A Review of the Nigerian Energy Industry

Gas contract: Presidency wades into Agip, Arco dispute

25 August 2015, Lagos – The Presidency may have waded into the impasse between the Nigerian unit of Italian oil giant, Nigerian Agip Oil Company, NAOC, and indigenous oil service company, Arco Petrochemical Engineering Company Plc, with a view to resolving the crisis, which is now before a Port Harcourt Federal High Court.

AgipArcoAlthough there are no official confirmations from both parties, but Vanguard reliably gathered that the Presidency’s intervention is at the instance of Agip.

But this was immediately denied by a top official of the Italian company, who said: “we have more important things to discuss with Mr. President.”

The gas plant is reputed as the Eastern hub for gas supply in Nigeria, as the plat supplies gas to the Nigeria LNG, Eleme Petrochemicals and the Omoku power plants.

Already, Agip is being accused of flouting court order to maintain status quo on the contentious interim contract for the maintenance of Agip’s OBOB/Kwale/Ebocha gas plant pending the award of substantive contract for a 4+1 year contract by the NNPC/Agip joint venture.

The Italian company also took advantage of a leeway in venture agreements to unilaterally offer the job to Platgeria Company Ltd. even when the Board of the Nigerian National Petroleum Corporation, NNPC had not met to approve the new contract.

The bone ofcontention

Relationship between Agip and Arco went sour when the former refused to renew an interim contract for the Nigerian company, upon the expiration of the existing contract for the maintenance of the gas turbines in the Agip plant.

Arco had been a sub-contractor to the project since 2006, when the Board of the NNPC awarded a five year contract ending in 2011 to the duo of then Nuovo Pignone, now GE, and Arco as the local technical partner.

Apart from due process, Arco insists it has both the technical and commercial competence to handle the interim contract, which was also approved by the NNPC/NAPIMS in July 2013.

This is more so, as the Nigerian company was the one that maintained the gas plant satisfactorily for six months in the wake of the Niger Delta crisis when GE and other expatriates left the region.

But rather than awarding the contract to Arco, Agip awarded it to Plantgeria Company Ltd, reputed as a Nigerian-based-Italian-company, which Agip insists offered the best commercial bid, even as it was said not to have been pre-qualified for the technical bid.

However, Arco insists that “Plantgeria has never carried out any rotating equipment maintenance before and therefore incapable of appreciating the enormity of the job.”

Project cost

Agip insisted it favoured Plantgeria for the project because the company offered the most cost effective bid. “The tender papers were opened in the presence of DPR, NNPC/NAPIMS, NCDMB and the seven companies pre-qualified for the commercial process. So how can we not give the contract to the company that offered the best price.”

However, Arco wonders is all the truth has been told about the transaction, given the price variation in the current process and the new process to be executed by Plantgeria.

According to Arco, “…at the peak of the Niger Delta crisis, NAPIMS directed the handing over of the plants to Arco for maintenance for six months at the rate of US$37million per annum.”

But “the job is currently being executed at the cost of US$87 per annum by GE with Arco as a sub-contractor,” it added, where Platgeria is said to have offered “to do the job at the cost of US$10million per annum.”

Also, Arco alleged that the effective cost of the stop-gap contract will be much higher than the $37million it quoted because of the offshore treaty between GE and ENI/NAOC.

Under this treaty, “GE will continue to maintain its positions of expatriate personnel in the plant,” and “will invoice directly to NAOC for these services,” which “facts are not disclosed to NAPIMS,” it claimed.

Against this backdrop, Arco queries the feasibility of Platgeria’s $10million bid, where GE had been executing the same job for $87million.

It asked: “If US10million can realistically carry out the maintenance contract, the question therefore is what has been happening to the difference between GE’s US$87million annual cost and the proposed Plantgeria’s US$10million annual price quote?

“The whopping difference of the sum of US$77million per annum translates to an excess charge of US$231million since January 2012!” this makes Arco to suspect that the new price might be “a strategy to bring Platgeria into the contract and NAOC will later change the terms to the status quo.”

Due process

But again, the Agip source has challenged petroleum industry regulators to sanction it if found to be engaged in any wrong doing, and insisted it followed due process in the award of the contract. He queried figures being bandied by Arco, asking, “Where did they get their figures, is Arco a member of NNPC Board?”

The source who spoke in confidence, told Vanguard, “if we’re running foul of any law, the (Department of Petroleum Resources), DPR, (Nigerian Content Development Managing Board), NCDMB, and even NNPC/NAPIMS (National Petroleum Investment Management Services), would have punished us.”

But industry analysts argue that the lack of punishment on Agip, may not be unconnected with the strong hold of international oil companies, IOCs, on Nigeria’s economy, which is more than 90 percent dependent on oil revenues for its survival. Due to the enormous power they wield, the IOCs are often accused of being more profit centric at the expense of Nigeria and Nigerians.

When asked on what authority Agip offered the job to Platgeria, if it was following due process since the NNPC Board did not approve the contract, he defended that it took advantage of the leeway provided in the joint operating agreement, JOA.

According to him, “I agree that the NNPC Board needs to approve contracts of this nature. But because of issues associated with bureaucracy, some contracts like this one can be allowed to go on. This is because this is a maintenance project that has been going on for years to keep the plat running on daily basis; it is not a new project or is it a capital project, so there is a leeway for such contracts.”

Indeed, NNPC sources told Vanguard that the inability of the NNPC Board to meet for years during the period of former President Goodluck Jonathan, contributed immensely to Arco’s dilemma, as there was little the management could do to compel Agip to stop the contract process.

Furthermore, Vanguard learnt that having being a subcontractor on the job for so long, Agip was desirous “to give another contractor a chance. There should be no monopoly in a contractual process.”

But Arco argues that a change in contractor should add value and bring more benefit, rather than in this instance where it alleges that both GE and Platgeria are poaching its staff in order to execute the job.

– Vanguard


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