Nigerian Firms Now Executing Contracts Previously Exclusive Preserve of IOCs
No Foolproof Approach against Pipeline Vandalism, Oil Theft
Pipeline vandalism and oil theft are age-old issues in Nigeria. The issues got worse at the height of militancy that the economy was nearly crippled. Despite the relative calm in the oil-rich Niger Delta region, the twin problem persists. For the petroleum products pipelines, the Nigeria National Petroleum Corporation has engaged UTM Offshore Limited to secure and maintain the stretch of its pipelines in parts of the South-south and South-east. The Managing Director/ CEO, UTM Offshore Limited, Mr. Julius Rone, in this interview with Kunle Aderinokun, gives an idea of what it means to secure petroleum products pipelines for NNPC. Rone, whose firm also provides marine and logistics services, testify to the impact of the Nigeria Content Development Management Board on indigenous oil and gas firms. Excerpts:
Your group, is into oil and gas, marine, logistics and security; how have you fared, with the harsh operating environment?
First of all, UTM Group has subsidiaries and we are actively involved in oil and gas industry and we have been engaged by NNPC as well to take care of their pipelines from Aba, Port Harcourt, up to Enugu, and by the grace of God, the line has been streaming and they are pumping into Aba, Enugu is ready to start receiving product any time, very soon. The industry has been reshaped and refocused completely under the current leadership of President Muhammadu Buhari as the Minister of Petroleum with his able team like the Minister of State for Petroleum, the Group Managing Director of NNPC, Dr. Maikanti Baru and the top management. So far, the industry has gotten a lot of positive vibes in the sense that oil prices have gone up, a lot of rigs and operations have commenced. Indigenous companies like ours has really gotten all the support from the local content board as regards ensuring that contracts that are exclusively for foreign companies, Nigerian companies are making it and performing all beyond expectations and with the support of the NCDMB Act and the current management of NAPIMS, with the indigenous players are having a field day in terms of opportunities coming our way. NAPIMS has been fully supportive, thanks to the current GGM, Mr. Roland Ewubare, and things are done properly and transparently.
We have some challenges, not that it is 100 per cent foolproof. We have issues bordering on funding, which is the key problem in the oil and gas industry, because everything about the oil and gas industry is quite expensive and capital intensive and the country is currently battling the forex issue. So, getting loan from Nigerian banks to support your operations and acquire more assets is not as we expected it to be, but luckily it was recently announced that the NCDMB has set aside fund about $200 million to support indigenous companies that want to assess those funds for acquisition of assets, contract financing and so on. We are hoping that that few of these companies might be able to meet up the criteria set by Bank of Industry and access those funds. That will also augment efforts of the bank to try and fund projects. We believe between now and 2019, we would have a lot of more positive results from the oil and gas industry.
Not too long ago, we had incidents of pipeline vandalism/ oil theft to the extent that the commander of the JTF was accused of connivance with oil thieves. What measures have you put in place to stop incessant problems in the oil-rich Niger Delta region?
Definitely, there is no way you will have a foolproof without vandalism. Criminality is in the industry, you have the bad and the good people, but one thing that you will take out of the concept, let me say about the pipeline, the one that is owned by the NNPC, the one that has their products in, which is Port Harcourt, Aba, Enugu which we are responsible for. That line was down for several years before this administration came in and the current management of NNPC came up and designed a strategy whereby the security and the maintenance of the line was given to one company. UTM was given both security and maintenance meaning that, if we provide adequate security the line will not be vandalised and we don’t need to spend a lot of money on maintenance. If you don’t provide security and they vandalise the line, you need to spend money to maintain the line and you have a clause in the contract that says, whatever product that got missing on the line, which is outside our liable industry standard, you will pay for it. The contract is tied in such a way that you are protecting, maintaining and also paying for losses. Port Harcourt, Aba and Enugu have been well secured. For the past couple of months, we have been pumping Port Harcourt and Aba, there is zero product loss, meaning that the strategy is working and we will take the same strategy to Enugu. Coming to your question on the line where the JTF commander was accused of conniving, that line is not a product line, but a crude line, it is being run and managed by Aiteo Group of companies. I don’t understand the strategy they are using as regard the security and maintenance or liability of losses being passed on to the security company or whoever is maintaining or supervising the line. But the strategy that is working for NNPC as a body today is what we are using on the product line, even the crude line from Bonny to Port Harcourt is running very well and they applied the same strategy. That line is being run by OMS and that line is running without any hitch.
The success story that has been achieved by all the lines under NNPC should be replicated PRINTED AND DISTRIBUTED BY PRESSREADER
by these IOCs that keep having vandalism of their pipelines like the one you mentioned. But whether you like it or not, you still need to work with the security agencies. If you claim that certain forces are comprised, you must have a back-up plan in the sense that you have to work with the locals, recruit community guards, so, you can identify the bad eggs among the good ones and report them so that they could be removed. There is no way you will maintain that line without you not having one or two bad people trying to see how they can make quick money out of what they see on the lines they are guarding. So, I think Aiteo should copy what NNPC is doing. NNPC is operating a concept that has worked for the past two years. I believe they might not achieve 100 percent but they will achieve 80, 90 per cent of the line.
Have you approached international financial institutions for loan or are you saying Nigerian oil and gas businesses are not attractive to foreign banks?
It is very, very attractive. We have international funding, from South African, Netherlands banks to fund us, but in oil and gas industry, the cost is quite huge, so, you need to syndicate your funding. If for instance you are putting up a project for 100 per cent, your international partner may say we can do 80 or 70 per cent, so, you still need to source for the 20 or 30 per cent on your own and the balance runs into millions of dollars. So, sitting down by yourself alone to say, I will be able to raise 5 million dollars, 10 million dollars, 20 million dollars as my equity contribution is also a huge burden. So, you also need to share the risk whereby you need a bank to come in to bridge your own part of the funding.
How are you competing with international players?
The good thing about the industry is that it’s quite regulated; it has no room for failure. For you to be able to run your services and keep having patronage, you must run on zero failure. No room for error. These are people that put their investment together and come to Nigeria to invest. The oil and gas industry is meant for serious-minded people. People are willing to work and see that your standard is as good as the standard coming from the UK. If you are supposed to go for a meeting by 8 o’clock, there is no Nigerian time in the oil and gas industry. Before 8 o’clock you are seated. That culture is what Nigerian companies are building up to. This is the only way we can edge out the foreign companies that are solely doing these businesses before now. We need to sit up and we are sitting up and trying to catch up. We are ensuring that we have good HSE plan, which is key. We are ensuring that we have good managerial skills, good workers that know what the international companies required of them to render as services. Those qualities are what put us at advantageous position against our opponents and competitors. So far we’ve operated in the industry for about 11 years, we have never had a fatal incidence for the period we have been working with the international oil companies. We have proven to ourselves to be competent, safety conscious, we have proved uprightness in the business and that is the key and that has opened doors for a lot of Nigerian companies. We’re priding ourselves alone, there are other Nigerian companies that are also doing well. So, Nigerians companies have taking the lead and we have come out and said that this is our time and we must own and run the business the way it is done internationally. A lot of Nigerian companies are doing very well.
The way it is going now, we are going into a tender, in the entire room, there is no foreigner, all the companies in the board room are Nigerian. Gone are the days when you go into a tender and you are competing with 5 or 6 foreign companies. So, you can see the level of progress we have made in oil and gas industry couple with the enabling environment by the government to allow indigenous companies to take precedence over foreign companies. That has pushed us to another level.
As an indigenous oil and gas company, what proportion of your operation is local content? I will say that if you want to put it in percentage, we are 98 per cent local content compliance because we have one or two technical people that are foreigners, the reason for that is that we just acquired two new vessels and most of the vessels are so much electronics whereby you need to train some of our people to get to that level of technology. What we did with the manufacturer, we said give us experts who know how to manage and operate these vessels to support our local engineers to train them to get to that level of technology, that is why I said 98 per cent, otherwise, we should have been 100 per cent local content compliant.
How do you think the issue of non-payment of JV partners’ funds by N NP C could be resolved?
Recently, the GMD of NNPC, Dr. Maikanti Baru and his team signed different agreement with the IOCs and in fact, they just cleared up about N6billion backlog of their debt that has been owed them several years and also came up with contract financing model whereby the IOCs now go and source for funding as per their projects vis-à-vis what was used to be the practice whereby they will come up with projects and NNPC will make up their contribution and the problem is when the money comes, it goes into the federation account before NNPC will go and make a case to take out their money from the federation account for operation, for the joint partnership for us to run our operation. All those are now things of the past. They have come up with a strategy, if you want to drill 10, 20 wells, work out your budgets, go and get the funding, so, you take it as part of your OPEX and CAPEX. So, you plan as what is done in every other business and come up with your budget, borrow against it and finish your job, recover the cost, declare the profit and give NNPC what is due to it. There is nobody in NNPC, who will tell you we cannot pay you because they have not giving us money. All that has been eradicated. That is why I said the current leadership of NNPC has done so well in terms of taking the corporation to a different level. They have instilled a lot of discipline and professionalism in the operations of NNPC because NNPC is the heart of the nation. They manage the crude that are coming out of this country and if you don’t have a good leadership that manages this issue of cash call. By the grace of God, this issue of cash call has been put to rest, backlog of N6 billion owed the IOCs has been paid according to the management of NNPC and the oil price has gone up, it also gives us the leverage on that and there is stability in the Niger Delta, agitation has gone down and the production is running smoothly. I believe that better days are coming and Nigeria will develop to where we intend to grow up between 2.5 to 3 million barrels in no distant time.
What do you think can bed one to make Ca lab ar port and perhaps, other ports across the country viable in order to reduce the pressure on the Lagos port?
It is not only Calabar, we have other ports in Niger Delta so that we can decongest Lagos port and create other activities in other ports in the country. For instance, Calabar Port, if functioning, will create a lot of opportunities around those areas and make easy transportation of goods up North in the country. Warri port is there, we are having a lot of challenges because the channel is shallow. Luckily, I was privileged to be among the team that accompanied Olu of Warri to see Mr. President recently in February; part of the shop list we took to Mr. President was consideration of Warri Port, Koko Port for dredging so that bigger vessels can come into the ports. Recently, I saw in the news, where NPA said they have gotten approval to dredge Calabar and Warri Ports and one of the issues with the Warri Port was the pipe that takes crudes from Warri refinery to Escravos. NNPC has agreed that they are going to relocate that pipe to allow dredging work to commence. Once that is done, they can dredge the channel and we have bigger vessels come into the port. I also believe that Calabar Port process of tendering and short listing of companies that will do the dredging is ongoing. We have submitted expression of interest for Calabar and Warri ports dredging jobs and we are hoping that they will commence the tendering process and once they complete the due process, winners will emerge and we hope that they finish within the scope of time so that the channel is opened and bigger vessels can come into Warri and Calabar ports and the ports can start booming for businesses to flow. Once the tendering process is over and competent contractor is chosen as winner, once they open up the dredge, that is the end.
The port also needs to be concessioned so that private management can take over the ports and also look for business. You need to go out to talk to importers to give them incentives to bring their goods to your ports. Domiciling those ports with government to manage, it is difficult to make those drives. So if you put an investor to manage those ports, they know they need to generate revenue to pay back their bank loans and pay workers, to ensure the port is fully utilize and create incentives for importers to bring their goods to the ports.
When you visit Lagos port and environ, what you see is a situation of chaos, everything is in disarray. In the interim before the completion of dredging of these ports you talked about are implemented, what value proposition do you have for Lagos port to make is seamless and organised. Lagos port is one of the biggest ports in the world not only in Africa. Like you are aware, Dangote Group has collaborated with the federal government to do the access road into the port because that is number one problem. The road is very bad and infrastructure has run down, trailers keep falling off the road. Congestion on the road, but that has been handled now. The port itself has been built for several years, there needs to be another port in Lagos, there need to be Satellite ports. I am aware that they are planning to have ports in Ikorodu and Epe. So, all those will latch on what is coming to Lagos and have other secondary market into Lagos.
The last time I was in Lome, several ships coming into Nigeria were all berthing in Lome, that is the market for Lome. You wait there and when the port is free, you come in to discharge, that is their business and that’s what is sustaining their economy. The ships create an anchorage in Lome because it is safe for them to pick their vessels there and once the port is free, they come in and offload. So, if you have several ports in Nigeria, all those businesses that are going to other African countries that are latching on the congestion of Lagos port will all come into Nigeria. You have Lagos, Warri, Calabar, NPA can now say this manifest we have to spread it and so, there will be a seamless way of discharging goods, people pay without going through this hassle. We have to experience it for a little while, while these plans are being put in place to ensure that other ports come up and running. Lagos situation is known to everyone and the government is trying to take on with the support of Dangote. Once that is achieved, then we will see how government will go further. We hope that other ports will come up and Lagos port will run normally like every other port without hitches
The good thing about the industry is that it’s quite regulated; it has no room for failure. For you to be able to run your services and keep having patronage, you must run on zero failure. No room for error