Mr Jubril Adewale Tinubu needs little or no introduction.Â As the Group Chief Executive Officer of Oando Plc, he has led a team of indigenous professionals to position the company as Nigeriaâ€™s fastest growing energy conglomerate, with interest cutting across the entire energy value chain.Â In this exclusive interview with Sweet crude, (Vanguardâ€™s monthly energy review), he opened up on a number of issues currently affecting the sector.Â He also bared his mind on the controversial Petroleum Industry Bill (PIB) and opined that then bill should be an opportunity for serious and professional indigenous companies to thrive.
How will the dual listings of Oando PLC on the Lagos (Nigeria) and Johannesburg (South Africa) Stock Exchanges boost the companyâ€™s chances of a successful capital raising of the N200 billion the Shareholders have given nod for?
The very essence of having a foreign listing is to have the benefit of raising money in a different market and get the benefit of an average cost of bonding, because by virtue no two markets ever have the same return on capital requirement and of course by listing elsewhere you can tap from different markets. We shall make that announcement on securing the necessary regulatory approvals.
Oando is steadily emerging as a fully integrated energy company_operating in the downstream, upstream and the midstream, circumnavigating Lagos state with gas pipelines, interests in power generation supply and distribution, etc. Can you share with us some other challenges the group currently faces?
Without a doubt, the biggest challenge is the cost of capital. Nigeria is a very expensive place to do business, where you pay up toÂ 18 â€“ 22 % interest on loans. So to give the shareholder good returns on investment, you need to shoot for 50% return on capital employed. That is the number one hurdle Nigerian businesses have to scale.
The second challenge is long term funding. We are one of the few non_banking institutions that have raised in excess of $500 million in medium to long term facilities from the international markets in the last 3 or 4 years. The Nigerian banks have supported us with medium term loans of 5 â€“ 7 years, which we deployed in the construction of our gas pipeline systems. Invariably, long term funding is now being addressed via pension funds availability, which will make a big difference in the development of long term financing in the country.
Such funding have successfully steered Oando to the status of an integrated energy solutions provider, by adding gas and power, exploration and production, international supply and trading and energy services to our traditional downstream marketing business. In 2007, Oando invested over $250m in the development of Nigeriaâ€™s first indigenous Oil Services Company. In less than 24 months, Oando Energy Services (OES) is Nigeria biggest rigs provider with 5 rigs, 3 of which have secured contracts. OES is now successfully operating in what was previously the preserve of international service companies but with world-class international safety and engineering standards.
Also in 2009, our Exploration and Production division secured Nigeriaâ€™s 1st ever acquisition of a deep offshore oil & gas asset from an International Oil Company by an indigenous corporate. With $300 million already invested in the upstream sector, and superior growth strategy, we hope to soon move from our 5,000 barrels production a day to 100, 000 barrels by 2013.
Our Gas & Power subsidiary is today the leading privately owned gas distribution (via pipeline) company in the sub-Saharan region. It has successfully constructed and is operating a 100km gas pipeline grid in Lagos, which currently supplies gas to over 80 companies in Lagos.
It is also constructing a 128km gas pipeline traversing Cross River and Akwa Ibom states, designed to partly power the Unicem cement factory and offer a total gas powered solution to the energy needs of the states in the South Eastern region.
The companyâ€™s power business has designed for the Lagos State Government a $25 million independent power plant that will ensure a steady supply of water in the state through the Lagos State Water Corporation. This is specifically gratifying because this is one project that will affect the lives of more than 14 million people in Lagos State. These series of investments are in the high margin sectors projected as the companyâ€™s future cash_cow in the next five years.
In a reaction to a question on government foot_dragging over the proposed full blown deregulation of the downstream, the Minister of state for petroleum resources was quoted as saying government was concerned about a small group of persons hijacking and mobilizing the reigns of supply and distribution. What is your reaction to this? Do you think this fear is founded?
These fears are unfounded as deregulation is a purely market_driven regime, it is not individualistic. In truth, full deregulation of this sector will not only guarantee constant supply of petroleum products to Nigerians but will significantly nourish the economic growth in Nigeria. The Major Marketers are ready and willing to fully support the governmentâ€™s initiative and will ensure continuous and adequate supply of petroleum products.
Marketers will implement the governmentâ€™s decision effectively, including the importation, supply and delivery of petroleum products throughout the country at competitive prices. Marketers already have the logistics in place such as storage facilities, vast retail outlets, standard trucks, etc to support deregulation. In addition, Major Marketers plan to work very closely with the NNPC and PPMC in scheduling import vessels, effectively utilizing the jetties, pipelines and storage facilities, to distribute products across Nigeria.
Deregulation will allow market forces to determine prices of petroleum products, which will enhance competition in the Nigerian market. Competition will enable the Marketers to operate more effectively and efficiently to the overall benefit of Nigerians.
Many countries have either deregulated their petroleum sector or have made significant progress in that direction.Â Consumers in these countries have benefitted by having adequate fuel supplies at competitive prices, which support economic growth. Major Marketersâ€™ emphasis on Safety, Health and Environment issues will continue to be aggressively applied in all our operations.
How far exactly has your groupâ€™s plans for establishment of a petroleum refinery at Lekki progressed?
We are adopting a phased_ approach to the development. We have always said that the long term future of our downstream industry and our nation as a whole is dependent largely on our petroleum refining capacity. We know that local refining can be veritable, sustainable and efficient. We are also aware that a refinery project is very expensive: it could cost between $2 and $3 billion to construct a refinery that would process 100,000 barrels of crude oil per day. But we are undaunted. We have taken up the task of building a refinery that would refine 350,000 barrels of crude oil per day. Due to the cost implication, our strategy is to approach the projects in stages.
Two years ago we conducted a pre_feasibility study on the project. Subsequently, we carried out a full feasibility and acquired a 450 hectares expanse of land for the project. 450 hectares is a little more than the size of core Victoria Island, so you can imagine the size of the site.
As Refinery is one of the largest industrial complexes you will find globally, we are paying considerable attention to environmental safety and set standards regarding the handling of crude oil and the citing of crude oil tanks, the main refining units and the finished products tanks.
The first stage of the refinery development would be the construction of an import terminal. We have completed the Front End Engineering Design (FEED) of the import facility, which will be the largest in Sub_Saharan Africa. The facility will be fed by a 7km offshore pipeline system, so that we will be able to import products into Nigeria via a deep drafted tank farm or terminal.
The second stage of the refinery development would be the actual construction of the refinery complex and the conversion of import terminal into the finished products terminal of the refinery. In effect we will be able to bridge the petroleum products supply gap in two years and at the same time embark on the construction of the refinery which will effectively put an end to products importation.
However one of the factors militating against investments in petroleum refinery projects is the uncertainty surrounding the deregulation of the downstream sector. Potential investors, both debt and equity, wants to know the state of play regarding deregulation in the country because, it is very hard to embark on a $3 billion project without knowing whether or not you will sell the finished products and make profitable margins.
We saw you at the ministry of petroleum resources organized stakeholders forum on the petroleum industry bill which took place in Abuja recently. What is your impression of the bill?
I will start by commending the Federal Government of Nigeria for creating an environment where we can engage in dialogue. The essence of having democracy and a modern day system that functions on the rule of law is the opportunity to negotiate and amend laws to suit and satisfy the different stakeholders.
The existing Petroleum Act of 1962 is obviously obsolete. Amending the act by way of introducing a bill before the National assembly is a step in the right direction. Everyone has the opportunity of contributing to the bill so I encourage every stakeholder to do so.
As a company, we have put together our own views which have been forwarded to the National Assembly. I applaud the civility of the Niger Delta communities who came forward to express dissatisfaction about some of the provisions of the bill, indeed this is what a civilized society should be. I am quite satisfied with the intellectual arguments and discourse going on around the groups. It would have been a travesty if the National Assembly had passed the bill into law without giving the public ample opportunity to make contributions.
The oil sector accounts for over 40% of GDP and about 95% of our foreign exchange earnings, the indigenous companies should have a better deal in the industry. We need some positive discrimination in favour of indigenous companies and we also believe that certain businesses should be reserved for indigenous companies to be able to create capacity for them over the years. Industry laws are dynamic tools that are created to deal with the different times experienced in the industry. Maybe 20 years from now there may be another round of amendments, which will best suit the times. Who knows by then, we may be clamoring for more foreign investments.
Conclusively, the Petroleum Industry bill is a welcome document. Nigerians should contribute to make it better. I trust our distinguished Senators and Representatives will do a good job on the bill. I have no doubt they would accept all our recommendations, sieve through them and come up with an acceptable law for the petroleum industry.
Will your group be submitting any memorandum to the National assembly when the public hearing on the petroleum industry Bill opens in Abuja?
Yes. We have reviewed the provisions and sent our recommendations to the House of Assembly. I have no doubt they would accept all our recommendations, review them and come up with an acceptable law for the petroleum industry.
Has the militancy in the Niger Delta affected your groupâ€™s operations?
Yes. But it is a fundamental problem of the nation that requires a holistic solution which involves dialogue and consultations between the governments at all levels, the private sector and the communities. The government must play its own role by ensuring that policies are implemented and the money earmarked for projects in communities are judiciously utilized.Â The constitution allocates 13% of Nigeriaâ€™s oil revenue to the oil producing states; at least 3% of oil companiesâ€™ capital expenditure goes to the NDDC. These monies need to be deployed and deployed effectively and consistently for infrastructural development. Years of neglect will not be sorted out by one year of development; it is a constant development approach.
Secondly, we need to get the co_operation from the communities before we can say we have hit the bullâ€™s eye. Then we can start looking forward to creating an interactive union between oil companies, governments and communities. And of course the oil companies need to make their own play, which is basically to hire and train people from the environment so that they can have a feeling of ownership.
Also, some of the jobs can be sub contracted to reputable companies owned by the members of the communities so that everybody has a continued interest in ensuring unhindered operations. These can be done in addition to the execution of corporate social responsibility projects.