Following the cancellations of some contracts which were later re-awarded to a new set of contractors, experts in the oil and gas sector have picked holes in the contracts awarded by Mr. Ibe Kachikwu, the new Group Managing Director, GMD, Nigerian National Petroleum Corporation (NNPC) , alleging irregularities.
As part of reform in the oil industry that is aimed at sanitizing oil business along the line of best practices, Mr.Kachikwu had issued some directives which led to the cancellation of some of the contracts awarded by the previous administrations of NNPC, especially in both downstream and upstream sectors.
One of such directives was the cancellation of the contract for delivery of crude oil to the four refineries in Port Harcourt, Warri and Kaduna.
The reason given for the cancellation was irregularities in their award; besides the corporation frowned at the terms of the contract. In the new evaluation by the new management it faulted some of the terms of the contract agreed on by the former management of the corporation.
Business Hallmark learnt that the contract sums were inflated and that the process of bidding was not transparent. The corporation also said that the new measure was taken to reduce cost and strengthen operational efficiency across its value chain.
As a stop-gap measure, NIDAS Marine Limited has been engaged to provide crude delivery service based on industry standard rate pending the establishment of substantive contract.
According to the NNPC, it resorted to the delivery of crude oil to the refineries by marine vessels following incessant attacks on the Bonny-Port Harcourt refinery pipeline and the Escravos crude pipelines by oil thieves.
“We have also commenced a rigorous and transparent process of securing capable and competitive contractors for the delivery of crude oil by marine vessels to Port Harcourt, Warri, and Kaduna Refineries pending the restoration of the crude oil pipeline infrastructure.” NNPC said.
According to Mr. Ifeanyi Izeze, an oil and gas analyst based in Abuja, the concept of using marine vessels to supply crude oil to the refineries is an exercise in self-deceit. According to him, using marine vessels to supply crude oil feedstock to Port Harcourt and Warri Refineries is short sighted especially as it may be vulnerable, especially on issue of security of oil and gas facilities that the NNPC must confront once and for all.
He said, ‘the issue of Ship-to-Ship transfer, which NNPC employed to get crude oil to the refineries, is very unsustainable and a good platform for corruption because of its byzantine modules that involves different interests at different points.”
He further explained that MC Cosmic and MC Jewel will collect between $12m and $15m per daily transfer of about one million metric tonnes crude to Warri refinery.
He noted that these heavy vessels will later need to load crude and transfer to smaller vessels. According to him, the cost of the smaller vessels ranges from $6 – $7 million per day, adding that the smaller vessels are also expected to later move the crude to terminals where trucks would have to load to the refineries at another operational cost.
Izeze disclosed that the same scenario is replayed to get the crude to the Port Harcourt refineries. He cautioned that the country may find it difficult to sustain this model in view of the huge cost that would have to be paid to the contractors, which may be contrary to the reform mantra of the NNPC boss.
He noted that this arrangement will also be replicated to Kaduna refinery because it has no access to either the sea or any tangible waterway as it can’t access its crude feedstock- by road through the Escravos trunk-line which is being compromised on daily basis.
In July 2015 when the Kaduna refinery was about to start production it was discovered that the crude pipeline had been breached in 78 points between Warri through Lokoja to Kaduna.
In a related development, the Corporation, had earlier terminated the existing Offshore Processing Agreements (OPA) fondly called the Crude Oil Swap agreement it entered with Duke Oil Company Inc., Aiteo Energy Resources Limited, and Sahara Energy Resources (Nig) Ltd.
Under the previous agreement the NNPC allocated a total of 210,000 out of 445,000 barrels of crude oil per day for refining at offshore locations in exchange for petroleum products at a pre-agreed yield pattern.
Giving some of the various challenges faced by the corporation in the previous contracts, it claimed the cancelled SWAP agreement between it and the contractors expired in December 2014 was never renewed.
NNPC said it cancelled that contracts after it had carried out a detailed appraisal of the OPA and its terms of agreement. It said that the agreements were skewed in favour of the affected companies, such that the value of product delivered is significantly lower than the equivalent crude oil allocated for the programme.
The corporation also alleged that the structure of the agreement does not guarantee unimpeded supply of petroleum products, as delivery terms were not optimal. And in order to address those lapses, the NNPC said it had commenced the process of establishing an alternative OPA based on an optimum yield pattern with tender processing fees.
“After due appraisal of performance trajectory, we have invited Messrs. Oando, Sahara Energy, Calson, MRS, Duke Oil, BP/Nigermed and Total Trading to bid for the new Offshore Processing Agreement while we have engaged AITEO, Sahara Energy and Duke Oil to exit the current OPA,” the corporation said.
NNPC is also yet to account for the product for over eight months, since none of the refineries worked between December 2014 and August 2015 even to have processed the 210,000 barrels it takes everyday in exchange for products for domestic consumption.
Mr. Dan Inoudu, an analyst said the new regime was meant to sanitize the oil business which had for long been riddled with corruption especially in the award of contracts. He commended the move to bring the industry on a sound footing, based on international best practices.
He, however, expressed dissatisfaction with the corporation for re-awarding the contract to companies that were indicted by NEITI and Ribadu Task Force, for the involvement in the subsidy scheme especially the crude-for-products swap conscription.