10 October 2017

Nigeria: NNPC Response - Kachikwu's Board Effectively Redundant

Lagos and Abuja — One week after a memo written by the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, to President Muhammadu Buhari, accusing the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Dr. Maikanti Baru, of not adhering to due process in the award of contracts by the corporation and insubordination was made public, NNPC in its response Monday to the issues raised in Kachikwu's letter effectively rendered the corporation's board chaired by the minister of state redundant.

In a statement issued by NNPC spokesman, Mr. Ndu Ughamadu, Monday, the corporation said Buhari had directed Baru and NNPC to respond to the allegations raised by Kachikwu, hence its response.

The response was however silent on other pertinent issues raised by Kachikwu, chiefly the appointment of senior executives of NNPC without the knowledge of the board.

This is just as oil workers under the aegis of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) and Nigerian Union of Petroleum and Natural Gas Workers (NUPENG) pledged their support for Baru over recent claims made by Kachikwu in his memo to the president.

However, reacting to the response of the NNPC and its GMD Monday, past and serving corporate titans in the public and private sectors stated that it had in effect rendered the board headed by Kachikwu redundant.

Speaking on the development, a former board member of NNPC who wanted to remain anonymous, said the excuse provided by the corporation for sidetracking Kachikwu and the board was untenable and amounted to choosing what laws to obey and what laws to ignore.

According to him, "The NNPC may be a government corporation, however, its Establishment Act and the Companies and Allied Matters Act (CAMA) both provide for a board of directors which has a say and must approve key decisions taken by the management of the corporation.

"I have just read NNPC's response to Kachikwu's letter and what is clear is that the corporation is choosing what laws to obey and what laws to ignore.

"By its response, they have effectively rendered the board of NNPC redundant which should not be the case, as it is expected to provide oversight functions to the management of NNPC.

"Even if NNPC's management goes to its tenders board and the Bureau of Public Procurement (BPP) to get approvals for its contracts over a certain threshold, the board should know and give its own approval before this is sent to the president as the Minister of Petroleum Resources for presentation to the Federal Executive Council (FEC) for final ratification.

"Besides, with what is happening now, should the president present any memos to FEC, his minister of state will be in the dark because he was not privy to the decisions taken by NNPC which he chairs, so what impression is the GMD trying to create.

"You cannot circumvent the board and walk straight to the president just because he is the petroleum minister, as he has already assigned his position of chairman of the board of NNPC to his minister of state.

"So the GMD and his management should go through the same chain of command or hierarchy to get his contracts, memos and appointments approved.

"This goes to heart of the issues raised by Kachikwu. Contrary to the general perception out there, it is not about corruption but about governance issues which must be adhered to for the sake of due process if we must be taken seriously."

Similarly, the managing director of one of the international oil companies (IOCs), who preferred not to be named, said the response by NNPC and Baru missed the mark.

He said it was unheard of that a managing director would ignore his board just because he had access to a higher authority.

"For instance, we need the approval of the Nigerian government for several of our contracts. But before it gets to the president's desk, our board must have been informed and given us the clearance.

"Even in the financial services sector, a managing director of say a bank cannot circumvent his board and deal directly with the governor of the Central Bank of Nigeria (CBN) for certain things. He must get the approval of his board, for example, to present his audited accounts to the CBN for final approval before they can be published.

"The same is applicable in other sectors, so what is happening in NNPC is an anomaly," he said.

NNPC, however, maintained in it statement Monday that so far, only about $3 billion in project financing had been signed off by it since the government of President Muhammadu Buhari took office, of which $1.2 billion was a financing loan that was signed off by Kachikwu, while the balance was handled by Baru.

Providing details of its project executions and contracts so far, the corporation stated that Kachikwu's allegations against Baru were baseless because due process was adhered to in all of its procurement and contract executions.

"Following the publication of alleged lack of adherence to due process in the award of NNPC contracts, the president ordered the Group Managing Director and management of NNPC to consider and respond expeditiously to the allegations.

"It is important to note from the outset that the law and the rules do not require a review or discussion with the minister of state or the NNPC board on contractual matters. What is required is the processing and approval of contracts by the NNPC Tenders Board (NTB), the president in his executive capacity or as minister of petroleum, or the Federal Executive Council (FEC), as the case may be," said the corporation.

It further explained: "There are therefore situations where all that is required is the approval of the NNPC Tenders Board while in other cases, based on the threshold, the award must be submitted for presidential approval. Likewise, in some instances it is FEC approval that is required."

On some of the allegations raised by Kachikwu, it added: "It should be noted that for both the crude term contract and the Direct Sale and Direct Purchase (DSDP) agreements, there are no specific values attached to each transaction to warrant the values of $10 billion and $5 billion respectively placed on them in the claim of Dr. Kachikwu.

"It is therefore inappropriate to attach arbitrary values to the shortlists with the aim of classifying the transactions as contracts above the NNPC Tenders Board limit. They are merely the shortlisting of prospective off-takers of crude oil and suppliers of petroleum products under agreed terms.

"These transactions were not required to be presented as contracts to the board of NNPC and, of course, the monetary value of any crude oil eventually lifted by any of the companies goes straight into the federation account and not to the company."

NNPC further held that Kachikwu's claim that he was never involved in the 2017/2018 contracting process for the crude oil term contracts was untrue because he was "in fact expressly consulted by the GMD and his recommendations were taken into account in following through the laid down procedure".

NNPC noted that its contracting processes are governed by the provisions of its Establishment Act, the Public Procurement Act, procurement method and thresholds of application, the composition of the tenders board as provided by the Secretary to the Government of the Federation's (SGF) circular reference no. SGF/OP/1/S.3/VIII/57, dated 11th March, 2009, NNPC's Delegation of Authority Guide, the supply chain management policy and procedure documents, as well as the corporation's Ethics Guide.

It went on to state that the SGF's circular on procurement threshold provided the following authority limits for NNPC transactions as well as the composition of the NNPC Tenders Board: Financial Authority Threshold - BPP issues 'No Objection' to award or FEC approves N2.7 billion ($20 million) and above, while the NNPC Tenders Board approves up to N2.7 billion ($20 million).

Based on the SGF's circular, NNPC said the composition of the tender's board shall comprise, in the case of a ministry, its chairman shall be the permanent secretary while its members will be the heads of departments; in the case of parastatals, the chairman will be the chief executive while the members will be the heads of departments of the agencies.

It added that it had also clarified from the Bureau of Public Procurement (BPP) as to the composition of its tenders board and the role of the NNPC board, stating that the BPP had responded that the NTB was not the same as its board.

"The governing board (NNPC board) is responsible for the approval of work programmes, corporate plans and budgets, while the NTB is responsible for the approval of day-to-day procurement implementation.

"BPP referred to the SGF circular for the composition of the NTB to compose of the Accounting Officer (GMD NNPC) as the chairman, with Heads of Department (GEDs) as members, with the head of procurement (GGM SCM) serving as the secretary of the NNPC Tenders Board.

"The above clarifications of the provisions of the procurement process show that approvals reside within the NTB and where thresholds are exceeded, the NNPC refers to FEC for approval. Therefore, the NNPC board has no role in the contracts approval process as advised by BPP," it explained.

It further stated: "As can be seen, all these clarifications were sought and obtained prior to August 2015 and were implemented by Dr. Kachikwu as the GMD of NNPC.

"Dr. Kachikwu also constituted the first NNPC Tenders Board on 8th September, 2015 and continued to chair it until his exit in June, 2016."

The NNPC went into details listing the typical contracting process as follows:

- Approval of project proposal and contracting strategy by NTB.

- Placement of adverts for expression of interest in electronic and print media.

- Soliciting for tenders (technical and commercial).

- Tender evaluation.

- Tender approval by NTB for contracts within its threshold; otherwise

- Obtain BPP Certificate of No Objection before presentation to FEC.

- Present to FEC for approval.

The statement from NNPC further said all contracts in the corporation followed the above procedure.

Referencing the specific contracts mentioned by Kachikwu, NNPC, starting with the Crude Oil Term Contract (COTC) valued at over $10 billion, said: "It is important to state that the COTC is not a contract for procurement of goods, works or services; rather it is simply a list of approved off-takers of Nigerian crude oil of all grades. This list does not carry any value, but simply states the terms and conditions for the lifting. It is therefore inappropriate to attach a value to it with the aim of classifying it as a contract above management limit.

"In arriving at the off-takers list for 2017/2018 COTC, the following steps were followed:

- Adverts were placed in national and international print media on Monday, 17th October 2016.

- The bids were publicly opened in the presence of all stakeholders (NIETI, DPR, BPP, civil society organisations, NNPC SCM Division and the press as well as live broadcasts by the NTA and other TV stations).

- Detailed evaluation was carried out and the short list of the successful off-takers was presented to the approving authority (Mr. President) for consideration and approval.

- Thereafter, NNPC published the list of the successful off-takers in newspapers and NNPC's official website.

"This has been the standard procedure and it is the same process adopted during the 2016/2017 COTC when the HMSPR (Honourable Minister of State for Petroleum Resources) was the GMD.

"In conclusion, due process has been fully followed in the shortlisting of the off-takers of the Nigerian crude oil for the current term 2017/2018."

For the Direct Sale Direct Purchase (DSDP) Contract valued at over $5 billion, NNPC said like the COTC, the DSDP is not a contract for any procurement of goods, works or services, "rather it is simply a list of off-takers of crude oil and suppliers of petroleum products of equivalent value".

"This list does not carry any value, but simply states the terms and conditions for the lifting and supply of petroleum products. It is therefore mischievous to classify it as a contract and attach a value to it that is above management's limit.

"In arriving at the off-takers list for 2017/2018 DSDP, the following steps were followed:

- Work plans and execution strategy for the DSDP was granted by the approving authority (Mr. President).

- Adverts were placed in national and international print media and NNPC website on Thursday, 22nd December 2016.

- The bids were publicly opened in the presence of all stakeholders (NIETI, DPR, BPP, civil society organisations, NNPC's SCM Division and the press as well as live broadcast by the NTA and other TV stations).

- Detailed evaluation was carried out and the short list of the successful off-takers was presented to the approving authority (Mr. President) for consideration and approval.

"This has been the standard procedure and it is the same process adopted during the 2016/2017 DSDP when the HMSPR was the GMD," the corporation stated.

NNPC went further to state that it had been confirmed that due process was followed in arriving at the shortlist of the DSDP partners for the 2017/2018 cycle.

On the AKK gas pipeline contract, it said this was a contractor-financed contract, adding that the process adopted for this contract was as follows:

- Approval of project proposal and contracting strategy was given by NTB.

- Placement of adverts for expression of interest in some national and international print media and NNPC's website.

- Expression of interest for pre-qualification received and evaluated.

- Technical and commercial tenders issued and evaluated.

- NTB considered and endorsed tender evaluation result for FEC approval since this contract is above NTB's threshold subject to obtaining the following Certificates of No Objections: BPP Certificate of No Objection (obtained); Certificate of No Objection from the Infrastructure Concession and Regulatory Commission (ICRC) (obtained); Certificate of No Objection from Nigerian Content Monitoring & Development Board (NCMDB) (being awaited).

NNPC added: "BPP and ICRC certificates have been obtained, while that of NCDMB is being awaited after which the contract will be presented to FEC for consideration and approval."

Effectively, due process was followed in the processing of this contract, it concluded.

With respect to various financing arrangements considered with the IOCs, the corporation pointed out that the financing arrangements reported as contracts were part of the process of exiting the cash calls approved by the FEC.

"It entails negotiations with JV partners on alternative funding of some selected projects through third party financing to bridge the funding gap associated with the federal government's inability to meet its cash call contributions.

"The third party financing option emanates from the Appropriation Act provisions that allow sourcing of financing outside regular cash call contributions. Upon approval of the calendar year's operating budget, the NNPC, in conjunction with its JV partners, commences the necessary process for accessing financing to bridge the funding gap.

It said: "Section 8 sub-sections (1) and (4) of the NNPC Act CAP N123 requires that all NNPC borrowings must be approved by Mr. President. Specifically, it provides that: (1)

Subject to the other provisions of this section, the Corporation may, from time to time, borrow by overdraft or otherwise howsoever such sums as it may require in the exercise of its functions under this Act.

(4) Where any sum required aforesaid -

a) Is to be in currency other than Naira; and

b) Is to be borrowed by the Corporation otherwise than temporarily,

c) The Corporation shall not borrow the sum without the prior approval of the President.

On the issue of due process, NNPC said the following processes are followed:

- NAPIMS and JV partner identify bankable projects that require financing and sends to NNPC Corporate Finance to assist in procuring financing.

- Constitution of Joint Financing Team (JFT) between NNPC and the JV Partner.

- JFT NNPC invites Request for Proposals (RFPs) from financial institutions.

- Submitted RFPs are evaluated and beauty parade conducted to determine most cost-efficient proposal.

- Negotiated Financing Strategy, term-sheets, structures and pricing are presented for NNPC management's (NTB) approvals.

- NNPC presents the renegotiated terms for approval of Mr. President.

- NNPC executes the resultant agreement."

It further revealed that third party financing undertaken under this administration was approximately $3 billion as follows:

All established due process as enumerated above has been observed leading to the securing of financing for the following projects in 2016/2017: the NNPC/CNL (Chevron Nigeria Limited) JV Project Cheetah loan which came to $1.2 billion that was executed by Kachikwu in his capacity as GMD, approved by the NTB and the president.

Another of such loans was for the NNPC/CNL JV Project Falcon, amounting to $780 million which was executed by Baru, approved by the NTB and the president.

Another was $1 billion loan for NNPC/SPDC (Shell Petroleum Development Company) JV Project Santolina executed by Baru and approved by the NTB and the president.

NNPC was categorical that these were not procurement projects as described by the PPA, however, all established due processes as enumerated above were followed.

It added that in the case of the NPDC integrity upgrade and development projects, all the NPDC procurement contracts were subjected to the approved procurement procedures as described in respect of the AKK gas pipeline project.

"There were no breaches of any extant procurement processes. For the benefit of doubt, it is confirmed that there is no single NPDC contract that has been approved by the relevant tenders board beyond its limit of financial authority and there is no single contract that is in the $3 billion to $4 billion range claimed in the write-up," NNPC stated.

From the foregoing, the corporation maintained that the allegations by Kachikwu were baseless, insisting that due process had been followed in the various activities.

"Furthermore, it is established that apart from the AKK project and NPDC production service contracts, all the other transactions mentioned were not procurement contracts.

"The NPDC production service contracts have undergone due process, while the AKK contract that requires FEC approval has not reached the stage of contract award," it concluded.

Oil Unions Back Baru

Just as NNPC issued its statement Monday, PENGASSAN and NUPENG pledged their supports for Baru over the claims made by Kachikwu in his memo to the president.

Both unions, according to a statement from Ughamadu, visited Baru to register their support.

The statement quoted the National President of PENGASSAN, Mr. Francis Johnson, to have said during their visit to Baru that the unions considered it appropriate to rally round him and the NNPC management.

Johnson stated that the unions' support for Baru was based on his ability to walk the talk since he assumed office last year.

He said: "The national body of PENGASSAN and all the NNPC in-house unions are here today to show our support for you. You have brought stability to the NNPC and we are happy today that staff morale is high.

"You were chairman of the NNPC Anti-Corruption Committee for over five years and that was what informed your appointment as GMD of NNPC. Today, all the bullets you are taking are on behalf of members of staff. We will continue to pray for you, God will continue to guide and shield you."

Johnson equally called on Nigerians to be cautious of their comments on the controversy, adding that any wrong information was capable of discouraging investors from the country's oil and gas industry which he added was the country's highest foreign exchange earner.

Similarly, the chairman of the NNPC-branch of PENGASSAN, Mr. Sale Abdullahi, said their concern had to do with the need to protect not only Baru but NNPC as an institution.

Abdullahi noted that Baru had streamlined the processes and procedures in NNPC, leading to the full restructuring which he said was beginning to yield positive results.

According to him, "Today, the GMD and NNPC management receive inputs from staff and this gesture by Dr. Baru has given members of staff a sense of belonging. Today, our inputs are being implemented and we are highly motivated."

Supporting their position, the Group Chairman of the NNPC chapter of NUPENG, Mr. Udofia Odudu Benjamin, said the unions would continue to pray for the divine guidance for Baru and the entire NNPC management.

The statement said the Chairman of NNPC Corporate Headquarters Chapter of PENGASSAN, Mr. Mathew Duru, reiterated the continued support of the unions for Baru and his team.

"We just want to tell the GMD from the bottom of our hearts that we are with him and the top management; that we are behind the GMD who has done very well in turning the fortunes of the corporation around," Duru stated.

He said since Baru assumed office, he had succeeded in clearing the air of uncertainty that prevailed in the corporation because of visionless reforms that left NNPC on the brink of collapse.

He also said Baru succeeded in resolving the NNPC pension challenge that had led to disenchantment among the staff.

"We are with you. We want to let you know that you are not an orphan," Duru added.

Responding, Baru dismissed the allegations of award of contracts without regard to due process as unfounded and unfortunate.

He explained that as a former chairman of the NNPC Anti-Corruption Committee, he would be the last person to breach the procurement process by disregarding the extant laws and rules.

He restated that both the NNPC Act and Public Procurement Act vested the procurement powers in the NTB, the president and the Federal Executive Council (FEC), depending on the cost threshold, stressing that the NNPC board had no role whatsoever in the process.

"I know for those of you who are following what we are doing here, you know that there's no money lost and no process has been breached. Our contracting process is perfect and we will continue to follow the process. The NNPC board has no role, I repeat, has no role as far as the contracting process is concerned," Baru said, adding that the NTB is made up of the GMD as chairman and the Group Executive Directors as members.

On the crude term contracts and the DSDP agreements, he explained: "These are not contract as such, they are essentially pre-qualification of off-takers of crude oil and in the case of DSDP, of those that will take crude and give us products in return.

"So there is no value to them. But humongous figures have been put forward mainly to incite the public, it is most unfortunate."

On the allegation of lop-sided promotions, he asked the union leaders if their members felt disenchanted, to which the statement said the unions said "no".

He urged the union leaders to enlighten their members on the facts and encouraged them to go about their duties without distraction.

Peterside Criticises NNPC Board

But even as the oil union trooped to Baru's office to show their support for their GMD, a former Chairman of Stanbic IBTC Bank, Mr. Atedo Peterside, stated that the board of NNPC was not set up to embrace transparency and enhance better oversight functions but to facilitate interference in the operations of the state-run oil firm by the Presidential Villa.

Peterside, who is the Founder and Chairman of Anap Business Jets Limited, also pointed out that from the corporate governance perspective, there was no clarity on what should come to the NNPC board and what should not go to the board for approval.

Speaking on the Sunday Morning Show on Arise News Channel, the sister broadcast arm of THISDAY Newspapers, Peterside stated that the misunderstanding between Kachikwu and Baru could have been avoided if there was clarity on the functions and powers of the board.

Commenting on his earlier tweet that "from a corporate governance perspective, a frequently absent president as oil minister is an operational nightmare".

Peterside stated that when Buhari who should approve certain things in his capacity as oil minister is outside the country for up to 90 days, there will be confusion.

"What happens if the president who is the petroleum minister is outside the country for 90 days? Does the Minister of State assume the role of a full minister in the president's absence? Does the acting president become the oil minister?

"When things are unclear, everybody has to be careful. The acting president should be careful because he is not sure he is the oil minister. The minister of state has to be careful because he is not sure he is the minister now," Peterside said.

Peterside urged Buhari to dismantle the "clumsy arrangement" and appoint someone who he trusts as the petroleum minister, adding that through the person, the president can still influence things in the NNPC.

"There are 180 million Nigerians, there must be one person the president can trust that he can assign the portfolio to. He does not have to hold on to the position, he can find someone he can trust as his petroleum minister," he said.

He also called for the separation of the NNPC board chairman from the GMD to entrench a culture of clarity, openness, full disclosure, trust, frequent contact and serious commitment to better oversight.

"There is no clarity as to what should come to the board for approval and what should not come to the board. When you go and copy serious companies that make proper arrangement for proper oversight and you have no intention to ensure proper oversight, you don't follow through.

"If there is no clarity as to what comes to the board, the CEO will find himself sometimes thinking that 'I can do this and that by myself'. But the board will complain.

"But if there is clarity, you will know who is guilty immediately someone deviates," Peterside said.

He argued that when the chairman of a company discovers board level appointments on the pages of newspapers, it is evident that rules have been violated.

"Also, if a CEO is not drunk, he cannot wake up one day and appoint a general manager and go to the newspapers. The point I am making is if there is clarity.

"In NNPC, it sounds as if there is no clarity because if there is complete clarity, the issue won't even arise because the whole board will know what decisions that must come to the board.

"The CEO will also know that nobody will undermine the arrangement because at the end of the day, the board of a company is responsible for all the actions of the company.

"There has to be intention to embrace transparency; the intention for better oversight. With NNPC board historically, I don't mean this government; the intention was not better oversight.

"The intention was to create an arrangement that makes it possible for Aso Rock or the Villa to interfere in NNPC issues, especially juicy issues like awarding contracts," Peterside said.

He also urged Buhari to delegate powers to the ministers in order to reduce the number of files that go to the president's table.

According to him, the more files that go to the president's table, the less the president knows the content of each file.

Peterside also alleged that some presidential aides could make funny recommendations that are not good for the country and rush many files to the president for him to approve the wrong thing.

He said the alarm raised by Kachikwu was of good intention for the growth of the country, adding that the worst thing for Nigeria is for a minister to sit down quietly for four years and be held responsible for what he knows nothing about.

Agbakoba Drags FG to Court

Meanwhile, a former President of the Nigerian Bar Association (NBA), Mr. Olisa Agbakoba (SAN), has filed a suit at the Federal High Court, Abuja challenging the non-inclusion of the South-east zone in appointments to the board of NNPC.

Agbakoba, in a statement Monday, alleged that the appointment made by the federal government contravened the provisions of Section 14 of the Federal Character Commission Act and Section 42 of the Constitution that prohibits discrimination of any of Nigeria's ethnic groups such as, in this case, the South-east.

In the suit, Agbakoba is requesting the court to declare the lopsided appointments of board members and non-inclusion of the South-east zone as unconstitutional, null and void.

"One of the instances of discrimination of that on 5 July 2016, the Federal Government of Nigeria appointed the following persons as members of the board of the second respondent (NNPC): Dr. Tajuddeen Umar (North-east), Dr. Maikanti Baru (North-east), Mr. Abba Kyari (North-east), Mr. Mahmoud Isa-Dutse (North-central), Mallam Mohammed Lawal; Mallam Yusuf Lawal; Dr. Emmanuel Ibe Kachikwu (South-south), Dr. Thomas MA John (South-south), and Dr. Pius O Akinyelure (South-west).

"None of these persons appointed to fill the nine positions are from the states comprising the South-east geopolitical zone, while more than one person was appointed from some of the geopolitical zones.

"The federal government, by the lopsided appointment, accords numerical advantage to states in other geopolitical zones, to the detriment of the applicant's South-east geopolitical zone that is totally excluded from the board of the second respondent," he averred.

No date has been fixed to hear the suit.

With Agency Report

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