Agip, Arco gas contract crisis deepens over $77m price variation

26 August 2015, Lagos – The last may not have been heard about the controversies surrounding the multi-billion dollar contract for the maintenance of Nigerian Agip Oil Company, NAOC’s OBOB/Kwale/Ebocha gas plant.

MD, Nigerian Agiip Oil Company

Managing Director, Nigerian Agip Oil Company Limited, Mr. Insula Massimo. (Photo: Afolabi Sotunde/Reuters)

Indeed, Agip and the indigenous oil service company, Arco Petrochemical Engineering Company Plc, among others, have continued to lock horns on the need to follow due process in the approval of the contract, while the cost of the project remains a bone of contention.

The price variation of about $77million per year has been another source of worry to the aggrieved party, which estimated that this sum translated to an excess charge of $231million since January 2012.

It was alleged that Platgeria had submitted a $10million bid, where GE had been executing the same job for $87million, indicating a price parity of $77 million. Meanwhile, Arco had offered to carry out the same maintenance for six months at the rate of $37million per year.

The gas plant is reputed as the Eastern hub for gas supply in Nigeria, since 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 four – year contract by the NNPC/Agip joint venture.

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

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, which Agip insists offered the best commercial bid, even as it was said not to have been pre-qualified for the technical bid.

Agip however 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.” It stated.

Arco, on its part said: “…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 $37million per year.”

But “the job is currently being executed at the cost of $87 per year 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 $10million per year.”

Arco therefore 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 alleged $10million bid, where GE had been executing the same job for $87million.

It asked: “If $10million 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 $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.”

However, an Agip source 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, said, “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.”

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