A Review of the Nigerian Energy Industry

NNPC, Agip on collision over award of JV contract

NNPC02 August 2014, Lagos – The National Petroleum Investment Management Services, NAPIMS, a subsidiary of the Nigerian National Petroleum Corporation, NNPC, and the Nigerian Agip Oil Company, NAOC, are heading for a collision over the award of multi-million dollar maintenance service contract for gas turbines and related equipment for OB/OB, Ebocha and Kwale Gas plants in Delta State.

It was gathered that while NAPIMS has directed NAOC, operator of NNPC/NAOC Joint Venture to award the joint venture contract to Arco Petrochemical Limited, the Italian firm has insisted on awarding the contract to Plantgeria, a local firm being put forward by NAOC.

In letter addressed to the Vice-Chairman and Managing Director of NAOC, Mr. Massimo Insulla, the NNPC’s Group General Manager in charge of NAPIMS, Mr. Jonathan Okehs warned the Italian firm that NAPIMS would not support any cost expended on NAOC maintenance services contract for gas turbines and related equipment for OB/OB, Ebocha and Kwale Gas Plants, arising from NAOC’s execution of such services with Plantgeria.

The letter with reference number NAP/GD/GM/84, which was dated June 13, 2014 and obtained by THISDAY also stated that “NAOC proposal to execute an interim award contract with Plantgeria for a replacement tender of which award recommendation has not been presented for NNPC Board consideration and approval is declined and not approved.”

Okehs directed NAOC to “immediately commence negotiation with Arco Petrochemical Limited with a view to awarding a six-month Stop-Gap contract using the manpower loading that was approved for the 2013 Stop Gap Contract.”

Okehs reminded NAOC that NAPIMS had earlier advised it to hold negotiation with Arco Petrochemical on April 29, 2014 but the Italian oil major apparently ignored the advice.

He noted that the execution of a bridge framework agreement with Arco Petrochemical Limited would enable the joint venture partners maintain the facilities, pending the award of the ongoing replacement contract.

In an earlier letter to NNPC’s Group Executive Director in charge of Exploration and Production (E & P), Insulla had in the said letter dated April 23, 2014 recalled that the JV partners had in June 2006 awarded the contract to GE International Operations Nigeria (GEION) Limited, with Arco Petrochemical Limited as technical partner.

According to him, on the expiration of the contract in October 2011, the JV partners awarded a one-year stop-gap contract to GEION and with Arco as the partner, while the JV partners agreed to commence tender for a replacement contract in early 2012.

“Due to prolonged tender timeline, caused by the complexity of the service and the need to fully comply with the Nigerian Content Development and Monitoring Board (NCDMB) and JV requirements, GEION, with Arco being a technical partner, was further engaged under a renewed stop-gap contract till the end of 2013,” Insulla explained.

He further disclosed that the JV partners have jointly concluded the tender process for the award of the said replacement contract to the bid winner, Plantgeria Nigeria Limited.

Insulla stated that in accordance to the Joint Operating Agreement (JOA), NAOC had in a letter dated January 24, 2014 requested NAPIMS and POC Nigeria Limited to approve the award to the bid winner.

According to him, while the approval of NNPC’s Board for the bid winner is being awaited, NAOC as the operator has also recommended that a stop-gap contract be also awarded to the bid winner, Plantgeria Nigeria Limited, pending the approval of the said bid winner for the main contract.

He acknowledged that NAPIMS has insisted that NAOC should negotiate with Arco with a view to awarding the stop-gap contract to Arco, instead of the bid winner.

This THISDAY gathered was due to the fact that Arco has already been involved in the old contract as well as its technical competence.

The NAOC boss however argued that it would be against procurement due process to award a stop-gap contract to Arco, since Arco participated in the tender process and did not win.

He also pointed out that such award to Arco might expose the Joint Venture to needless legal claims from other companies that participated in then bid process.

Insulla also argued that awarding the Stop-gap Contract to Arco, which is a subcontractor to GEION that is the original contract owner, might result in litigation between GEION and Arco in which the JV partners could be joined as parties.

He also reminded NAPIMS that acceding to its request will make the JV partners to incur higher costs.

According to him, the cost of the bid winner is $10 million yearly as against Arco’s estimated cost of between $35 million and $40 million.

THISDAY however learnt that NAOC has not been able to disclose that it was paying about $87 million for the same contract to GE as against the $35 and $40 million bid by Arco.

Again observers are concerned on the renewed emphasis on cost by NAOC now that a local company, Arco is involved. They say something must be fishy, that NAOC’s relationship with Arco, which it had worked with for some time now be investigated.

– This Day

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