• Friday, May 24, 2024
businessday logo


The conception of ‘Nigaz Energy Limited’: Matters arising



The recently concluded four-day African tour that included Nigeria, undertaken by the President of the Russian Federation Mr. Dmitry Medvedev, yielded lucrative dividends for his country from it. For example, in Nigeria, the visit conceived a new international oil and gas business entity. The new business outfit has already been ‘baptized’ or ‘christened’ (i.e. to borrow some biblical terms) as ‘Nigaz Energy Limited’ by the two ‘couples’ (i.e. Nigeria and Russian Federation). It is our understanding that the new baby will soon be delivered.
However, the two surrogate mothers (and the ultimate handlers) selected to conceive and deliver this newest baby are nonetheless Nigeria’s state-owned oil company – the Nigerian National Petroleum Corporation (NNPC) and its Russian counterpart, Gazprom; identified as the World’s largest gas energy giant company by all standards. For example, Gazprom supplies more than a quarter of Europe’s gas needs and the Russian Government owns over 50 percent of its stake.

According to some preliminary information released to the general public, the Memorandum of Understanding (MoU) of the proposed joint venture (JV) for the actualization of the envisaged company has been signed by the representatives of the two companies in Abuja on Thursday, June 25, 2009. The new firm, ‘Nigaz Energy Limited’ is a 50-50 parity split undertaking between the Governments of Nigeria, the Russian Federation and the other private equity holders of Gazprom.

Read Also: DisCos prioritise areas of low penetration, high energy usage in free meters distribution

Accordingly, by the letters of the signed MoU, Russia’s energy giant, Gazprom will invest the sum of $2.5bn (£1.53bn) as part of the deal with NNPC in the proposed new joint venture firm. The new firm, when finally incorporated and becomes operational, is envisaged to undertake in building refineries, pipelines and gas power stations in Nigeria. In particular, according to Russian sources, the ‘Nigaz Energy Limited’ deal would lay the foundations for building nuclear power reactors in Nigeria among other energy projects.
In addition, the firm is also envisaged to participate prominently in the implementation of the proposed multi-billion dollar (US$13bn) international Trans-Saharan Gas Pipeline (TSGP) project. The TSGP project is a 4,128 kilometres (2,565 miles) pipeline that will run from Nigeria’s dissidents troubled Niger delta oil and gas rich region (about1,037 kilometres or 644 miles), to Algeria’s Mediterranean coast existing gas transmission export hubs at El Kala and Beni Saf (2,310 kilometres or 1,440 miles) passing through a third country; the French speaking, and once again, dissidents troubled, and very poor dessert nation of Niger Republic (841 kilometres or 523 miles). It is expected to be completed by 2015.
There is no doubt whatsoever, with the current global economic downturn; this is a welcome and timely development for Nigeria, the Russian Federation and the European gas consuming nations. However, there are serious issues concerning this new deal that the Nigerian general public is yet to be informed about how they will be addressed and handled under this arrangement. Already, the name ‘Nigaz’ has started a racial debate across the oceans and has been described by some critics as one of the classic branding disasters of all time. This is because the name can be read phonetically as an offensive and derogatory term referring to black peoples and/or black Americans of African slaves decent. The other issues that are likely to arise are as follows:
Security: Regarding the international dimension of the venture, security situation in the three countries involved in this venture; Nigeria (Niger delta militancy), Niger Republic (Tuareg militancy in the North) and Algeria (Islamist fundamentalist militancy) is a fundamental issue. Unless existing security threats are successful resolved, neither domestic gas gathering, processing and development of refineries and nuclear plants in Nigeria nor international gas pipeline construction can be successfully implemented in the three countries mentioned above.
This issue is more relevant with respect to Nigeria; from where the gas will be gathered, processed and piped to the other countries. For example, only recently, the Warri and Port Harcourt refineries were shutdown by the NNPC due to vandalism of pipelines by the militants in the Niger Delta. Militancy in the region has been on the increase despite an offer of blanket amnesty to those involved by the Government of Umaru Musa Yar’Adua.
Legal, Commercial and Fiscal Frameworks: At the level of strictly Nigerian operation of the JV, it is instructive to point out the issues that are still pending finalization; particularly with regards to Nigeria’s proposed new oil and gas institutional arrangements. These issues border on: legal, commercial/corporate governance and fiscal and environmental frameworks/structures within which this new JV will be anchored.
Starting with the legal framework first, the NNPC, which is the partner representing the Government and peoples of Nigeria in the ‘Nigaz’ JV is unlike its foreign partner, Gazprom, an entity that has sweeping reform cloud hanging over its head. That is to say, legally speaking, the future of the NNPC as presently constituted is precariously on the balance if Government’s resolve to implement the Report of the Oil and Gas Implementation Committee (OGIC) is anything to believe. NNPC is supposed to be no more; dead and buried and from its ashes will emerge a brand new NNPC Ltd.
Already, all the existing multinational oil companies; the traditional companies that operate JV partnership with the NNPC for decades, have been left in limbo regarding the implementation of the far-reaching recommendations as contained in the OGIC Report and the published Government White Paper on the Report. Moreover, the proposed new Petroleum Industry Bill (PIB) is also in limbo and is still being debated by the National Assembly.
It is the PIB which, when passed by the National Assembly and accented to by Mr. President, that will provide the legal and other frameworks for Nigeria’s oil and gas sector and industries. Furthermore, a new national oil company to replace the existing NNPC is yet to be formed in line with the recommendations of the OGIC and the Government’s published White Paper on the Report. Hence, there is the need to clarify under which legal framework and other institutional/organisational structures this new JV will operate.
Secondly, the issue of Commercial/Corporate governance framework with which this new JV will operate needs to be addressed and be made available for public scrutiny. It is very important from the onset, to understand what type of commercial framework will govern the operations of the JV. For example, is the proposed JV going to be shaped and modelled after the traditional National Oil Companies’ (NOCs) commercial frameworks and cultures or is it going to be shaped and modelled after the so-called successful International Oil Companies’ (IOCs) commercial/corporate structures and cultures?
Thirdly, the issue of Fiscal Framework that will drive the JV needs to be addressed and be made available for public scrutiny.
Finally, but by no means the least, the issue of Environmental/Corporate Social Responsibility frameworks that will govern the JV needs also to be addressed and be made available for public scrutiny as well. These issues, if not properly handled by the partners in this joint venture are likely to undermine and frustrate the smooth implementation of the venture.

In conclusion therefore, these issues are very important because we are in the era that requires that all these issues be properly addressed and be made available to the public in order for Nigeria to remain competitive and at the top of the game. There is no doubt whatsoever, that, one can say Nigerians welcome this new baby; but there is an urgent need to seek the assistance of Professor Dora Akunyili, Nigeria’s indefatigable Hon. Minister of Information and Communication to re-brand this new baby by giving it another befitting name in order to end the present public relations (PR) blunder!