NNPC AND FOREIGN MULTINATIONALS: JOINT VENTURES OF FRAUD
The termination of all agreements on fiscal incentives given to
operating foreign multinational oil companies of the NNPC joint ventures
for the purpose of increasing oil and gas exploration would ordinarily
have been a very welcomed development but for the often familiar gulf
between good concepts and their implementations in Nigeria, the
initiative has been greeted with cautious jubilations.
Concept of Memoranda of Understanding (MoUs) as a major policy shift in
the Nigerian oil and gas sector was employed by the Nigerian Government
to ensure that the participating companies get a minimum profit margin
after tax and royalties on their equity crude. The document contained
procedures for reviewing such agreements in such a way that both parties
(the NNPC and the joint venture partners) benefit from the dynamics of
the economy, such as inflation, exchange rates fluctuations and dictates
of the gyrating world oil market.
Unlike the Joint Operating Agreement (JOA), which sets the tone of the
agreement between the NNPC and the operators, including the guidelines
and modalities for running the ventures, the MoU contains the basic
understanding on the joint ventures as a response to the specifics of
fiscal incentives.
The federal government had Memoranda of Understanding with Shell
Petroleum Development Company of Nigeria (SPDC), Exxon/Mobil Producing
Nigeria Unlimited, Chevron Nigeria Limited, Nigerian Agip Oil Company
(NAOC), TotalFinaElf and Pan Ocean Oil. The companies operate joint
venture pacts with the NNPC, which manages the federal government’s
equity in oil and gas business.
Apart from guaranteed minimum profit after tax and royalty on their
equity crude, the MoUs also allowed for reserve addition bonus, in any
year that any of the company’s addition to oil and condensate ultimate
recovery exceeds production target for the period.
The incentives were granted at different times between 1986 and 2004 due
to reluctance of most of the oil producing companies to invest in
exploration and production activities in the country. It was originally
geared to encouraged the foreign multinational operators to embark on
aggressive exploration, to enabled Nigeria’s proven and producible crude
oil reserve to move up to over 40 billion barrels with a defined time
frame.
However, like all good concepts in Nigeria, the implementation of the
MoUs was heavily infected by the virus of fraud and corrupt
manipulations of loopholes in the agreement by the foreign operators in
collaboration with their Nigerian partners.
The circumstances that led to the introduction of the first set of MoUs
have changed drastically. So the continued granting of incentives to the
foreign operating companies only amounted to a waste of highly critical
resources by the federal government. Now with oil price hovering around
$80 to $100 per barrel, and the obvious disinterest of foreign
multinationals to invest in the nations upstream sector especially
exploration and production to shore up proven and producible oil and gas
reserve base, the entire essence for incentives was rendered very
useless or rather foolish on the part of Government as the operators
were simply ripping-off Nigeria.
It is a well-known fact that the huge monetary incentives which the
foreign operators have been enjoying were diverted to investments
outside the country in areas that have nothing to do with the
enhancement of the fortunes of neither the oil industry nor the Nigerian
economy. Rather than being invested in the capital -intensive
exploration and production activities in the nation’s new frontiers
particularly the deep offshore and inland basins, benefits gotten from
the incentives were taken to new frontiers in Russia and other Baltic
states.
Also, contrary to the foreign operators’ propaganda that the
government’s funding of the joint venture was “significantly short of
existing requirements,” disputes surrounding cash calls in the past
arose on the few occasions where some government officials insisted on
rejecting the foreign operators’ explanations for blurred expenditures
on projects.
For instance, it was a common practice for oil companies to claim to
spend over 900 million naira building a unit of line block of six
classrooms in host communities in the Niger Delta. The NNPC in turn will
offset the claims in their cash call reconciliation without asking
questions. Water borehole projects in the Niger Delta where the water
table is very shallow were commonly pegged at over one billion naira per
unit and the Nigerian government was forced by blackmail to accept the
bill partly because of the soiled hands of Government and NNPC
officials.
The latest scandal of an operator overshooting its joint venture budget
by $1.2billion was just a meager issue in the way these foreign
operators had been milking Nigeria in the controversial MOU. The
annoying aspect is that these companies would turn around to blackmail
the NNPC/Government over cash call defaults or stubbornness in funding
exploration and production activities when in actual sense they
fraudulently incur all kinds of expenses that cannot be explained in
real terms.
Thank God that the Nigerian National Petroleum Corporation in this
particular case mustered enough will-power to insist that the
controversial budget overshoot was done without regulatory approval and
in a not too transparent manner. Maybe we are beginning to see a new
NNPC under new Acting Group Managing Director, Abubakar Yar’Adua. According to the NNPC boss, Shell did not adhere to the performance
plan. And this is where the funding problems or rather blackmails had
come in the past. All the foreign operators, not only Shell, will not
invest tangible resources in upstream but they would claim to have spent
huge amounts which they would normally ask the NNPC to reimburse or swap
with crude oil equivalent.
It is very commendable that for the first time in the history of the
nation’s organized oil industry a chief executive of NNPC decided to
stand to challenge the foreign multinationals’ unclear business
practices. In the latest controversy over JV funding, the Acting NNPC
Group Managing Director was resolute in maintaining that: “There was a
programme and a budget but Shell over-performed by $1.2bn. They found
money somewhere and went ahead with the project without discussing or
getting the approval of the bigger partner in the joint venture only to
come back and ask for reimbursement.
For Shell to claim that Government was not paying its counterpart fund
in the JV was deceptive as such statement faile to portray the true
picture of the case. The company over-performed, and the National
Petroleum Investment Management Services that was supposed to approve it
was not aware, so how can government pay back.
The clear message from the Nigerian government (NNPC) to the Chief
Executive Officer of the company involved in the latest scandal, Royal
Dutch Shell Plc Group, Mr. Jeroen van der Veer was that the country is
sick and tired of multinationals’ blackmail to cover their unclear
business practices in Nigeria. As had been the case before the current
controversy, the Shell boss had addressed an international press
conference claiming that government’s inability to meet its JV cash
calls posed a serious challenge to future investments in Nigeria.
Everybody that is familiar with the Nigerian oil industry knows that it
was a blatant lie against the NNPC.
The NNPC boss had insisted that the corporation, which holds 55 per cent
stake in the JV was reluctant to pay whatever was outstanding with crude
oil as being suggested by Shell. His words: “You say we should pay back
with crude, but the process was not very transparent, and how can we,
when you (Shell) are the operator of the venture.”
These are just tips of the icebergs in the level of fraud perpetrated by
the foreign oil companies against the NNPC (Nigeria) through the PSC
understandings. These companies knew very well that the NNPC lacks the
in-house capacity-technically and even the will-power to monitor the
activities of the operators in the production sharing relationships. Neither the DPR nor the NAPIMS has the technical capabilities in-house
to do even actual fiscalisation of crude quantities at the terminals.
They have to pathetically depend on the foreign multinational operators
to collect the data for the Nigerian government. This is true. The most
interesting aspect is that the DPR and NAPIMS staff hangs on the
facilities and comfort provided by these foreign operators at the
nation’s oil and gas export terminals. This pathetic scenario would make
policing of the nation’s crude oil business even very difficult for
saints not to talk of the peculiar people in the NAPIMS (NNPC) and DPR. Now that the Federal Government has decided to do away with blurred
MOUs, the NNPC should be encouraged to commence negotiations on working
out beneficial alternative funding arrangements for projects in the
sector. It is not enough to just cancel existing arrangements without an
alternative reality. There must be a workable and more transparent
alternative to the fraud ridden production sharing MoUs Beyond fostering a workable alternative funding arrangement for
exploration and production activities, the federal government and the
NNPC itself must honestly subject themselves to the probing microscope
of NEITI and other forms of self audit as concerns the full
implementation of the Extractive Industry Transparency Initiative. The
NNPC is expected to lead in public disclosures of financial dealings-
earned and expended revenues. In essence, the corporation needs to do
some house cleaning
Also, the federal government no doubt has genuine intentions in
insisting frugal use of its resources to maximise benefits derivable
from its investments in oil and gas business, however, to increase the
nation’s proven and producible reserve and even actual production and
ensure the integrity of assets, there is an urgent need to do more than
the current lip service being paid to the thorny issues of the Niger
Delta resource rights agitations. The government more than ever before
needs to engage oil and gas producing host communities in finding
solutions to the deteriorating crisis.
For either the government or the foreign oil firms to believe that the
current trend of flow of production activities to offshore arenas would free them from the ongoing violent agitation in the region could best
be described as self deceit or rather daylight dreaming. This is an
advice. Those who have ears let them hear.
BY: IFEANYI IZEZE
IFEANYI IZEZE IS A PORT HARCOURT-BASED ENABLING ENVIRONMENT CONSULTANT
(iizeze@yahoo.com)