To Oil the Wheel of Progress…
Ihave a story to tell. In the 1970s, three governments set up national oil companies to engage in exploration, production and refining. Nigeria created the Nigerian National Petroleum Corporation (NNPC), Norway set up Statoil, and Malaysia established Petronas. Today, Statoil — now renamed Equinor ASA — and Petronas are among the biggest state-owned oil and gas companies in the world. Equinor ASA and Petronas declare profits in billions of dollars and are among the most valuable companies in the world. Equinor ASA operates in 36 countries while Petronas is doing business in 35 countries. They are doing well home and abroad.
Our own NNPC? Please don’t get me started. Even though many state-owned companies are doing well in many countries, the moment you insert “Nigeria” into the equation everything goes haywire. There is nothing the NNPC knows how to do well, apart from scams. To produce oil, it relies on retrogressive JVs and ridiculous PSCs. Also, NNPC cannot refine its relate to the oil industry. That I will still do at oil because the refineries never work. (NNPC some point. Rather, I am more interested in asking recently popped champagne to celebrate a this question: how can we get the NNPC to be petrol supply contract it signed with BP, a productive, innovative and profitable — even British company. We are that shameless.) NNPC if not at the level of the national oil companies cannot even import fuel — it has to do this that were established around the same time in in the form of importation contracts. NNPC the 70s? Should we sell or restructure NNPC? outsources almost everything! What should we do with the now-in-limbo
The truth is that even though Nigeria is Petroleum Industry Governance Bill (PIGB) which regarded as an oil giant, we are not yet deriving prescribes that government should sell off 40% up to 25% of the benefits that reside in the of its interest within 10 years? Whatever the industry — benefits from exploration, benefits case is, something has to happen to NNPC. from production, benefits from refining, benefits Life can’t continue like this. from petrochemicals, and benefits from marketing. This is a debate worth having as the 2019 Our major benefit is the revenue from oil export elections approach. Nigeria must begin to derive that we share in Abuja every month before maximum advantage from the industry while it grows wings and flies mostly into private stock lasts and while the world is still consuming accounts and waste bins. We pride ourselves fossil fuels. Our oil sector must be recalibrated as one of the largest oil-producing countries in to serve the interest of Nigeria, create real jobs the world, but in the real sense we are not the and stimulate the growth of its subsectors as ones producing the oil. We are outsiders and well as the other sectors of the economy. As scavengers in the industry. In the abundance things are today, our oil industry serves more of water, the fool is thirsty. foreign interests than it serves us. Just take a
How can we take maximum advantage before look at the companies making the most out of fossil fuels become, as it were, fossilised? Two the various aspects of the chain and you will recent reports inspired my article today. The see that Nigeria and Nigerians do not figure first is the campaign promise by Alhaji Atiku prominently. In the abundance of water, the Abubakar, the PDP presidential candidate, to fool is thirsty. partially sell NNPC if he is elected president. And that is my second issue today: deriving Is that the solution? What is the solution? The utmost benefits from the sector through local second is Nigeria’s local content development content development. The world recently policy which, after decades of rhetoric, has celebrated when Egina vessel sailed away to produced a major result in the building of the the Total deepwater oilfield, OML 130, which Egina vessel. But this has led to a war between is about 200 kilometres offshore Port Harcourt, Samsung Heavy Industries Nigeria Ltd, the Rivers state. The acreage has deposits in excess contractor, and Lagos Deep Offshore Logistics of 550 million barrels of oil — one of the biggest (LADOL), the Nigerian local partner. This is you will find on the African continent. The deep no good news. offshore location means it would need a floating
First, what can we do to turn NNPC into a production storage offloading (FPSO) vessel. world beater and derive more benefits from This was built by Samsung Heavy Industries our oil? President Muhammadu Buhari, the in “local content” partnership with LADOL, APC candidate, believes in state ownership. led by Dr Amy Jadesimi as MD. He has not been enthusiastic about the reforms The good news is that this is the biggest local meant to free the oil sector from government content project in our history after decades and control. He can argue that if Petronas (Malaysia), decades of planning and talking and strategising Petrobras (Brazil) and Aramco (Saudi Arabia) about the policy. One significant progress we are doing well under state ownership, why not have made was setting up the Nigerian Content NNPC? Atiku, seen as more market-oriented, Development and Monitoring Board (NCDMB) has promised to sell part of NNPC and privatise in 2010, which has seen to the involvement of the refineries. Mrs Oby Ezekwesili, the candidate more Nigerian companies in the logistics and of Allied Congress Party of Nigeria (ACPN) engineering of the oil industry. Same year, Total and a liberal economist of note, has promised Upstream, the operator of OML 130, awarded full-blast reform and deregulation. a $3.3 billion contract to the partnership of
My intention today is not to evaluate the Samsung and LADOL to build the Egina FPSO. campaign promises of the candidates as they On August 25, 2018, the vessel sailed off to the
THISDAY Newspapers Limited. oilfield. It is expected to add up to 200,000bpd to Nigeria’s oil output.
The bad news, though, is that the “local content” partnership that made this possible has hit the rocks, and this is not what you want to hear at a time we are campaigning for technology transfer to Nigerians so that we can become big players in our own oil industry. The Samsung and LADO crisis, which has produced a series of litigations, is capable of undermining the local content policy. The flagship project should be a thing of joy, a trophy we should display with pride. It should inspire more Nigerian companies to aim higher and become world beaters. A $3.3 billion procurement, engineering, construction and commissioning contract is not a joke.
What then is the problem? Samsung is demanding $1 billion extra payment from Total Upstream as claims for contract variation. The Korean company said there was “extraordinary increase in the quantities of structure and piping materials of the FPSO” because it had to improve on the initial work done by Nigerian engineers on the vessel. Although Total has already paid $500 million extra, Samsung wants an additional $500 million if not it would proceed with its claims of $1.6 billion at the London arbitration tribunal. The controversy almost marred the sail-off of Egina and would have delayed the December 2018 target for the commencement of production from the field.
Samsung had stopped work in July and headed to the courts but lost two cases and was practically forced by Nigerian authorities to complete work on the vessel and allow it sail or face the termination of the contract and a 10-year ban from working in Nigeria. Thankfully, the vessel sailed away on August 25, but the crisis is still ashore. The benefits of the Samsung/ LADOL partnership, which are supposed to be long-lasting in the Nigerian oil industry, are now under threat. The partnership, named Samsung Heavy Industries Mega Construction and Integration Free-Zone (SHI MCI FZE), was expected to upgrade LADOL’s fabrication and integration facility at the free zone.
At the heart of Samsung’s dispute with LADOL is the claim by the Koreans that they invested $300 million in the fabrication yard — allegedly hiding the fact that Total had actually paid them $214 million for that purpose as part of the $3.3 billion contract. LADOL, reportedly unaware, was forced to cut down its interest in SHI MCI FZE from 80% to 30%. It also paid Samsung $40.5 million for its interest. However, it has since come out that Total Upstream paid Samsung for it. There are now suggestions that Samsung Heavy Industries is desperately seeking the $1.6 billion bonus in order to return to profit, having been suffering heavy financial bashing in recent years.
Somehow, there must be a resolution somewhere. Samsung no longer has access to the fabrication yard — the “landlord” is LADOL’s sister company, Global Resources Management Free Zone Ltd. While Global Resources says the lease has expired, Samsung maintains that it is valid till 2024. I am seeing a serious crisis here that needs to be resolved to keep the local content development policy smelling of roses. As far as I am concerned, this is the most beneficial policy we have had in the oil sector since we hit oil in 1956. We can argue over whether or not to sell NNPC, but we cannot deny that more local companies need to play big in the oil industry. We need to sustain the progress