Sunday, October 24, 2004

I Was An Outsider in the Deal - Etiebet

I Was An Outsider in the Deal - Etiebet

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I think it was in 1965 that Shell incorporated the Bonny Gas Company to liquefy and export Nigeria's gas reserves. Political and commercial intrigues kept the project moribund till 1989, when Nigeria LNG Ltd. was incorporated with Shell, ELE, AGIP and NNPC as shareholders, with NNPC having the majority shares.

NLNG Ltd. under the Chairmanship of the late Dr. Pius Okigbo was set-up to realise the objective of this long awaited project, and his Board identified two consortia as qualified to bid for the award of the Engineering, Procurement and Construction (EPC) contract on a turnkey basis, namely:

(i) Technip, Kellog, Snamprogetti and Japan Gas Company (TSKJ).

(ii) Bechtel, Chiyoda, Spibat and Ansaldo (BCSA).

In 1992, it was stated that TSKJ was chosen as the preferred contractor by the NLNG Board while Shell Gas was appointed Technical Adviser.

But in October 1992, there was disagreement again as government apparently disapproved of the Board's choice and the NNPC Directors were suddenly withdrawn from the NLNG Board, and the project was stalled once more as the EPC contract was not awarded. Thereafter, there were all kinds tumults and acrimony in the company and in government concerning the project.

In August 1993, I became the Secretary of Petroleum and Mineral Resources under Chief Ernest Shonekan's Interim National Government (ING). Because of the chequered history of the Nigeria Liquefied Natural Gas project which had been moribund since 1965 as a result of control problems, management problems, funding problems, ownership problems, and government interference problems; because of the danger of losing the LNG market to other countries and new entrants like Indonesia, Malaysia, Qatar and Algeria, most of which were developed by Shell, and because of the need for government to develop another source of revenue in those difficult years when crude oil prices were crashing below production costs, the ING under Chief Shonekan had to take the hard decisions to relaunch the LNG project immediately to secure its market for Nigeria.

In re-launching the NLNG, we needed to take steps to address those factors that had militated against its progress and realisation since the past 29 years. Those factors included:

(i) Ownership Structure (ii) Management Control (iii) Funding and Financing (iv) Market Assurance

As the market for Nigeria's LNG had become weary over the years because of disappointments in the inability to award the EPC contract for its construction, lack of proper management structure in place, funding by NNPC (government) was not assured because as at that time Nigeria's finances were not in good shape - the Federal Government had just sold off 5% of its JVC holdings in the oil mining leases, oil prices were sliding below production cost, the country's economy was in bad shape with large foreign debts, huge deficits and declining Naira value left behind by the previous governments. Above all the foreign partners were very wary of an NNPC management to keep the plants functioning when they contend that they have been unable to keep the refineries working. Finally, they would not welcome any more government interferences in the execution of the project. So they demanded a change in the ownership structure to allow the foreign partners to be in control in ownership and management before further progress on the Nigerian LNG project can be made.

8. This was the basis on which I made recommendations to the government to approve a new ownership structure of 51% of the equity to the foreign partners (Shell, Elf and AGIP) and 49% to government through NNPC, which was approved by Government. The noise and resistance by particularly the Board of NLNG headed then by the late Dr. Pius Okigbo, and the NNPC management staff who had become afraid of losing their management positions, were so deafening that the late Dr. Pius Okigbo resigned as Chairman of the NLNG Board immediately and left Lagos for his home in the East, and remained incommunlcado.

I was, then, seen as the villain and branded as such by the media and other interested parties who accused Chief Shonekan and myself of being Shell agents planted by Shell in government to sell off the nation's assets to them. Incidentally, Chief Ernest Shonekan had been a non Executive Director of Shell before his appointment to head the ING. Despite the criticisms the government kept its position and today we have been completely vindicated and applauded as that our singular action in 1993 is contributing over 20% to Nigeria's GDP within ten years, and still expanding. With that decision, which contained:
51% Foreign Partners
49% NNPC (FGN)
Shell Gas Appointed Technical Adviser
Shell nominee appointed Managing Director/Chief Executive.
A Nigerian appointed Deputy Managing Director/Deputy CE. in place, the takers (buyers) of Nigeria's LNG were ready to reopen discussions, which included putting the Final Investment Decision (FID) in place before they would sign the buyers contracts. It must be made categorically clear at this point that the start-off of an LNG project is dictated by the buyers, because they too have a lot to do in taking LNG into their country, which consists but not limited to: (i) Competitive pricing in the world market. (ii) Construction of receiving depots, which in all cases require government and in fact the peoples' approval as they impact on environment and the economy. (iii) Assurances of non-interruptions of supplies as lives may be involved. So the buyers must convince their home governments of these assurances before they can get approvals. In Italy, my presentation on assuring them of no interruptions in supply and the decisions on funding, construction and management was presented to the Parliament by the Minister in-charge for approval before the companies could sign the buyers contract. I was there, and I watched the parliamentary proceedings on TV with an interpreter. It was very interesting and educative politically. With all that completed, I was able to re-launch the NLNG again in early 1994 under the Abacha regime amidst lots of protests to stop the LNG project once again. Representations were made to Gen. Abacha in Abuja the day of the launching to stop it, but I had already finished it in Lagos. When I met him, he told me about the protest and brought up the case of the Deputy Managing Director, whom I had already announced as one Dr. Ihetu who was then the Managing Director of NLNG before the Board was dissolved. The Head of State, Gen. Abacha directed me to change him for one Alhaji Abba Gana who was then the Admin./Personnel Director of the Company, to appease everybody. I had to agree to his directives and subsequently I called Dr. Ihetu to explain to him the circumstances of his replacement. He showed a lot of understanding and the NLNG project lived again. The funding and financing of the NLNG project was another thorny issue. The Board through its technical advisory committee presented a budget of about $4.6 billion to the Head of State in Aso Rock, at a meeting with him, consisting of: (i) Engineering, Procuring and Construction (EPC) $2.5 billion (ii) New Pressure Vessels Purchases $1 .1 billion (iii) Management and Financing Cost $1.0 billion I cannot remember the exact amounts, but they were in those regions. I was not in a good frame of mind at that meeting because, without f~rst discussing with me, they sought and obtained an appointment with the Head of State, Gen. Sani Abacha to present the project-financing plan to him. I was informed by the Head of State of the meeting and asked to be present. After their well-prepared computerised presentation, projected on screen, some of the people present asked some questions. Finally I was invited to make my inputs by the Head of State. In my input and suggestions, I dismissed entirely the provision for management and fInancing cost, arguing that we did not need those services, having already retained Shell Gas as Technical Adviser and a Shell nominee to head the management as the Managing Director/Chief Executive. I advised that the purchase of new pressure Vessels be deferred till later while asking them to take steps to retrieve our existing vessels then on hire to be used initially. I continued that we should focus more on the financing of the EPC cost of about $2.5 billion so that construction of the plants may start immediately; that Government was ready to make its 50% of the 49% of $2.5 billion totalling about $600,000,000 immediately, which was what was required from all the shareholders to be in place in an escrow account before the construction contract can be awarded. I maintained that if the other shareholders would do the same there was no need for financing, thereby eliminating the financing and management cost as stated, and that if the foreign partners could not contribute their quota by themselves and want to borrow, such cost would be to their own account only. When they expressed doubts as to how NNPC would finance the balance, I proposed a plan of how the government will meet it through budgetary provisions in the succeeding year's annual budgets to completion of the construction, as a national priority project with first charge deductions from the federation account. The Head of State, Gen. Sani Abacha, who at this time was not very receptive to borrowing agreed with my proposal and ruled thus. I believe that decision was implemented in the succeeding years budgets. Some uneasiness was noticed among all of us. However the meeting ended on that note. We all left with straight faces. That my input saved this country over $1 billion on that project and also made it realisable. From there on, I turned everything over to the new Board headed by Alhaji M.D. Yusufu as Chairman, the Technical Advisory Committee and the Technical Adviser to implement. But before then an Escrow Account was opened for the immediate payment of the 50% contribution from all shareholders before the EPC contract is to be awarded. How was I able to mobilise about $500 million within NNPC to make our 50% contribution to the escrow account at a time we could not meet even our cash call payments from government? This is not a matter for this discussion, but suffice it to say that I worked with NNPC and the Head of State to realise it. By this time I realised that my relationship with everybody concerning the project had started to be sour. I guess it was because of this atmosphere that they were not keeping me abreast of the whole tender evaluation and contractor selection process from time to time. It was not until the 15th of September 1994, the eve of the award, that the Managing Director/Chief Executive, Mr. Theo Oerlemans informed me of their decision, through a memo, which he asked me to keep "strictly confidential". It was that week too that the Chairman, Alhaji MD Yusuf informed me of their Board meeting in the Hague, the Netherlands to consider and award the EPC contract, and that I was invited to witness the event on the 24th of September 1994 in the Hague. By the 20th of September, 1994 I was in London, staying at the Dorchester Hotel having arrived from an OPEC meeting in Vienna, waiting to leave for the Hague. At the hotel in the morning, I received a call from the Hotel Concierge, of people intending to see me. I asked my SA to enquire who they were. The first person told my SA that he should tell me that his name was "London Weather" and that his friend from Nigeria had asked him to see me. I told my SA to tell him that I do not talk to "London Weather" and would not give him appointment until he said who he actually was. He declined to reveal his true identity and left. Thereafter, another caller came, who told my SA that he was the President of Kellog from America, and I told my SA to tell him that a meeting had already been scheduled for his team later that day of the 20th of September 1994, and as such he should wait for that meeting. He left without any more messages, and I later learnt that he flew that same day in his corporate jet to Abuja to meet with some top government functionaries. People who heard of the incident always chided me for refusing to meet with a whole President of Kellog from America. However, later that day about a ten-man delegation of TSKJ met me in the Dochester Hotel in my Suite. Thereafter, the BCSA team numbering about 6 also met me in the same Hotel. During the two meetings, Mr. Gilbert Chagouri and Mr. Eli Chalil who introduced themselves as agents of TSKJ and BCSA respectively were present. The meetings were requested for by both consortia and I scheduled them accordingly for that day, the 20th of September 1994. It was as a result of the information I gathered from the meetings of the two consortia that necessitated my memo of 22/9/94 captioned "Nigeria LNG EPC Contract" to the Chairman of NLNG, Alhaji M.D. Yusuf who was already in the Hague after a telephone conversation during which he gave me a Fax Number to fax my memo to. His reply dated 23/9/94 captioned "Nigeria LNG Limited EPC Contractor Selection" is enclosed. Because of the contents of his reply, I considered it inappropriate for me to go to The Hague again. So I left that weekend, Sunday for Nigeria, but before then Alhaji M.D. Yusuf had got a fax delivered to me via Eline Investment on the decision of the Board. The letter just said that the Board had taken a "unanimous decision on the 24th of September 1994 to select the consortium of TSKJ as the preferred main contractor, and immediately to enter into further negotiations with this consortium". The letter did not contain the amount of the contract and up-till this moment I have no knowledge whatsoever of the exact amount of the EPC contract of that LNG project, and was never appraised of any further negotiations with the contractor, TSKJ. When I reached Abuja, I reported to the Head of State, Gen. Sani Abacha immediately what had transpired in the Hague, and the correspondence between the Chairman, Alhaji M.D. Yusuf and myself on the EPC contractor selection process, and that I did not, therefore, go to the Hague again. I told him I felt betrayed by the whole events but the Head of State told me to await the Chairman's arrival to discuss it. That was the end of the matter, as we never met again. Since then I have never met with any NLNG official or the contractor, TSKJ representative, on the project. NLNG did not even invite me for the commissioning of the project at completion, which I had laboured to bring about. Definitely I was an outsider in the whole project execution. In February 1995 our Federal Executive Council (FEC) was dissolved and I was butted out of the Ministry and succeeded by Chief Dan Etete. That is all I know about the execution of the Nigeria Liquefied Natural Gas project. I do not know anything about the alleged bribery against the TSKJ Consortium, and I have never met or known Mr. Jeffrey Tesler. But from what I read about the bribery allegation against TSKJ now in both national and international newspapers and from the subject of this investigation, I can now understand why I was kept in the dark on the whole process of the contractor selection and award.
Text of the memo submitted by former Petroleum Minister, Chief Don Etiebet to the House Committee last week.

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