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Nigeria: Ajumogobia Identifies Systemic Problems Within NAPIMS/NNPC

Hector Igbikiowubo

2 December 2008

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interview

MR. Odein Ajumogobia (SAN), the Minister of State for Energy (Petroleum) has been superintending Federal Government's policy initiative and implementation in the oil and gas sector of the Nigerian economy since June last year.

In this interview with Hector Igbikiowubo of the Vanguard, the minister tries to address these questions noting that there are systemic problems in NAPIMS and ambiguity with regard to responsibilities between his office and that of the Group Managing Director of the Nigerian National Petroleum Corporation, among other issues.

When we spoke earlier, you gave the impression that there are systemic problems within the operations of NAPIMS and that this is one of the problems you inherited when you came into office. Can you elucidate on this?

This is a system in which it takes an average of 24 months from inception of a project to the time when it is approved by the board. Imagine a contractor who has to bid for a project and he is not going to know whether he gets the project or not for 24 months after he has submitted his bid. That is going to affect the dynamics of the contract.

First of all, he is likely to overcompensate for that time. So NAPIMS contracting process is one of the issues that the industry has lived with for a long time and we are trying to address that, to try and shorten the contracting period to something that is reasonable, something that is comparable to other countries.

Twenty-four months or more is something that is unacceptable. That is one of the issues that contractors would always complain about, that is something that our joint venture partners would also complain about because although the joint operating agreement provides that if at least, (with regard to the joint venture contract) there is, I think, two weeks period, I think that also is unreasonable - that if for two weeks they don't get the money, they can go ahead and spend the money and recover it. So I think that whole process needs to be reviewed.

When you say shorten, is this going to be part of the reform process that we are awaiting?

Yes, it is part of it. The reform process entails many things. Clearly, one of the primary aims of the reforms is to create a more efficient and transparent framework for the operations of the industry. Certainly, this would be one of the things that would be addressed.

Apart from this problem you have highlighted, we have had instances where work programmes intended to improve upon production in producing fields are put off by NAPIMS because according to the leadership there, production targets are being met. Can you react to this development sir?

That would surprise me. First of all, it would be completely contradictory to government policy, which is to increase production. So I would be very surprised if there is anything like that. I think that such complaints should be thoroughly investigated. What I am aware of is that sometimes there are disagreements between NAPIMS and operators with regard to technical issues.

As long as we have an incorporated joint venture, the operators spend money and recover what they spend and it doesn't matter what it is. It doesn't matter whether it is reasonable or unreasonable. Now, if you tell me that you are going to produce an additional 20,000 barrels per day from some project that is going to cost much more than the 20,000 barrels per day you expect to produce, then that is a different scenario.

I think one has to look at a particular case on its merit. I would be surprised if it is just as simple as you've described it - you want to do something to enhance production and NAPIMS says no! Their job is to enhance production and ensure that the joint ventures are operating efficiently.

I recall you had also said there is ambiguity between the roles of the NNPC and your office which you inherited. Can you throw some light on this?

I will give you an example. Recently, there was an advert in the newspapers asking for contractors to submit bids for refinery contracts to refine crude oil. That advert was placed by the NNPC. Underlying that advert is a policy as to how Nigeria is going to treat the issue of refined products, whether we are going to build new refineries or whether we are going to acquire refineries abroad or whether we are going to refine our products elsewhere and bring it back.

I think that the role of the ministry and NNPC is blurred in terms of who is responsible for the policies - behind that advert for example. Is it NNPC that determines that 'okay this is what we should do?' Or is it the ministry that determines that 'okay this is what should be done?' NNPC is just the one implementing the policy. Clearly, policy should be driven by the ministry and NNPC should be an operator like any other operator and I think that is what the reforms is trying to do, separate regulation from policy, from operation.

Clearly, there should be other areas of ambiguity. Would you like to identify some others?

They come up in different ways and I think that the sooner those roles are clearly defined, the better. I don't want to get into specifics but I think in broad terms. I just gave an example of something that incorporates both policy and operation.

Now, it is not clear, but you hear statements from the corporation saying that government would build new refineries for example. That is a policy statement and it shouldn't come out from the operator, it should come from the government itself. I think some of that creates the kind of ambiguity I am talking about in terms of people who are playing in this market. Where do you go for what information? I think that is very important.

Last year, I understand that you gave your blessing to NNPC acquiring refineries outside the country. Is that the new position of the government?

We were, and we are, exploring various options. We have four refineries that have very limited capacity. One of the things we must do is to ensure that as long as we are importing petroleum products and we would be importing for sometime, is to try and do so as cost effective and efficiently as we can. One of the possibilities that we considered was that possibility. For me to give my blessing would mean government made a policy. We haven't got to that stage except now that we are looking at other possibilities.

We've got a lot of proposals from people who say 'look we can refine the oil for you, you just pay us a refining fee' and it's just the cost of freight as opposed to giving it out to third parties to bring in the products.

So we are looking at the most cost effective way of bridging that gap pending when the market is attractive to people who want to build refineries here. Because there is clearly a market - 30 million litres of refined products a day is no joke, not to talk about the West African sub-region. It is a huge market. But the basic framework to attract private investment into this sector is not in place for reasons that we have talked about before.

Would you say you are satisfied sir, with the way and manner NAPIMS has supervised the JV contracts?

I think NAPIMS has a difficult task in the sense that I don't think it has the capacity to deal with the volume of work that they have to do. When I look at the JV contracts that come to the board and look at the volume of work that NAPIMS has to do in terms of reviewing things to be able to make decisions, there is a tendency to blame NAPIMS but they would look at a proposal, raise certain queries and send it back to the company. I am told sometimes it takes three to four months for the company to respond.

But at the end of the day, people are just looking at the length of time it takes for NAPIMS to give its final approval, not the to and fro that has gone in between. I think we need to address this holistically. Look at this and look at how we can shorten the time to something reasonable.

Would you say the situation at NAPIMS is mostly a human capacity problem?

I think it is significantly that. I think NAPIMS can do with significant enhancement with capacity because of the volume of work it has to deal with.

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