The
Group Managing Director of the Nigerian National Petroleum Corporation,
Maikanti Baru, has finally responded to allegations of corruption and
violation of contract laws raised by the Minister of State for
Petroleum, Ibeh Kachikwu.
In a memo to President Muhammadu Buhari, leaked last week to the
media, Mr. Kachikwu detailed several alleged misdeeds of Mr. Baru,
including the unilateral award of hefty oil and gas contracts totaling
about N9 trillion.
He also accused Mr. Baru of insubordination.
Mr. Kachikwu met with President Buhari on Friday, but despite the
weight of the allegations, no government official reacted publicly until
now.
Read Mr. Baru’s statement released on Monday:
PRESS RELEASE
RE: ALLEGATIONS OF LACK OF ADHERENCE TO DUE PROCESS IN NNPC CONTRACT AWARDS
Following the publication of alleged lack of adherence to due process
in the award of NNPC contracts, the President ordered the Group
Managing Director (GMD) and Management of the Nigerian National
Petroleum Corporation (NNPC) to consider and respond expeditiously to
the allegations.
The substance of the allegations made by the Minister of State for
Petroleum Resources, in a letter to the President dated 30th of August
2017, is that a number of “major contracts were never reviewed or
discussed with me (sic) the NNPC Board.”
It is important to note from the outset that the law and the rules do
not require a review or discussion with the Minister of State or the
NNPC Board on contractual matters. What is required is the processing
and approval of contracts by the NNPC Tenders Board, the President in
his executive capacity or as Minister of Petroleum, or the Federal
Executive Council (FEC), as the case may be. There are therefore
situations where all that is required is the approval of the NNPC
Tenders Board while, in other cases, based on the threshold, the award
must be submitted for presidential approval. Likewise, in some instances
it is FEC approval that is required.
It should be noted that for both the Crude Term Contract and the
Direct Sale and Direct Purchase (DSDP) agreements, there are no specific
values attached to each transaction to warrant the values of $10billion
and $5billion respectively placed on them in the claim of Dr. Kachikwu.
It is therefore inappropriate to attach arbitrary values to the
shortlists with the aim of classifying the transactions as contracts
above NNPC Tenders Board limit. They are merely the shortlisting of
prospective off-takers of crude oil and suppliers of petroleum products
under agreed terms. These transactions were not required to be presented
as contracts to the Board of NNPC and, of course, the monetary value of
any crude oil eventually lifted by any of the companies goes straight
into the federation account and not to the company.
Furthermore, contrary to the assertion of Dr. Kachikwu that he was
never involved in the 2017/2018 contracting process for the Crude Oil
Term Contracts, Dr. Kachikwu was in fact expressly consulted by the GMD
and his recommendations were taken into account in following through the
laid down procedure. Thus, for him to turn around and claim that
“…these major contracts were never reviewed or discussed with me…” is
most unfortunate to say the least.
THE NNPC CONTRACTING PROCESS
The contracting process in NNPC is governed by the following:
i. Provisions of the NNPC Act
ii. The Public Procurement Act, 2007 (PPA)
iii. Procurement method and thresholds of application and the composition of Tenders Board as
provided by the Secretary to the Government of the Federation (SGF) Circular reference no.
SGF/OP/1/S.3/VIII/57, dated 11th March, 2009.
iv. NNPC Delegation of Authority Guide
v. Supply Chain Management Policy & Procedure documents
vi. NNPC Ethics Guide
Approving Authority for Contracts
The SGF Circular (iii above) on procurement threshold provided the
following authority limits for NNPC transactions as well as the
composition of the NNPC Tenders Board:
Table 1: Financial Authority Threshold (SGF Circular (iii) above)
| Approving Authority/No Objection to Award |
Special Works (NNPC) |
| BPP issues “No objection to award”/FEC approves |
N2.70 billion (USD 20M) and above |
| NNPC Tenders Board |
Up to N2.7 billion (USD20M) |
Table 2: Composition of Tenders Board (SGF Circular (iii) above)
| Ministry |
Chairman |
Permanent Secretary |
| Members |
Heads of Departments |
| Parastatals |
Chairman |
Chief Executive |
| Members |
Heads of Departments |
NNPC had cause to clarify severally from Bureau of Public Procurement
(BPP) as to the composition of NNPC Tenders Board and the role of NNPC
Board appointed by Government. The following clarifications were made.
a. The BPP expressly clarified that NNPC Tenders Board (NTB) is NOT the
same as NNPC Board. The governing board (NNPC Board) is responsible for
approval of work programmes, corporate plans and budgets, while the NTB
is responsible for approval of day-to-day procurement implementation.
b. BPP referred to the SGF circular for the composition of the NTB to
compose of the Accounting Officer (GMD NNPC) as the Chairman, with
Heads of Department (GEDs) as members with the Head of procurement (GGM
SCM) serving as the Secretary of the NNPC Tenders Board.
The above clarifications of the provisions of the procurement process
show that approvals reside within the NTB and where thresholds are
exceeded, the NNPC refers to FEC for approval. Therefore, the NNPC Board
has no role in contracts approval process as advised by BPP.
As can be seen, all these clarifications were sought and obtained
prior to August, 2015 and were implemented by Dr. Kachikwu as the GMD of
NNPC. Dr. Kachikwu also constituted the first NNPC Tenders Board on 8th
September, 2015 and continued to chair it until his exit in June, 2016.
Typical NNPC Contracting Process
1. Approval of project proposal and contracting strategy by NTB.
2. Placement of adverts for expression of interest in electronic and print media.
3. Soliciting for tender (Technical and Commercial)
4. Tender evaluation
5. Tender approval by NTB for contracts within its threshold; otherwise
6. Obtain BPP certificate of no objection before presentation to FEC.
7. Present to FEC for approval.
All Contracts in NNPC follow the above procedure.
SPECIFIC CONTRACTS MENTIONED IN THE HONOURABLE MINISTER OF STATE FOR PETROLEUM RESOURCES’ (HMSPR) LETTER TO MR. PRESIDENT
1. Crude Oil Term Contract (COTC)- valued at over $10bn
It is important to state that the COTC is not a contract for
procurement of goods, works or services; rather it is simply a list of
approved off-takers of Nigerian crude oil of all grades.
This list does not carry any value, but simply state the terms and
conditions for the lifting. It is therefore inappropriate to attach a
value to it with the aim of classifying it as contract above Management
limit.
In arriving at the off-takers list for 2017/2018 COTC, the following steps were followed:
a. Adverts were placed in National and International print media on Monday, 17th October, 2016.
b. The bids were publicly opened in the presence of all stakeholders
(NIETI, DPR, BPP, Civil Society Organisations, NNPC SCM Division and the
press as well as live broadcasts by the NTA and other TV stations).
c. Detailed evaluation was carried out and the short list of the
successful off-takers was presented to the approving authority (Mr.
President) for consideration and approval.
d. Thereafter, NNPC published the list of the successful off-takers in newspapers and NNPC’s official website.
This has been the standard procedure and it is the same process adopted during the 2016/2017 COTC when the HMSPR was the GMD.
In conclusion, due process has been fully followed in the
shortlisting of the off-takers of the Nigerian crude oil for the current
term 2017/2018.
2. The Direct Sale Direct Purchase (DSDP) Contract- valued at over $5bn
Like the COTC, the DSDP is not a contract for any procurement of
goods, works or services, rather it is simply a list of off-takers of
crude oil and suppliers of petroleum products of equivalent value.
This list does not carry any value, but simply state the terms and
conditions for the lifting and supply of petroleum products. It is
therefore mischievous to classify it as contract and attach a value to
it that is above Management’s limit.
In arriving at the off-takers list for 2017/2018 DSDP, the following steps were followed:
a. Work plans and execution strategy for the DSDP was granted by the approving authority (Mr. President).
b. Adverts were placed in National and International print media and NNPC website on Thursday, 22nd December, 2016.
c. The bids were publicly opened in the presence of all stakeholders
(NIETI, DPR, BPP, Civil Society Organisations, NNPC’s SCM Division and
the press as well as live broadcast by the NTA and some TV stations).
d. Detailed evaluation was carried out and the short list of the
successful off-takers was presented to the approving authority (Mr.
President) for consideration and approval.
This has been the standard procedure and it is the same process adopted during the 2016/2017 DSDP when the HMSPR was the GMD.
In conclusion, it has been confirmed that due process has been
followed in arriving at the shortlist of the DSDP partners for the
2017/2018 cycle.
3. The Ajaokuta-Kaduna-Kano (AKK) Gas Pipeline Contract
The AKK Gas pipeline project is a contractor financed contract. The process adopted for this contract is as follows:
1. Approval of project proposal and contracting strategy was given by NTB.
2. Placement of adverts for expression of interest in some National and International print media and NNPC’s website.
3. Expression of interest for pre-qualification received and evaluated.
4. Technical and Commercial tenders issued and evaluated
5. NTB considered and endorsed tender evaluation result for FEC
approval since this contract is above NTB’s threshold subject to
obtaining the following certificates of no objections:
a. BPP certificate of no objection (obtained).
b. Certificate of no objection from Infrastructure Concession and Regulatory Commission (ICRC) (obtained).
c. Certificate of no objection from Nigerian Content Monitoring & Development Board (NCMDB) (being awaited)
BPP and ICRC certificates have been obtained, while that of NCDMB is
being awaited after which the contract will be presented to FEC for
consideration and approval.
Thus, due process is being followed in the processing of this contract.
4. Various Financing Arrangements Considered with IOCs;
The financing arrangements reported as contracts are part of the
process of exiting Cash Call approved by the FEC. It entails
negotiations with JV Partners on alternative funding of some selected
projects through third party financing to bridge the funding gap
associated with Federal Government’s inability to meet its cash call
contributions.
The third party financing option emanates from the appropriation act
provisions that allow sourcing of financing outside regular cash call
contributions. Upon approval of the calendar year’s operating budget,
the NNPC in conjunction with its JV partners commence the necessary
process for accessing financing to bridge the funding gap.
Section 8 sub-sections (1) and (4) of the NNPC Act CAP N123 requires
that all NNPC borrowings must be approved by Mr. President.
Specifically, it provides that:
(1) Subject to the other provisions of this section, the Corporation
may, from time to time, borrow by overdraft or otherwise howsoever such
sums as it may require in the exercise of its functions under this Act.
(4) Where any sum required aforesaid –
a) Is to be in currency other than Naira; and
b) Is to be borrowed by the Corporation otherwise than temporarily,
c) The Corporation shall not borrow the sum without the prior approval of the President.
Due Process:
1. NAPIMS and JV partner identify bankable projects that require
financing and sends to NNPC Corporate Finance to assist in procuring
financing.
2. Constitution of Joint Financing Team (JFT) between NNPC and the JV Partner.
3. JFT NNPC invites Request For Proposals (RFPs) from Financial Institutions.
4. Submitted RFPs are evaluated and beauty parade conducted to determine most cost-efficient proposal.
5. Negotiated Financing Strategy, Term-sheets, Structures and pricing are presented for NNPC Management’s (NTB) approvals.
6. NNPC presents the renegotiated terms for approval of Mr. President.
7. NNPC executes the resultant Agreement.
Financings taken under this Administration: Approx. $3bn are as follows:
All established due process as enumerated above has been observed
leading to the securing of financing for the following projects in
2016/2017:
|
· SN
|
· PROJECT
|
· Amount (US$mn)
|
APPROVALS
|
· LOAN EXECUTED BY
|
|
NTB
|
PRESIDENTIAL
|
|
· 1.
|
· NNPC/CNL JV Project Cheetah
|
1,200.00
|
· 16/04/15
|
· 01/09/15
|
· Dr. E. I. Kachikwu
|
|
· 2.
|
· NNPC/CNL JV Project Falcon
|
780.00
|
· 26/04/17
|
· 31/07/17
|
· Dr. M. K. Baru
|
|
· 3.
|
· NNPC/SPDC JV Project Santolina
|
1,000.00
|
· 26/04/17
|
· 10/07/17
|
· Dr. M. K. Baru
|
|
·
|
TOTAL
|
2,980.00
|
·
|
·
|
·
|
These are not procurement projects as described by the PPA, 2007.
However, all established due processes as enumerated above were
followed.
The NPDC Integrity Upgrade and Development Projects
All the NPDC procurement contracts were subjected to the approved
procurement procedures as described in respect of the AKK Gas Pipeline
project above. There were no breaches of any extant procurement
processes.
For the benefit of doubt, it is confirmed that there is no single
NPDC contract that has been approved by the relevant Tenders Board
beyond its limit of financial authority and there is no single contract
that is in the $3Bn to $4Bn range claimed in the write-up.
Conclusions
From the foregoing, the allegations were baseless and due process has been followed in the various activities.
Furthermore, it is established that apart from the AKK project and
NPDC production service contracts, all the other transactions mentioned
were not procurement contracts. The NPDC production service contracts
have undergone due process, while the AKK contract that requires FEC
approval has not reached the stage of contract award.
Ndu Ughamadu
Group General Manager
Group Public Affairs Division,
NNPC, Abuja.
October 9, 2017.