Hector Igbikiowubo
13 January 2009
interview
THE House of Representatives committee on Petroleum last year commenced an investigation of the Nigerian National Petroleum Corporation (NNPC) and its subsidiaries, and the Department of Petroleum Resources (DPR).
In a bid to ascertain the roles played by the actors of the time, those who superintended these agencies of government under the Olusegun Obasanjo administration were invited to assist.
His Royal Majesty, King (Dr) Edmund Maduabebe Daukoru, CON, Mingi XII, Amanyanabo of grand Nembe Kingdom in Bayelsa State and former president of OPEC got a questionnaire. His response is captured and transcribed by Hector Igbikiowubo of the Vanguard newspapers.
What was your full designation as a Minister?
I was not a Minister until January, 2007. From November 2003 to June 2004, I was Presidential Adviser on Petroleum Matters. From June 2005 to January 2007, I was Minister of State for Petroleum Resources. Lastly from January to May 2007. I was Minister for Energy (Petroleum plus Power).
By that designation, were you the Minister recognized by the Petroleum Act 1969 as amended?
No. I was not until January 2007.
If yes, were you the Minister with the powers provided by section 2(1) of the Petroleum Act?
No. I was not the Minister with the powers you refer to under Section 2(1) or the current section 8(1) of the Petroleum Act, L.F.N 2004 Cap.P.10 until January 2007. You will recall that all throughout the former President's tenure, there was clamour for a substantive Minister of Petroleum Resources to be appointed.
That clamour would not have been if I had the Ministerial powers you refer to.
Mr. Anthony Chukwueke while appearing before the Committee answered YES to the following questions: Well, in other words, where in your Guidelines the word 'Minister is used and approval is sought from a Minister, when you were there, that Minister who gave the approval was Dr. Edmond Daukoru, is that the correct assertion? Is Mr. Anthony Chukwueke correct in the answer he gave to that question?
As Director of the Department of Petroleum Resources (DPR), Mr. Anthony Chukwueke reported to me on technical/professional matters and to the Permanent Secretary on administrative matters. I was not the Minister.
I only exercised those responsibilities delegated to me by Mr. President by virtue of Section 12(1) of the Petroleum Act, Cap.P.10 L.F.N. 2004, e.g. leading the Nigerian delegation to OPEC, chairing the Board meetings of NNPC or signing commercial agreement between NNPC and third parties on behalf of Government, subject to Mr. President's prior approval of the overall process leading to such agreements, which makes such signing purely a legal/commercial routine. Specifically, Board decisions were always forwarded to Mr. President for approval. I want to stress that out of respect for the sensitivities of a public mandate, I exercised minimal discretion against what my experience would have entitled
me to in an equivalent private sector position. On the rare occasions where I exercised discretion, it was on matters of which Mr. President was comfortable with the emerging position and he was always subsequently presented with the outcome for approval.
Since the year 2000, Guidelines have been produced for all the bid rounds up to and including the 2007 bid round?
Prior to 2000, acreage allocation was on discretionary basis. With the introduction of competitive bidding in 2000, Guidelines or Regulations provided for by the enabling provisions of section 9(1) & (2) of the Petroleum Act, Cap. P.lO L.F.N 2004 were introduced simply as an information package for prospective bidders.
From the 2005 Bid Round, the first under my tenure, the 2000 Guidelines were revised to comply with the new electronic bidding process that was introduced, as an improvement on the old system. As part of an evolving process, the 2005 Guidelines were further improved in 2006/2007, based on internal lessons learnt, international process audits (by Brazil, Norway and the UK at our request) and global best practice.
What role do these Guidelines serve in the bid process?
Guidelines serve as information package to prospective bidders, as well as to regulate the process. As such they were given wide circulation and clarification through interactive sessions with interested audiences (including the press) both local and international. Since 2005 they were also posted on the website.
Did you strictly adhere to these requirements in assessing companies who ultimately won blocs?
By law and to the extent that the Guidelines have been adequately clarified, they were mandatory not discretionary. However, there were bound to be grey areas in the actual application of the guidelines. These would call for the exercise of sound professionalism, wide knowledge of industry best practice, and of course, a commitment to fair play and national interest.
Can a company participate in the Bid-Round without paying the threshold fees? In other words, did all the companies to whom acreages were 'located in the 2000 to 2007 bid rounds participate in bid process, commencing with the payment of Registration fee, through the payment of signature bonus and concluding with the signing of PSC? There are fees which appear in the Guidelines for participation in the Bid Rounds?
From the 2005 Bid Round to the 2007 Round, which were conducted under my tenure, all participating companies as far as I know paid the appropriate fees.
All applicants to pay flat application fees of $l0,000, while only bidders that were eventually qualified to bid were to pay bid processing and data prying fees before they could bid. Leasing of data and reports were optional. As far as I am able to ascertain, there is no winner that did not pay these fees and the bided signature bonus in full as stipulated. The winner would not sign a Production Sharing Contract (PSC) with NNPC without having scaled the payment milestones.
Why were these sums paid into the Federal Government of Nigeria PTDF Account instead of the Consolidated Revenue Account?
Where the bid proceeds were paid into was directed by the Accountant General of the Federation. We simply complied.
You obtained evidence of the financial strength of companies before they were pre-qualified. How come some companies issued bounced cheques for signature bonus?
The allocation of oil blocks was a process, which was subject to termination at anytime by Government if bidders defaulted. There was therefore no exposure on the part of Government and thus no necessity for DPR to investigate/verify the financial standing of companies across the globe.
How were local content vehicles/partners chosen?
In 2005, the Local Content Vehicles (LCVs) were open to all Nigerian entities, which, after pre-qualification, were publicly to be paraded to qualified bidders on the floor of the bid exercise, to be picked by the winning entities. In the 2006 Mini Round, the bidders were advised in the Guidelines to present their own Local Content Partners.
In the 2007 Bid Round, prospective LCVs were encouraged to source for potential partners on their own, individually or in consorcia. This was a process of progressive disengagement of the official structuring, which was tried out in the 2005 first electronic bid round.
You know the difference between an Oil Prospecting License and an Oil Mining Lease?
Yes.
An Oil Mining Lease is granted to the holder of an Oil Prospecting License who has satisfied the conditions of his OPL and has discovered oil in commercial quantities?
Yes.
You are aware of the Oil Prospecting Licences (Conversion to Oil Mining Lease, etc) Regulations 2004?
Yes.
From your Knowledge of the Oil Industry is it normal for an Oil Mining Lease to be reverted to an Oil prospecting Licence?
If yes, can you please acquaint this Committee with:
(a) The enabling statute for such grant; and or
(b) The enabling regulation; and
(c) At least 3 (three) instances when it has occurred naming the OMLs that were converted to OPLs and the date of such conversion.
If no, you will admit that the conversion of OML 65 to OPL 298 is the of its kind?
The revocation of licences (OPL's or large tracts of non-producing OML's) was an exercise of Sovereign Right under a new aggressive policy of the previous Administration, designed to ensure that acreages are vigorously explored for the nations benefit.
As far as the 1969 Petroleum Act (as amended) is concerned, a major review has been long overdue to cover many aspects of acreage administration that were not anticipated 40 years ago. This review effort by Professor Omorogbe and her team is now in progress under the OGIC initiative. Best practice, national interest, regulations, official policy and level playing field were our guiding light in the interim.
Accordingly, the reversal from OML to OPL for purposes of re-allocation to a new operator ensures that the dormant block or portion thereof, is vigorously explored via a committed work programme, designed to realise economic value before OML status is again conferred e.g. OML 1 (Shell) became OPL274, OML13 (Shell), which like OML65 had some production, became OPLs 2001, 2002 and 2003, OML14 (Shell) became OPL 276, OMLI0l (ELF) became OPL290, OML54 (Chevron) became OPLs 2005 and 2006 etc.
The enabling statute is the Petroleum Act, Cap. P.lO, L.F.N 2004, especially section 9 of the same Act, dealing with regulations. Without such reversal, the new licensee would not be legally obligated to explore the block vigorously, since the block would be enjoying extant OML status. It is clear from the above that the reversion of OML65 to OPL298 is not unique, nor was it ad hoc, or arbitrary.
On what basis was block 298 which has been extensively developed by the NPDC awarded to China National Petroleum Development Company International Limited?
OML65 (OPL 298) was withdrawn from NPDC because of lack of exploration activity. The only field producing was located in a remote corner of the block, and had become sub-economic, necessitating the injection of risk funds from a new operator with proven financial and technical capacity to turn the block around to the benefit of the nation. Under this arrangement, NPDC was to be compensated with operatorship of a producing block with less technical complexity and financial risk.
This possibility was to be realised under the terms of the Joint Venture arrangement with full backing of the Government. NNPC has not availed itself of this golden opportunity to reposition NPDC with improved cash flow. The Chinese were given the Right of 1st Refusal (ROFR) to the block under a Government-to-Government protocol negotiated by an Inter-Ministerial team led by the Ministry of Finance (MOF), in 2006.
Why and how did Shorebeach Oil and Gas Limited displace NPDC, a company in which the Federal Government already has an interest in OML 65 now OPL 298 was NPDC?
As explained in (14) above, participants in the 2006 Mini Round were free to present their full paying partners, and the Chinese presented Shore beach as their partner.
Please briefly describe how Right of First Refusal was introduced into the 2005 bid round?
Right of 1st Refusal (ROFR) was introduced into the 2005 Bid Round and subsequent bid rounds with the following policy objectives:-
- To reverse the lack of public infrastructure development by upstream companies that had operated in the country for many years.
- Through the contractual linkage between the ROFR on the one part and the commitment of the beneficiary company to undertake downstream infrastructure development projects on the other, upstream sector impact on country GDP is given better outlook, i.e.
a) Economic trickle-down nationwide.b) More economic activities, specifically in the Niger delta, where lack of indigene participation is a contributory factor to the present unrest.
- Government-to-Government bilateral economic obligations, can be met through ROFR mechanism whereby industrial and development grants, such as from China, India and South Korea for infrastructure development can be accessed, in return for their beneficial participation in Nigeria's energy resource development.
The structure of the exercise of ROFR ensures that blocks in question have a value determined through a competitive bid process. It is clear that a ROFR winner can still have his block revoked, if he defaults in his downstream obligation. Nigeria suffers no negative exposure.
Is it correct to conclude that the introduction of the Right of First Refusal distorted the bid process by suddenly changing the partnership?
Absolutely not, it was explained to all prospective bidders ahead of the exercise. I am aware of complaints that this principle was introduced late in the 2005 Bid Round, but, I do believe that a one week notice was fully adequate.
In 2005 you signed a Memorandum of Understanding on behalf of the Federal Government of Nigeria with ONGC Mittal Energy Limited? Is it correct to conclude that the content of the MoU does not confer any advantages on Nigeria because the downstream investments are contingent on Nigeria:
(a) Fulfilling clause 3.1.1 and
(b) OMEL being able to produce an average of 650,000 boe/d from the 2 (two) good quality deep offshore exploration blocks acceptable to OMEL on discretionary basis for a period of 25 years.
I do not have a copy of the MOU, but the intent was that blocks would be offered to OMEL with the reference production potential, but that they would undertake the downstream projects whether they actually realise that level of production or not through the exploration activities to be undertaken by them. I doubt that the said MOU would be contrary to this intent.
Was DPR aware of the commitment while assessing the downstream commitments of ONGC Mittal?
DPR would be aware of the intent of the downstream commitment of OMEL.
Is it correct that two Deep-Offshore blocs were awarded to ONGC Mittall/EMO in the 2006 Mini-Bid Round?
Yes.
Are these blocs the results of competitive bid for the blocs or the product of the discretionary award referred to in the MOU you signed on behalf of Nigeria?
The blocks were awarded in' a competitive bid with a ROFR to OMELIEMO, as described in (24) above.
Were these blocs awarded on the terms of the MoU?
No. The blocks are subject to the ROFR conditions, involving downstream commitments and a normal Production Sharing Contract [PSC] applicable to all participants in the 2006 Mini-Round. Where there is conflict, the PSC as the foundation contractual document of acreage awards, prevails over the MOU.
Was the approval of the Minister In Charge of Petroleum matters (President Obasanjo) sought and received for the 2006 Mini Bid Round? Did the Minister also approve the list of Operators?
Yes, Mr. President approved both the 2006 Mini Bid Round and the participating operators.
Did the Minister also approve the Consortia that were formed pursuant to the Bid Round?
In the case of consortia, there was no involvement of Government.
Participants in the Round presented their own partners, which is normal
industry practice, as earlier explained.
Is it correct to say that the Minister approved the consortium of China Petroleum Corporation/Clayford?
No. The Minister (Mr. President) did not need to approve the partnership. CPC was free to present its own partner, which happened to be Starcrest Nigeria Energy Ltd (not Clayford).
Can you state briefly on what authority Addax/Starcrest Nigeria Energy Limited participated in the Mini-Bid Round and indeed won two blocs?
No. There is correspondence on the matter, showing that CPC withdrew from the partnership with Starcrest, following the notification of award.
Thereupon Starcrest presented a new operator, Addax Petroleum. This partnership was cleared by an interministerial committee that reviewed the 2006 Mini-Round, the report of which was approved by Mr. President. To my knowledge only one block, OPL 291 was finally awarded to this consortium.
What is the position of the blocs won by Transnational Corporation?
Transcorp participated in the 2006 Mini-Round and presented the highest signature bonus on OPL 295 and 281. Subsequently, they withdrew their offer on OPL 295 and made partial payment on OPL 281. Up to May 2007, they had not completed payment on OPL 281 and no award was concluded.
To whom is OPL 227 awarded? Can you explain the circumstances of the award?
I am aware that this block was awarded before my tenure but subject to controversy between Express and its partner. The controversy could not be resolved up to the end of my tenure. I do not know the circumstances surrounding the award which was made before my tenure.
How many blocs were approved by the President for the 2006 Mini Bid Round and how many blocs actually put on offer in the Bid Round?Eighteen [18] blocks were approved and put on offer. They were made up of blocks defaulted from the 2005 Bid Round together with selected Deep Offshore blocks.
There is complete documentation of Presidential approvals in tranches covering the specific blocks put on offer, but for ease of reference, I have attached herewith the generic Presidential approval of the overall portfolio from which the specific blocks were selected. Also attached is the Presidential approval of the result of the 2006 Mini Round, which covers the sixteen (16) blocks awarded in the Round. (See Annexure 111)
Kindly explain OPLs 721, 732, 471, 298 (formerly OML 65), 226, 233, 294 (formerly 219) and 252 were put on offer without Ministerial approval.
Specifically, OPL's 721, 732, 471, 226 and 233 were defaulted in the 2005 Bid Round, and therefore subject to the Presidential approval referred to in (41/42) above, while OPL 298 [OML 65] and the selected Deep Offshore blocks were specifically approved by Mr. President in subsequent tranches.
Are you aware if any of the downstream projects tied to the 2007 Mini-Bid Round have taken off?
The PSCs for the 2006 Mini Bid Round were only concluded by NNPC in 2007 shortly before the end of my tenure. Scoping the downstream projects with the investor and monitoring their progress was NNPC's responsibility, reporting to Mr. President.
Why did a particular set of persons continuously win oil blocs albeit with different companies?
The Rounds were open to all participants who met the conditions, were widely advertised, and openly and transparently conducted. I did not keep a log of the persons that owned various companies. It must be said, however, that the sector is capital intensive and risky. It would not surprise me, therefore, if those with capital, long prior experience of the sector, and less risk averse have shown more interest in the Bid Rounds we conducted.
Can you explain the rationale for holding the 2007 Bid Round bearing in mind the terminal date of the administration?
The impression that the Round was hastily put together before the end of the previous Administration is not correct. The 2007 Round was intended to be held in 2006, for which Presidential approval was given on 11th October, 2006. It could not be conducted because of the inter-Ministerial review of the 2005 Bid Round and the 2006 Mini-Bid Round earlier referred to. Nevertheless, the international interest shown was so much that we felt it was better for Nigeria's international credibility to go ahead with the Round. .
On hindsight it was probably a good thing the Round was conducted then, because the global economy has since taken a down-turn, and I am not sure that we would have had the same response now or realised as much revenue from signature bonuses as we did then. Furthermore, in spite of the shorter time table compared with the 2005 Bid Round and the 2006 Mini Round, the conduct of the 2007 Bid Round was adjudged, by both local and international observers, to have met international standards, drawing from the learning points of all previous Rounds, while the eighteen (18) .Blocks which we awarded fully complied with our established standard of due process and transparency.
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