By Omoh Gabriel
There are indications that many international oil companies operating in Nigeria are frustrating government efforts at achieving local content in the oil and gas industry.
Manipulations and flagrant disregard of laid-down rules have become the hallmark of their operations across the country.
Agip Oil Company and General Electric have been particularly fingered for their attempts to disregard directives from the Nigerian National Petroleum Corporation, NNPC, in the award of contracts for the maintenance of OBOB/Kwale/Ebocha gas plants.
Going by various correspondence between Agip, GE, NAPIMS and Arco, the Board of NNPC awarded a five-year contract (2006 -2011) to Nuovo Pignone (now GE) together with Arco Petrochemical Engineering Company Plc, a wholly-owned Nigerian company as the local Technical Partner, for the maintenance of the OBOB/Kwale/Ebocha gas plants. The Nigerian Agip Oil Company (NAOC) allegedly changed the contract terms and awarded the same contract to GE.
Arco which was used as a local technical partner was reduced from being a partner to a sub-contractor. This, it was gathered, was the beginning of a long chain of improprieties by GE and NAOC against local firms in a bid to frustrate the local content law.
According to documents sighted by Financial Vanguard, within one year of the commencement of the contract, the Niger-Delta crisis erupted and GE expatriate staff had to be evacuated from OBOB/Kwale/Ebocha. Arco’s engineers and technicians took up the challenge and successfully maintained the plants for six months before the crises abated and GE staff eventually returned to site.
In gratitude to Arco for managing the plants in its absence, GE poached 19 of Arco’s engineers and technicians, reduced the scope of Arco’s jobs and introduced third-party firms to undertake part of Arco’s scope of work in the contract with the sole aim of making it difficult for Nigeria to realise its local content dream as far as Agip and GE are concerned.
But GE in response to Vanguard’s inquiry through a third party TPT said: “What do you mean by Arco staff? We are not poaching anybody. We believe that there are qualified and experienced Nigerians from all disciplines that can join the GE family.
That is why we believe in training, technology and skills transfer. It helps the local economy and it is the right thing to do. “ But when asked why recruiting Nigerians to fill expatriate quota and yet pay them low wages? It said; “See answer to question one”.
On whether it is true that there is a global agreement between GE and Agip Oil? The response was: “I will have to confirm. If you have been following the company’s recruitment process over time, you will realise every candidate is given equal opportunity. Each opening is usually placed on the firm’s website.”
The various measures taken by Agip and GE, it was gathered, created industrial crisis in Arco. Furthermore, GE, in concert with NAOC, even wrote to NAPIMS/NNPC to drop Arco from the contract. These unilateral improprieties by GE and NAOC were rebuffed and largely resolved by officials of NAPIMS/NNPC.
According to Financial Vanguard investigations, after expiration of the 2006/2011 contract, another long-term contract was expected to be awarded after necessary tender. Pending conclusion of the tender process, an interim or stop-gap maintenance contract is expected to be awarded to the contractor on site, i.e. Arco/GE or Arco as the local company.
The objective of this is to keep the gas plants under proper maintenance while a new five-year contract is being processed. After inconclusive rounds of discussions on prices for the stop-gap contract by GE and Arco with the JV Partners (NAPIMS/NAOC), NAPIMS asked GE and Arco to individually submit quotes. NAPIMS, it was gathered, found Arco’s quote lower than GE’s.
Because of Arco’s proven ability to carry out the job alone, a feat it achieved in 2007 when GE withdrew its expatriate staff from the gas plants for a period of six months at the peak of the Niger-Delta crisis, NAPIMS directed the handing over of the plants to Arco for maintenance for six months at a rate of $37million per annum.
The job is currently being executed at a cost of $87million per annum by GE with Arco as a sub-contractor.
NAOC, it was gathered, has continued to resist this directive. The resistance as investigation has revealed, is to enable NAOC hand over the maintenance jobs to a Nigeria-based Italian-managed company called Plantgeria Co. Ltd.
According to NAOC’s logic, Plantgeria can do the job at a cost of $10million per annum. But investigation has shown that Plantgeria has never carried out any rotating equipment maintenance before and is therefore incapable of appreciating the enormity of the job.
This, it was learnt, is being contrived by GE to enable it continue to maintain its positions of expatriate personnel in the plants based on the offshore treaty between GE and ENI/NAOC. The plan, it was gathered, is for GE to invoice directly to NAOC for these services. As a result, the effective cost of the stop-gap contract will be much higher than Arco’s quote of $37million. Some of these facts are said to be hidden from NAPIMS.
The question industry players worried about the development are asking is: If $10million can realistically carry out the maintenance contract, what has been happening to the difference between GE’s $87million annual cost and proposed Plantgeria’s $10million annual price quote?
The whopping difference of the sum of $77 million per annum translates to an excess charge of $154million since January 2012. Or, is this new quote a strategy to bring Plantgeria into the contract and NAOC will later change the terms to the status quo? All these are the fears of NNPC/NAPIMS officials who have continuously insisted on fair play to the greatest resistance of NAOC.
NAPIMS had on June 13, 2014 in a letter signed by Jonathan Okehs, Group Managing Director NAPIMS, written to NAOC stating: “We hereby reaffirm the position of NAPIMS management as follows: that NAOC proposal to execute an interim award contract with Plantgeria for a replacement tender of which award recommendation has not been presented for NNPC Board consideration and approval is declined and not approved; NAPIMS will not support any cost expended on NAOC maintenance service contract for gas turbines and related equipment for OB/OB, Ebocha and Kwale gas plants arising from NAOC execution of such services with Plantgeria; and that NAOC should immediately commence negotiations with Arco Petrochemical with a view to awarding a six-month stop-gap contract using the manpower loading that was approved for 2013 stop-gap contract, etc.
Although Agip was unwilling to speak on the issue in a letter to GED, NNPC dated 23rd April and signed by Massimo Insulla, Vice-Chairman/Managing Director, NAOC, it said: “We refer to the letter NAP/GD/GM/84 dated 14th April 2014 (attachment 1), through which NAPIMS has maintained its earlier position of awarding a six-month interim contract for the subject service to Arco Petrochemical Engineering Company Limited (“Arco”) as against NAOC’s recommendation, communicated via letters CAB/SPR/ABJ/L004921/14 dated 18th March 2014 (attachment 2) and CAB/SPR/ABJ/L004804/14 dated 14th February 2014 (attachment 3) respectively to NAPlMS to utilise the result of the concluded tender for a replacement contract.
This is following exchange of several letters between NAPIMS and NAOC on this matter. NAOC is therefore left with no other option than to seek the intervention of your esteemed office in the matter based on the reasons enunciated hereunder.
The JV Partners awarded the contract for the global maintenance of the rotating machines in OB/OB and Kwale Gas Plants to GE International Operations Nigeria Limited (GEION), with Arco being a technical partner to GEION in June 2006 after a tender exercise. The contract had a mobilisation period of two months and duration of four years plus one year optional extension.
The overall duration expired in October 2011. On expiration, the JV Partners awarded a one year stop-gap maintenance contract to GEION, based on the then existing framework agreement between GEION and Arco, till December 2012 and consequently agreed to commence a tender for a replacement contract in early 2012.
Due to the prolonged tender timeline caused by the complexity of the service and the need to fully comply with NCDMB and JV requirements, GEION, with Arco being a technical partner, was further engaged under a renewed stop-gap contract till the end of 2013.
During the said 2013 stop-gap contract, the JV Partners made concerted efforts to bring down the maintenance cost by impressing on GEION to increase Arco’s work allocation in the framework agreement between them and reduce the applicable prices.
The various negotiation meetings held between the JV Partners and GEION/Arco in Lagos and Abuja in respect of said JV Partners’ target could only achieve a new GEION/Arco framework agreement wherein Arco had a better share, but with not much impact on the maintenance cost.
Consequently, it was jointly decided by the JV Partners to channel more energy to the conclusion of the tender for the replacement contract that was already at a technical evaluation stage then.
“We wish to point out that the JV Partners (NAOC/NAPIMS/POCNL) have already jointly concluded the tender process for the award of the said replacement contract to the bid winner, Plantgeria Nigeria Limited.
As required under the JOA, NAOC (as operator) has by its letter dated 24lh January, 2014 requested NAPIMS and POC (N)L approvals to award the contract to the bid winner.
A copy of the said letter is enclosed herewith for ease of reference, While NNPC Board’s approval to award of the contract to the bid winner is being awaited, NAOC as operator has recommended that a stop -gap contract for the required services be awarded to the bid winner, Plantgeria Nigeria Limited.
However, NAP1MS has insisted that NAOC should negotiate with Arco with a view to awarding the stop-gap contract to Arco, and not the bid winner.
As we have clarified to NAPIMS, it would be improper to implement NAPIMS’ present request for the following reasons that it would be against procurement due process to negotiate with, or award a stop -gap contract to Arco, since Arco participated in the tender process and did net win.
Awarding the contract to Arco, for whatever duration, will call to question the integrity of the tender process, and it cannot be justified internally to JV Partners’ respective stakeholders and externally to the oversight authorities who may subject this matter to scrutiny.
Such award to Arco may also expose the JV to needless legal claims from other companies that participated in the tender process, with the attendant costs/adverse reputational implications for the JV Partners and possible stoppage or stalling of the maintenances services which are critical for the JV operations.
Awarding the stop-gap contract to Arco, which is a sub-contractor to GEION that is the original contract owner, may result in litigation between GEION and Arco in which JV Partners could be joined as parties, with potential consequences similar to those highlighted in point two above.
In addition, acceding to NAPIMS’ request will make the JV Partners to incur higher cost, which is against the JV’ Partners’ objective of cost saving. The cost of the bid winner is approximately US$10,000.000 per annum as against Arco’s estimated cost of between US$35,000,000 and US$40,000,000 per annum as derived from the final quotations submitted last year. It is, therefore, more beneficial to the JV Partners to award the interim contract to the bid winner, Plantgeria Nigeria Limited, and not Arco.
However, the minutes of a meeting of the JVC and the contractors March 8, 2013 had stated that the JV Partners reiterated that they want the negotiation between GEION and Arco to be concluded as soon as possible so that the stop-gap contract can be closed out. In response, GEION made a presentation to the meeting which highlighted its proposal for the intended structure for the stop-gap contract as well as the number of units that it will cede to Arco.
However, some issues came up from the presentations, which are: The total number of eight (8) units proposed by GEION to cede; to Arco was considered by the JV partners to be inadequate to bring the price of the contract down to comfortable level; GEION’s modality for ceding the units to Arco/ is two (2) machines per quarter, if GEION is “satisfied” with Arco’s performance.
This was unacceptable to both the JV Partners and Arco; Arco expressed its preference for the whole nine units (9) located at Kwale instead of the 8 units on scattered locations. The reasons adduced for this are efficient and effective coordination of operations; better interface management; accountability of KPI; and reduced interference. The JV Partners requested again that GEION and Arco should further engage themselves in negotiations and report back to the JV Partners by Friday, March ’15, 2013.
While positions were being canvassed on the best way to move forward, the Leader of GEION’s Team got up and said emphatically that none of the units in the gas plants would be ceded to Arco for sole maintenance. In his own words, “GE will never; I say “never!” cede any of the plants to Arco.” Another representative of GEION informed the meeting that “ENI and GE have a global agreement already in place that will make it impossible for GE to give Arco any of the plants to maintain.”
At this point, the representative of Agip immediately chided GE’s representative for revealing the existence of the global agreement between their two companies that would prevent Arco from taking over the maintenance of any of the units of the gas plants. In anger, he told the GE representatives: “Shame on you!” As it were, Agip and GE now have to settle their own score on the matter.
Industry players are of the view that “the global agreement between Agip and GE is the root cause of the project management issues between GE and Arco on the one hand and Agip and Arco on the other. It shows clearly that there is no responsibility in the global arrangement to grow the local company by GE or Agip.
Cost reduction expected by the JV for the stop-gap contract would be a challenge to meet if GE in their global arrangement with Agip, is designated the sole source for all spares, even for non-GE equipment. Any such global arrangement is suspect in price gouging and wringing.
There is no reason for this sole source since OEM parts of all equipment are available at competitive prices and delivery schedule from licensed agents around the globe.
By extension, the global understanding between GE and Agip would appear to undermine the credibility of the NIPEX Tender process which is being used in procuring the next GMS contractor. We do not think bidders for the on-going GMS are aware of this flaw.
The agreement between Agip and GE will definitely constitute a conflict of interest in the evaluation process. Indeed, Agip has compromised its position as an unbiased analyst for the evaluation process as a result of the existence of this prior agreement with GE.
The offshore agreement in question may be used by both companies to defeat the intents of the NOGICD Act of 2010.