Inside story of the botched P & ID gas agreement

FOLLOWING a United Kingdom court judgement granting Irish owned firm Process and Industrial Developments Ltd, P & ID, rights to claim $9 billion worth of assets, the Nigerian government is likely to suffer great loss amounting to one-fifth of its foreign reserves.

The failed Gas Supply and Production Agreement, GSPA deal between P & ID and the Nigerian government which is currently the subject of civil litigation in London has raised concern among Nigerians who shudder at how such gaff could happen.

According to a court document accessed by The ICIR, late Michael Quinn, the co-founder of P & ID, in his witness statement tagged “Exhibit 5” in 2014 revealed the details surrounding the gas project and key figures involved in the build-up to signing the final agreement.

The ICIR takes a look at major actors who were at the centre of the controversial deal, as well as the level of involvement of Nigerian officials in the botched gas project.

Background

In 2006, former President Olusegun Obasanjo conceived the idea of building gas facilities that would supply gas to power stations across the country to improve power supply as part of his National Economic Empowerment and Development Strategy, NEED.

P & ID, an engineering firm registered in a tax haven in British Virgin Island, BVI,  boasting a 30-year experience in managing engineering projects in Nigeria formally approached the Federal government with a proposal on August 7, 2008, submitted to the late President Umaru Yar’adua to build a proposed gas plant in Calabar.

The gas processing plant was to refine associated natural gas into non-associated natural gas to supply gas to power stations which would increase the generating capacity of the national electric grid.

On 21 July 2006, P &ID (Nigeria) Ltd was registered to serve as its operating company within the country, which was an affiliate to P & ID.

In Michael’s statement, he admitted that his company’s affiliation to a tax haven was not a source of concern to the government, rather it was viewed as beneficial to its interest according to clause 8(e) of the GSPA deal.

“Following the initial transfer of five percent 5 per cent Equity to the Government or its nominee as provided for at Article 8 (e) above no new shares whether ordinary, preference or otherwise may be issued without the written agreement of the Government such agreement not to be unreasonably withheld and the Government shall be entitled to representation on the Board of P&ID in proportion to the equity held by the Government at any given time.” it reads.

In the build-up to submitting the proposal, P & ID limited had carried out an extensive two-year scale of feasibility studies from 2006, involving the purchase of licenses for the technology required to operate the gas stripping plant, propylene plant, the production of detailed engineering drawings and its internal project management costs.

P & ID hired several engineering firms to provide procurement and construction, which comprised about 100 volumes of documentation, a 3-D software model of the plant which was necessary to implement the project on the ground.

The firms include CB & I Lummus Technology Group in New Jersey, KRAN Developments in Johannesburg and ABB Limited in the UK which it claimed to have spent $29 million for their services during the feasibility stage.

In October 2008, P & ID made its presentation at the Ministry of Petroleum Resources with the Minister of State(Gas), Emmanuel Odusina at the instruction of the former President, late Umaru Yar’ Adua.

In his statement in court, he admitted that the late Rilwan Lukman who was a Special Adviser to the President at the time played a significant role to ensure P & ID get the deal.

“I believe that he, and therefore the Government, were confident in our abilities to undertake and complete complex natural gas-related projects,” he said.

In December 2008, Lukman was appointed as Minister of Petroleum Resources after a cabinet reshuffle after which he called for a review of the P & ID proposal.

He put his special technical adviser, Taofiq Tijani, in charge of the process who engaged P & ID in conducting several presentations, before a copy of the presentations was forwarded to Lukman in a letter on February 2009.

The proposal detailed the execution of the gas plant project which would be in two phases with the first phase focused on constructing a gas stripping plant to refine associated natural gas into non-associated natural gas.

The natural gas would be supplied to the power generating stations free of charge, while the proceeds from the by-products would go to P & ID’s account.

The timeline for the execution of the first phase of the project was two years after obtaining the required government approvals.

While the second phase would involve the construction of a polymer grade propylene plant that would make use of propane from the stripping plant to produce polymer grade propylene for sale on international markets.

The proceeds from its sale would also be used by P & ID to take care of its own costs, while the execution of the project was expected to take 15 months.

A half-done deal

The Minister of  Petroleum Resources, Lukman set up a technical working committee to assess the proposal submitted by P & ID with the firm invited for its meeting to ensure the feasibility of the project.

The committee made several adjustments to the proposal which includes the construction of a stripping gas plant instead of two plants to speed up the project, the construction of 2 process trains in two phases supplying 150 MMSCuFD for phase one and 250 MMSCuFD for phase two.

Cross River State was the accepted choice for phase one of the project, considering Addax Oil was flaring wet gas in OML 123 which was suitable for actualising the project.

In July 2009, a Memorandum of Understanding, MOU, was signed between P & ID and Lukman on behalf of Nigeria.

It was agreed that both parties would establish a framework and set out the principles under which they intend to enter into a definitive agreement to carry out their desired objectives.

However, a Joint Operating Committee was set up by Lukman to hasten the execution of the project, among those selected for the committee, includes Mohammed Kuchazi, Michael Quinn, represented P & ID, M. M Ibrahim who was then Head of Policy, Grace Tiaga from the Ministry of Petroleum Resources.

The Nigerian National Petroleum Corporation, NNPC, was also represented on the committee.

On 11 September 2009, after a series of meetings were held, Addax Petroleum, was invited to participate as a stakeholder in the meeting.

In a letter, to P & ID on 13, November 2009, Taofiq Tijani, technical adviser to Minister Lukman invited P & ID, Addax Oil and the government to a stakeholder meeting to fast track the project.

At the meeting, Jones Ogwu representing the Department of Petroleum Resources, DPR, Grace Taiga, sat in for the Petroleum ministry, Debo Spaine attended on behalf of Addax, and Neil Hitchcock, Michael Quinn represented P & ID.

Addax Petroleum confirmed it would deliver 100 MMSCuFD of natural gas from the 168 MMSCuFD of wet gas they were currently flaring to the P&ID site in Calabar via pipeline which was been constructed offshore from Adanga (in OML 123) to comply with the Federal government obligations.

At the meeting, a copy of the GSPA draft was handed to Addax Petroleum to show the specifications of wet gas that should be supplied to P & ID and Addax agreed to the terms.

Prior, to the execution of the final agreement, Michael claimed P & ID could not secure data on the precise composition of wet gas being flared at OML 123.

He stated that after several attempts through correspondence they did not receive a specific composition data which would have helped to fast track the process.

Before the GSPA contract was sealed, there were changes to the initial draft which includes the swapping of P & ID, Nigeria Ltd with the BVI affiliate without objections from the Nigerian officials.

Also, the federal government started the construction of a 24-inch pipeline from OML 123 to supply wet gas to P & ID for the first phase of the project, while P & ID agreed to build a pipeline of 70 km in length free of charge to facilitate the delivery of 250 MMSCuFD of wet gas for the second phase.

It was agreed that the first phase would commence on or before the last quarter of 2011, while the second phase was likely to kick start on or before the third quarter of 2013.

On 11 January 2010, P & ID finalised a 20 years agreement plan with the federal government signed on by Rilwan Lukman to build a gas processing plant in the country.

Road to a botched deal

Immediately, after P & ID sealed the GSPA contract the firm requested in a letter dated 12 January 2010, that the Minister of Petroleum Resources, Lukman put measures in place to speed up the project.

“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,” a section of the letter reads.

On 1 February 2010, P & ID formally requested for allocation of land from the then Governor of Cross River State, Liyel Imoke upon which the plant would be constructed. Fifteen days later, a 50.662 hectares of land, was approved for the firm’s industrial use at Adiabo in Odukpani Local Government Area.

The then NNPC Managing Director, Shehu Ladan issued a standing instruction to the National Petroleum Investment Management Services, NAPIMS, to provide engineering logistics to ensure Addax Petroleum and P & ID meet their targets for the project.

After a series of meetings with failure to reach a final conclusion, Goni Sheikh, the Permanent Secretary at the Ministry of Petroleum Resources, requested that a letter of undertaking be signed by P & ID and Addax Petroleum which was not carried out, Michael claimed.

In a letter, dated 10 March 2011, NAPIMS informed P & ID that Addax Petroleum was unable to supply the required amount of 150 MMSCuFD of wet gas from OML 123 for Phase 1 of the project because they required 50 MMSCuFD of lean gas for reinjection in OML 123.

P & ID argued it was a breach of the GSPA, but they proffered another solution stating that they would produce lean gas by stripping wet gas from offshore OML 123 to meet the needed quantity for Addax Petroleum.

David Ige, then General Executive Director, Power and Gas, NNPC didn’t agree to the proposal but suggested a “gas gathering” proposal which P & ID willingly considered though it was not in the initial agreement.

On 16 May 2012, Neil Hitchcock of P&ID, senior NNPC management headed by Dr David Ige, and the senior management of Addax Petroleum agreed to the amended project and promised to work together to ensure phase 1 of the project becomes a reality.

In June 2012, Addax Petroleum withdrew its cooperation stating it wished to “undertake the development of the non-associated gas themselves”.

Several attempts to get the then Minister of Petroleum Resources, Alison Madueke, to intervene in the matter was to no avail. In July 2012, P & ID wrote to the Federal Government placing a time limit for the federal government to wade in or P & ID would consider an alternative solution.

“Therefore, P&ID’s offer in principle to enter into an amendment [to the GSPA] will be regretfully withdrawn on 10 August 2012 if, by that time and date, no formal amendment has been agreed
and executed between the Government and P&ID,” a section of the letter reads.

After failing to get a definite intervention from the federal government, on 20, March 2013, Michael on behalf of P&ID wrote a letter to the federal government, to terminate the GSPA before proceeding to the arbitration tribunal in London on 22, August 2012 to seek redress.