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Designed To Fail: Inside Nigeria’s Controversial Contract With P&ID

Sept. 15, 2019. Premium Times, Nigeria: “Designed To Fail: Inside Nigeria’s controversial contract with P&ID” By Taiwo-Hassan Adebayo.

Nigerian officials, on a day in January 2010, sat facing a familiar business team across the table, ready to sign an agreement for gas supply and processing (GSPA), capping years of lobbying and conversations, which involved late President Umaru Yar’Adua.

The agreement, a copy of which has been obtained by PREMIUM TIMES, was signed by late petroleum resources minister, Rilwanu Lukman, for Nigeria, and Irish Michael Quinn, also now deceased, of the Projects and Industrial Development, P&ID.

However, as our review of several interactions and documents relating to the agreement suggest, the signatories may have put in place a plan destined to fail – there was no definitive framework in practical terms for its successful enforcement.

Nine years on, that agreement now forms the basis of the humongous $9.6 billion award against Nigeria, following arbitration and lawsuit in London. That award is worth more than the country expects in development assistance from Germany to fix Nigeria’s troubled electricity sector, ironically one infrastructural problem Mr Quinn had set his “persuasive case” on during his 2008 meeting with late Mr Yar’Adua.

At the time the agreement was signed, Nigeria’s operational capacity for electricity delivery was abysmally low. But millions of standard cubic feet of gas burnt off in open air by oil companies during production could be captured to run power plants to produce thousands of megawatts of electricity.

A resource for electricity is not just wasting, gas flaring devastates livelihoods of local populations in the Niger Delta and causes tons of carbon to be emitted into the atmosphere, thereby contributing to climate change.

So, a gas-to-power initiative, like one proposed by Mr Quinn, was always going to be attractive especially because it was sold to officials as one not to be paid for.

But despite its promises, at least in the proposal, the agreement was signed without the usual publicity that follows government plans to improve infrastructure and solve a critical problem such as gas flaring.

“Should these extraordinary benefits meant to accrue to the country not have elicited publicity on the day the deal was sealed?”, Segun Adeniyi, the spokesperson for late Mr Yar’adua, queried in an article.

Meanwhile, though the agreement was signed when the late president was battling for his life in Saudi Arabia, he was sent the proposal in August 2008 and Mr Quinn, in his written statement, said it was the late president’s endorsement that helped facilitate further steps leading to the signing of the agreement in January 2010.

Now, Messrs Yar’Adua, Lukman, and Quinn are deceased.

The Agreement

In Nigeria’s law, gas flared belongs to the Nigerian government and the petroleum minister is empowered to take it for some purpose; commercialisation or power generation, for instance. The parties, ministry of petroleum resources and P&ID, set the agreement on the basis of this provision.

The company was to build gas processing facilities around Calabar, Cross River State, and the government was to supply wet gas up to 400 million standard cubic feet per day. The agreement defined wet gas as “associated gas removed, during oil production, having a propane content of not less than 3.5 mol per cent and a butane content of not less than 1.8 mol content, compressed and delivered via pipeline to the site.”

In turn, the company “shall operate and maintain the GPFs (gas processing facilities) on a professional basis to ensure a regular supply of Lean Gas (approximately 340 MMSCuFD) for power generation.” Lean gas, defined as “pipeline quality gas having a composition of not less than 95 mol per cent of methane and ethane,” was what the government was to take after supplying wet gas for processing by the company.

The commercial side of the agreement was based on the plan that the company would sell in the international market byproducts such as propane, butane, and condensate separated from the wet gas to be supplied by the government free of charge. The other by-product, lean gas, would be supplied to the government free of charge to produce electricity.

The parties set a 20-year duration but the facilities were to be in two phases. In the first phase set for the last quarter of 2011, 150 million standard cubic feet of wet gas was to be processed per day. The remaining 250 million standard cubic feet of gas would be for the second phase planned for the third quarter of 2012.

The responsibilities for the government included ensuring “that all necessary pipelines and associated infrastructure are installed and all requisite arrangements with agencies/ or a third party are in place to ensure supply and delivery of wet gas …so as to facilitate timely implementation of gas processing…”

Also, the government was to “assist P&ID, and where necessary intercede with relevant government agencies, to obtain all requisite licenses, permits and approvals required for the fast-track implementation of the project.”

These responsibilities were to be relied upon by the company during the arbitration many years later in London. The arbitration tribunal held that Nigeria’s failure on its responsibilities and subsequent repudiation of the agreement informed the company’s inability to construct the processing facilities.

But in the minority verdict, Bayo Ojo, a former justice minister who was nominated by Nigeria to be on the arbitration panel, put the award against Nigeria at $250 million. He said not building the facilities by the company was also a factor in Nigeria’s failure to supply the wet gas.

P&ID was registered in British Virgin Island in 2006 and later that year, Mr Quinn registered another company with the same name in Nigeria without a parent-subsidiary arrangement. But the firm that signed the agreement was the P&ID of BVII.

Nigeria was later going to state, during the arbitration, that the agreement was void as the P&ID BVI was not registered in Nigeria and by the country’s law could not conduct business in Nigeria.

However, a former Chief Justice of Nigeria, Alfa Belgore, was contracted by P&ID to provide a legal argument against his country.

“Designed to fail”

Associated gas produced during oil production only belongs to the government when flared and let loose in the atmosphere. But instead of that, oil companies can capture and use the associated gas produced from their facilities for utility power or reinject into the earth crust.

Despite resting on these conditions, the P&ID agreement was signed without certainties about gas supply, PREMIUM TIMES can report.

Although Addax, the operator of OML 123 where gas was expected for the first phase of the project, was co-opted into the discussions leading to the agreement, there was no definitive commitment to make available the wet gas in terms of content and quantity required by P&ID.

In Mr. Quinn’s own statement obtained by PREMIUM TIMES, Addax, during a November 13, 2009, meeting chaired by Tijani Ibrahim, then a technical adviser to the ministry of petroleum resources, only indicated willingness to make available 100 million standard cubic feet of wet gas out of 168 million they then flared per day.

According to Mr Quinn, Addax representatives at that meeting stated that the company, with headquarters in Switzerland, wanted to use the remaining 68 million feet for utility power and reinjection.

Exxon on the hand was not brought into the discussions, from our findings. Yet, the 250 million standard cubic feet required for the second phase of the project per day was to come from Exxon’s OML 67 operation.

Also, while there was ongoing construction of a gas pipeline linking the Addax’s OML 123, no such infrastructure existed, even if in the works, for OML 67 as of the time of signing the agreement. However, Mr Quinn said in his 2014 statement that his company was ready to construct a 70 KM pipeline reaching OML 67 on its own account – though that was a responsibility meant for the government.

Also, the exact content of the gas expected from Addax was not provided, Mr Quinn said, casting doubts over the commercial side of the project.

Curiously, there were no definitive plans around the requisite infrastructure for off-taking lean gas by the government for power generation.

Despite the vagueness of the plans, Nigeria’s then petroleum minister, Mr Lukman, and Mr Quinn went ahead to sign the agreement on January 11, 2010.

Barely 24 hours after, Mr Quinn wrote the minister “to put in place all necessary modalities as soon as possible, with both Addax Petroleum and Exxon Mobil, in order to ensure the timely delivery of the currently flared Wet Gas for the project.”

Mr Quinn’s P&ID had no contract with Addax and Exxon and therefore had to send several letters subsequently to government officials towards having the cooperation of the oil companies.

At one time, the minister asked the NAPIMS and DPR ‘to ensure implementation” but ultimately oil companies could use the gas burnt off during production for their own purpose as far as it is not going into the atmosphere uncaptured. And after all, both the government and P&ID signed their agreement without any contract with the oil companies, the primary sources of the required wet gas.

Two years after the agreement was signed, Addax directly informed P&ID it was unwilling to participate in any gas supply arrangement, Mr Quinn said.

“The contract was designed to fail right from inception,” said Nigeria’s current justice minister, Abubakar Malami, during a session with journalists in Abuja, after the London court ruled P&ID can now start targeting Nigerian assets.

In late 2012, under former President Goodluck Jonathan, both the government and P&ID appointed arbitrators – Anthony Evans and Bayo Ojo – respectively, readying for the arbitration in London. But even so, in January 2013, Mr Quinn still wrote the government in one last desperate bid to salvage his project.

He then requested “the Government procure certain undertakings and provide certain information on or before 28 February 2013 so as to enable P&ID to proceed with Phase 2 of the GSPA.”

He was ignored and the project, which he thought was going to be the “highpoint of my Nigerian career spanning excess of 30 years,” died.

P&ID claimed it had spent an estimated $40 million on preparatory work, including engineering designs and that it would have made profits in excess of five billion USD in 20 years had the project succeeded.

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