Nigeria’s oil and gas sector regulator cum player, the Nigerian National Petroleum Corporation (NNPC), which has been much criticised for an industry plagued by high hurdles and lengthy contract cycles, is shifting the blame to International Oil Companies (IOCs) operating in the country.
The NNPC says the IOCs are tardy and have unduly lengthy tender cycles and project management delivery spans, adding that they have never delivered a project on schedule.
This claim is coming against the backdrop of the fact that Nigeria’s oil and gas sector is being choked by an unusually lengthy contracting cycle which can take as long as 36 months, while competing African nations conclude the same process within three months, a situation which worsens Nigeria’s place in the ease of doing business index.
Nigeria’s slow and winding contract processes leave a sour taste in the mouth of would-be investors interested in the country, causing them to reroute billions of dollars in foreign direct investment to competing nations, to Nigeria’s loss. This is today mirrored in the fact that Nigeria attracts the least in investment dollars among peers, BusinessDay had earlier reported.
Abiye Membere, group executive director, exploration and production, NNPC, who spoke at an interactive session with chief executives of oil companies at the ongoing Nigeria oil and gas conference and exhibition in Abuja, told the oil chiefs that no approval would be given to any project that did not have a realistic budget and wondered why projects in Nigeria were always costlier than what was obtained elsewhere.
Membere said that aside from these, the oil companies always lumped the projects together and expected approval to be given to them all at once.
He said there was now a paradigm shift in the mode of the operation of NNPC, especially regarding projects approval, adding that the cost of production in the country’s oil and gas was the next challenge to the issue of vandalism in the industry.
The NNPC boss urged the oil companies to synergise their operations in order to reduce cost because of the urgent need for project optimisation.
Also speaking at the occasion, Mutiu Sunmonu, chairman and managing director of Shell, acknowledged that there were challenges but said they were being worked at in order to facilitate smooth operations in the industry.
Sunmonu said bureaucracy was a major hurdle that operators had to contend with, adding that all the stakeholders including the regulator, operators and contractors needed to be practical in dealing with the situation. He advised that government and the regulator be flexible in policy and regulation so that the industry could move forward.
Cornelius Zegelaar, managing director, Addax Oil, said synergy was required in the industry in order to reduce costs and impact positively on the value chain.
An industry analysis seen by BusinessDay, which outlined the average contract cycle time of eight oil producing countries, including Australia, Kazakhstan, Indonesia, Venezuela, Argentina, Saudi Arabia, Angola and Nigeria, underscored the deep difference on how the country’s oil resources are managed.
Saudi Arabia, the world’s largest producer and exporter of oil, according to the analysis, has the shortest average contract cycle time, which is three months. It is followed by Argentina and Kazakhstan, both of which have five months as the latest time for contract approval. Angola, Africa’s second largest oil producer, outperforms Nigeria.
In a bid to fast-track contract processes in the industry, online bid tendering was introduced in 2010 by the NNPC to do away with the analogue era noted for poor transparency, accountability and a lengthy contracting cycle.
The online electronic centre, which was created in 2005 to streamline the contracting process in Nigeria, metamorphosed into the NAPIMS.
The primary objective of NAPIMS is to provide an electronic contracting platform for the NNPC and its operating partners in the Joint Venture and Production Sharing Contract arrangement, with a view to, among other things, reducing contracting cycle time from duration of about 18-24 months to half or shorter timeframe.
The NNPC had in February 2011 said it had recorded appreciable reduction in the contract cycle time for oil and gas projects from 24 months to an average of 10 months, adding that the significant improvement in the contracting cycle was as a result of the commitment of the management of the NNPC in ensuring regular meetings of its contract review committee.
An operator spoken to said he doubted it took that long for contract approval, and also noted that the pace of the contract cycle from the time of invitation of tenders to the actual award of contracts depended on the scope of the project for which the contract was intended.
He said there were certain contracts that took undue length of time which may have adverse impact on projects.
“Every year, the operators have a work programme which they present to NNPC joint ventures for approval and after the work programme has been approved, they go through a contract award process, then cash calls are made. So if, for instance, cash call has already been made for a particular project in year one, they cannot wait for year three before they award it,” he said.
Olusola Bello
