The three executive orders numbers 40, 41 and 42, which were issued by President Bola Tinubu on March 1, 2024, could deal a heavy blow on the outsized corruption and sleaze in Nigeria’s oil industry if well executed, BusinessDay investigation has revealed.
The six-page Executive Order 40 is a six-page document that targets fiscal terms including tax incentives, exemptions and remissions in the oil and gas industry by extending some existing incentives to non-associated gas (NAG) greenfield projects in onshore and shallow water locations as long as the first gas production happens before January 2029.
On the other hand, Executive Order 41, which goes over four pages begins with a lamentation, saying “investments in the oil and gas sector in Nigeria have significantly decreased, with the country having only 5 percent of Africa’s total oil and gas investments despite holding 38 percent of the continent’s hydrocarbon reserves.”
The order focuses on local content compliance by taking into account the “practical challenges of insufficient in-country capacity” for certain services. The order seeks to ensure that the local content board, the Nigerian Content Development and Monitoring Board, does not act in a manner that “hinders investments or the cost of competitiveness of oil and gas projects.”
In doing its work, the board shall now be mandated not to “approve a Nigerian content plan that contains intermediary entities lacking the essential capacity to perform the services” and “demonstrates lack genuine, substantial and tangible capacity to independently execute projects within Nigeria.”
The third regulation, Executive Order 42, is a five-page document that targets the incredible sleaze that hampers speed of contracting and resultant high cost in the oil and gas industry.
The Executive Order raised to $10 million the “contract approval threshold”. This means that contracts of value below $10 million no longer have to go the Nigerian National Petroleum Company (NNPC) or its subsidiaries for approval. This is a game changer for the industry.
Another key rule in the Executive Order says “the NNPCL and NUIMS shall ensure that all approvals or consents required to be given by it for contracts and procurement for each contract stage pursuant to the terms of PSCs or JOAs are issued within 15 days from the date of submission of application by the relevant party to the PSC or JOA.” Industry players have called this new rule earthshaking with the potential of huge positive impact if well implemented.
BusinessDay interviews held with senior players in the oil and gas industry including owners of key assets who are direct participants unveiled mind blowing blackholes in the industry which the Executive Orders can clean up if properly implemented. Contract approval cycles go on for up to three years in Nigeria compared to six months in Algeria.
Senior industry officials told BusinessDay that “in most cases, senior officials of the NNPC, its subsidiaries and their principals in the highest echelon of government set up a web of schemes intended to collect bribes and set up other extortionist arrangements which extend contracting time in Nigeria where the cost of production of oil is among the highest in the world.”
Our investigation revealed that the custodians of the incredible corruption in the oil and gas industry can be located among the top officials at two key NNPC subsidiaries.
They are the local content agency, the NCDMB, based in Yenagoa and NNPC’s Exploration & Production Limited (NEPL), a wholly owned subsidiary of the state oil company. NEPL was intended to operate and compete with private firms in the exploration and production of oil and gas resources. It is the successor to Nigerian Petroleum Development Company, based in Benin City.
According to key players and direct participants who spoke to our reporters, here is how a large part of corruption is nourished and sustained. Take the case of company that is a marginal field operator and without government equity. Its senior managers must first go to the NCDMB with a list of rig and chemicals suppliers it wants to invite tender for a well development programme. NCDMB wields this power (toll gate) because it must give a certificate affirming that vendors for the marginal field operator meet the local content requirement under a law signed by President Goodluck Jonathan in 2010 to promote the indigenization of the oil industry. However, this simple certification process if transparent could happen in a week or two but it can go on for months or even years.
At the various desks an application must go through, government officials where they do not reject the list submitted outright, will then go on to add names of their preferred suppliers of rigs and chemicals and ensure that huge mark ups or bribes are inserted for themselves and their principals in Abuja.
From NCDMB, it said the application will then go to Abuja for final approval. Still more bribes are extracted and the process goings on of forever while the promoters of the marginal field bear the huge cost of servicing loans that they have taken but which cannot be promptly put to good use as a result of the bribe riddled delays.
In the case where the government is an equity or joint venture participant in the asset to be developed, the queue to extract bribe money is even longer. This is where the NEPL chiefs are involved. The reason for their oversight is to ensure that costs submitted and lists of suppliers offer Nigeria the best in cost efficiency. However, in truth this rig and chemicals procurement approval process “has become the most corrupt in the world,” according to one expatriate oil chief who spoke to BusinessDay.
The following three examples may help demonstrate the unbelievable extent of the sleaze in the oil industry which has been brought to its knees with international oil companies cutting their exposure through aggressive divestment schemes that are drying up investment capital into the sector.
A mid-size Nigerian firm (name withheld) approached NEPL with a straight forward oil well development programme. The contract sanctioning process dragged on for two years while government officials sought to contrive bribes into the cost profile. In the end, a rig supplier was forced on the oil company at a cost two and a half times the free market price.
Contract was awarded. However, after the development of the first well, the decrepit rig collapsed and remained idle for three months because the well connected rig supplier could not be pushed to honour its obligations to the well developer. “In our own estimate, the development of the wells ended up costing the company about nine times what it would have cost if the rig had been obtained in a free and transparent bid process,” BusinessDay was told.
In another instance, an oil giant with French parentage was forced to part with significant bribe when it sought to acquire a rig for a big offshore development. In this case, a lady was imposed on the firm by senior government officials who succeeded in extracting huge bribes before the company passed through the gate. “It is the name of the game. Try as hard as you would, they often found a way to wriggle round you,” another oil chief said to our reporter.
In a third example, a Nigerian firm approached the authorities with a list of chemicals suppliers for its oil well development programme. A top government official sponsored a supplier and insisted it must be given the contract. A highly credible supplier (name withheld) was pushed aside, and the sponsored firm was awarded the supply contract.
Along the way, it was found that the chemicals supplied at highly inflated cost was second or even third grade. The well development stalled. Now, BusinessDay understands that the well recommended supplier was approached to complete the job. According to one experienced industry official, “it is all a nest of sleaze and corruption.”
Some of the value adding innovations that is hoped the Executive orders can deliver include reduced project cost, faster project execution timelines, reduction in waste and multiple layers of middlemen in project contracting processes, increased number of gas projects quickly reaching final investment decisions increased gas supply for export, enhanced gas supply for domestic use in power plants and reduction in the price of cooking gas.
Many in the industry attribute the brilliance of the Executive Orders to the president’s energy adviser Olu Verheijen who came to the job with nearly 20 years of relevant experience in the field including knowledge and expertise encompassing the oil, gas, power, and renewable energy sectors in sub-Saharan Africa.
Prior to her current role, Verheijen served as a deal lead at Shell, where she provided advice on gas commercialisation and participated in mergers and acquisitions transactions totalling over $5 billion. Additionally, she held a position on the governing board of a Shell upstream joint venture, demonstrating her involvement in high-level decision-making within the industry.
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