A Review of the Nigerian Energy Industry

Nigeria’s energy: A beleaguered industry

*Oil pollution in Nigeria's Niger Delta.
*Oil pollution in Nigeria’s Niger Delta.

*Last minute Addax $3.4bn deal a litmus test for Buhari
*NNPC crude oil swap deal still a mystery
*No template for ongoing NNPC reforms

Hector Igbikiowubo

10 October 2015, Sweetcrude, Lagos – Despite heightened expectations following the electoral victory of President Muhammadu Buhari whose campaign mantra and sloganeering was centered on change, Nigeria’s energy industry remains beleaguered.

Although the President has repeatedly served notice that those found culpable in the financial mismanagement of the industry would be prosecuted, four months later, it would appear that all the administration has to showcase are its plans and intentions.

While the President Buhari administration takes its time to determine how to proceed with the cleansing of Nigeria’s Augean stable, observers and energy enthusiasts have identified a last minute deal embarked upon by the President Goodluck Jonathan administration barely one month before leaving office as a litmus test for the current government’s fight against Nigeria’s culture of sleaze and corruption.

The President Jonathan administration committed Nigeria to a highly controversial albeit fraudulent ‘out of court settlement’ deal to pay Addax Petroleum Development Nigeria Limited $3.4 billion in what the company described as miscalculation of oil royalty and taxes, and the breach of their 1998 Production Sharing Contract, PSC, with the Nigerian National Petroleum Corporation, NNPC, regarding OPL 98/118, now OML 123, 124, 136 and 137.

Similarly, the oil swap programme of the NNPC under the President Jonathan administration attracted a lot of criticism because it was shrouded in mystery. However, indications are that not much has changed under the President Buhari Administration.

Last minute Addax $3.4bn deal
While speaking on the sideline of the 70th United Nations General Assembly in New York, at a meeting with President Xi Jinping of China, President Muhammadu Buhari reiterated his administration’s resolve to bring to prosecute all those found culpable of looting the NNPC. This resolve has brought the last minute deal between Addax Petroleum and the Jonathan administration into sharp focus.

SweetcrudeReports gathered that Addax had written to the government of Jonathan claiming it had paid too much tax on OML 123 and 124 based on claims from the NNPC dating back to December 2001.

Not satisfied with the response it received from the government, in December 2014, Addax Petroleum Development Nigeria Limited and Addax Petroleum Exploration (Nigeria) Limited entered litigation against the NNPC, demanding financial recompense in what they described as miscalculation of oil royalty and taxes, and the breach of their 1998 Production Sharing Contract, PSC, with the government.

Further checks revealed that in a letter dated 2nd April 2015, Mr. Mohammed Adoke, the General and Minister for Justice under the Jonathan government proposed that the president approves an out-of -court settlement of the lawsuit filed by Addax.

On the 25th May 2015, barely 4 days to the end of President Jonathan’s tenure in office, a federal high court judge in Abuja concluded the terms of the out-of-court settlement. However, the judgment order excluded the office of the Attorney General because Mr. Adoke did not send any lawyer to represent government at the final judgment.

The terms of the out-of-court settlement puts the total value of NNPC’s indebtedness to Addax at $3.491,588,722.64 (three billion, four hundred and ninety one million, five hundred and eighty eight thousand, seven hundred and twenty two dollars, sixty four cents).

The judgment debt is expected to be paid to Addax over the next few years through crude oil lifting concessions.

Sir Emeka Offor’s involvement
Sir Emeka Offor, the Chairman of Chrome Group and Kaztec Engineering has been fingered as the brain who engineered the out of court settlement between Addax and the NNPC.

Sir Emeka Offor’s Kaztec Engineering got the contract for development of the sub-sea system of Addax’s OML 123 and 124.

Checks reveals that following the media buzz surrounding Sir Emeka Offor’s involvement in the activities of Addax in Nigeria, the company’s management in Geneva has asked Samuel Blanchor, the Chief Comptroller of the Group to investigate and to determine whether any laws had been broken.

Further checks reveal that Addax did not get a go-ahead in 2014 from the National Petroleum Investment and Management Services Company, a subsidiary of the NNPC, for the development of OML 137 which consists of Ofrima north, Atuama, Udele and Asa fields.

Development of these fields currently in excess of $2 billion has been revised upwards severally because of bills from Sir Emeka Offor’s Kaztec Engineering.

While Samuel Blanchor goes about his investigation in Geneva, perhaps he can start by taking a look at what appears to be questionable single source contract awards from Addax operations in Nigeria to Sir Emeka Offor’s Kaztec Engineering valued at $1.243 billion between.

These contracts were awarded within a six year period: 2009 to 2014, without recourse to competitive tender. Further investigations reveal that the contract awards from Addax to Kaztec Engineering have been marked by irregularities and inconsistencies which exposed Addax/Sinopec to investigations of corruption by Nigerian, UK and US authorities.

NNPC crude oil swap deal still a mystery
The NNPC has severally been criticized for operating a very opaque business accounting system where no information is provided regarding revenue receipts and the circumstances surrounding awards by the Corporation.

Under the Jonathan administration crude oil swap contracts were awarded to some companies for the purposes of getting same refined abroad and the petroleum products derived brought back to service domestic consumption.

At an interactive session with media editors in the last week of September, Dr. Emmanuel Ibe Kachikwu, the group managing director of the NNPC side-stepped a question aimed at obtaining clarity on the new crude oil swap contract embarked upon by the NNPC

Rather, he provided information on the current volume of petroleum products refined locally and that imported by the NNPC to service domestic consumption.

No template for ongoing NNPC reforms
Although there are several committee reports on the reorganization/restructuring of the NNPC gathering dust on the shelves of the ministry of petroleum resources as well as the presidency, indications are that the ongoing reforms at the NNPC is not based on any particular template.

While reacting to a question regarding the template for ongoing reforms embarked upon by the Corporation’s management under his watch, to enable news media personnel track and benchmark progress, Dr. Kachikwu said the changes taking place were based on his personal assessment of what needed to be done.

“The first step to managing the NNPC is to understand how it. There are 22 small business units in the corporation and only five of them are profitable. We have established that there is a bit of confusion what the ultimate goals are – is it profit making or is it a ministry?

“There is an ongoing process to do a re-orientation to get the personnel back to being profit oriented, while still providing the services we render,” Dr. Ibe Kachikwu disclosed.

The new NNPC helmsman urged the news media editors in attendance to give the Corporation the next two months for the ongoing changes cum reforms to take shape, however concerns remain over how far these efforts would go since there is no template for tracking.

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