian Content act which stipulated 13,000 metric tons.

Total and SHI are proposing that the work scope be cannibalised with only 1500 metric tons to be carried out at Ladol Yard, with some fabrication work given to Ascot and Niger Dock, while the rest is carried out offshore in Korea.

Both Total and Samsung were contacted for a reaction to these developments, but at the time of filing this report, no response had been received.

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