Tackling fuel supply crisis: Lessons from NLNG template

The lessons of history are universal and can be broadly applied across time, culture and races. But its gems and information nuggets, often sitting layers below the main story, take some digging to find. The challenge, oftentimes, is arranging facts and data into meaningful order and assigning weights to them in a way that allows the cream to rise. 

On NLNG’s 35th anniversary year, it is auspicious to share the lessons learnt from the history of the company and draw attention to indelible acts of the most important figures in the history of Nigeria’s most successful company.

Because of its special circumstances — it spent 35 years on the drawing board — and 35 as a going business concern, the history of NLNG makes an interesting reading. It is also important as it opens a window into the past and serves enduring lessons, especially the acts of its pioneers.

First on the list is former Head of State, Gen. Yakubu Gowon who conceived and nurtured the dream of building an LNG project in the years following the discovery of oil in commercial quantities. He didn’t realize his dream, but he laid the foundation and provided a princely sum for the project in the National Rolling Plan before he was ousted from office in 1975.

It takes about seven years, from gestation to final investment decision, to build an LNG plant. As an army colonel, Muhammadu Buhari and Chief Festus Marinho, first Group Managing Director of NNPC restarted the LNG Project as Bonny LNG project, the progenitor of NLNG in 1977. 

The promoters of Bonny LNG Limited were NNPC (60%), Shell Gas B.V. (10%), British Petroleum (10 %), Philips Petroleum Worldwide Gas Limited (7.5%), Agip s.p.a (7.5%), and Elf Aquitaine du Gaz (5%). 

BLNG shareholders agreement was signed in 1978 and the Federal Executive Council approved the award of a contract for preliminary engineering work on the gas gathering and transmission network to SNAM of Italy in 1979. From 1975 to October31, 1980, BLNG shareholders spent $18, 585,700 developing the project and marketing the product globally. 

The work progressed smoothly and the bid package for construction project was prepared and shared with the three consortia bidding for the contract. They were given till the end of March 1981 to submit their bids. 

It was smooth sailing until January 1981, when Mr. Sam Akpe of NNPC submitted a 45-page memo to the Federal Executive Council seeking approval for Final Investment Decision on Bonny LNG Limited’s six-train project, potentially the biggest LNG project in the world.

The 45-page memo provided an overview of the project – plant, gas transmission system, gas reserves, gas allocation, partners, shareholding structure, shipping, marketing and a host of others. It also informed the Federal Executive Council that “the total federal government equity contribution to the LNG project is not expected to exceed N1.3 billion…the total foreign exchange earnings to the federal government from the project for its 20-year life was expected to exceed US$ 230 billion. This is in addition to the repayment of all loans and operating costs.

He also reminded FEC that Bonny LNG Limited was expected to provide all the raw materials or feedstock (ethane gas) to the nation’s proposed huge petrochemical complex at Onne for 20 years at the rate of 320,000 tonnes per annum.

Akpe told the FEC that it took Nigeria 20 years to bring this project to decision making point; the country should grab the opportunity especially as Cameroun was also developing a three-train project targeting the same market.
He reminded FEC that it approved in 1979, the award of a contract for the preliminary engineering work on the gas-gathering and transmission network to SNAM of Italy. He also reminded FEC that the bid package for the construction project had been prepared by Bonny LNG Limited. The three consortia bidding for the contract had till the end of March 1981 to submit their bids.

Previous memos to FEC were in 1971, 1974, 1975 (2nd, 27th & 35th FEC meetings), 1976 and 1977.  Akpe warned that not taking a decision would, therefore, mean restarting the entire project. It would also mean a waste of shareholders time, money and energy as was the case in the 1960s and 1970s. From 1975 to 31 October 1980, BLNG shareholders had spent USD$ 18,585,700. These would be a waste if the project was cancelled. It would mean a loss of a prime market as well as a lack of seriousness as Nigeria would have no excuse for this decision. It would also bring about credibility issues.

In legal terminology, the plea to support Bonny LNG project is described as an open-and-shut case, a simple and straight forward situation without complications. The facts were so obvious as to present no difficulties, so easily settled or determined; so easy to decide.

Yet, as Nobel Laureates Doris Lessing and Nelson Mandela would have put it, “Things are not quite so simple always as black and white. Nothing is clear-cut”. There are always variations of understanding.

The Bonny LNG project memo was not well-received. This went against the run-of-play, against the lenders’ expectations, against the buyers’ hopes, against all hopes. Like Icarus in Greek mythology, BLNG, with the best deals in the industry, with outsized ambitions – to build a six-train facility, the biggest in the world and place Nigeria at the heart of Euro/American/Arabian oil diplomacy – flew so high and so close to the political sun and burnt its feathers.

The elephant in the room was politics, oversized egos and fear of the opposition and press. And, perhaps, an absence of leadership. It was around the time that Chief Obafemi Awolowo accused the Shagari regime of taking wasteful foreign loans; warned that the ship of Nigeria’s economy had become rudderless; challenged Professor Emmanuel Edozien, the Economic Adviser to President Shagari to a television debate.

The government was under considerable pressure and everyone was cautious, some said afraid. The economic adviser to the President questioned the benefits of the project. The ministries of National Planning and Finance were similarly critical. To save the day, NNPC advised the government to appoint economic, financial and shipping consultants of international repute to evaluate the project from the Nigerian perspective and determine the relative costs and benefits of the project to the nation.

Thus emerged the Bonny LNG Project Economic Study, which examined the project’s study, scope, capital costs and funding requirement. It also examined its progress, timing, marketing, finance, and benefits to Nigeria in terms of cash flow, foreign exchange surplus, expenditure in Nigeria, employment opportunities, multiplier effects, expertise and transfer of technology. The report showed net contributions of funds to end in 1985 (start- up date of the first train) current estimate of Bonny LNG timing, net flows of funds to parties and total project – net flow of funds and annual foreign exchange surpluses.

The report of the study was ready in October 1980 and copies were distributed to various organs of the government. Before a decision was made, the outline of the Fourth National Development Plan 1981-1985 was published. In it, an allocation of paltry N300 million was made for the LNG project, suggesting that Nigeria was not ready to fund the project. One of the reasons adduced by the Finance Ministry for its action was that NNPC did not provide it with necessary information.

Following this, Bonny LNG, Phillips, one of the sponsors of the project and the technical adviser served notice in 1981 of its intention to withdraw from the project with effect from 3 February 1982. In December 1981, British Petroleum, another shareholder in Bonny, indicated its intention not to renew the shareholders’ agreement by February 1982. The other shareholders, Shell, Elf, Agip and NNPC were still interested in LNG project. However, it was considered financially prudent to liquidate Bonny LNG Company Limited.

Soon after, Vice President Alex Ekwueme, who had oversight responsibility for Petroleum ministry began efforts to revive the project. NNPC was authorized to provide N5 million for economic, financial and legal consultants appointed to carry out independent feasibility study for an LNG project. The consultants were Arthur D Little (USA), Skoup & Co. (Ngr), First Boston Corporation (USA), International Merchant Bank (Ngr), Wilmer, Cutler and Pickering (USA), Sherman & Sterling (USA) and Lateef Adequate & Co (Ngr).

On December 31, 1983, the former Petroleum Minister, then Colonel Muhammadu Buhari, toppled the government of President Shehu Shagari in a bloodless coup d’état. A former petroleum minister, former chairman of NNPC, the new Head of State returned with LNG project clearly on his mind.

Festus Marinho, his sidekick, immediately swung into action. He set up a task force to review all the previous efforts at setting up LNG in Nigeria. In a memo dated 28 February 1984, Marinho wrote that the “LNG Task Force is intended to prosecute the LNG Project with vigour. Before a realistic strategy is mapped out, however, it is intended to re-evaluate all past efforts, especially since the Bonny LNG Limited. Members of the Task Force were Mr. M.M. Olisa (Chairman), O.O. Ogunsola, E. A. Dennar, E. A. Olukoga, H.I. Osagie, K.E. Adeniyi, O. Laoye, S. Ezedinma and M.A.A. Babalola.

The taskforce reported a loophole in the shareholders agreement which provided an escape route for any shareholder to pull out of the project without penalty whilst preserving all the rights of the withdrawing party that accrued prior to the withdrawal date.

It was obvious to everyone that a six-train LNG plant was no longer financeable. Shell and Elf had independently proposed a three-train project. On 23 March 1984, the task force submitted its report urging the government to expeditiously pursue the LNG project for the purpose of diversifying Nigeria’s economic base and developing a supplementary foreign exchange earnings stream.

The government accepted the recommendations and set up an LNG Working Committee to restart the project. Buhari’s choice of Mr. Gamaliel Onosode, a top-notch corporate player and boardroom guru to lead the committee proved prescient. Onosode, first-class technocrat, administrator and Baptist Minister, was ambushed into becoming the team lead for LNG project by Buhari and his oil minister, Prof. Tam David West.

In the course of an evening banter at Onosode’s Surulere, Lagos residence, David-West had informed him that the government was about to establish an LNG Working Committee and wanted him to serve on the committee. “I was a bit surprised because I was not an oil and gas man. I was a banker and a manager; so, I was really surprised,” Onosode recalled.

But the minister persisted: “Look, those are the skills we want represented in the working committee.” Eventually, Onosode gave in: “if the government says it wants me to serve in the committee and you came all the way to my house to tell me, I will not say no.”

On the day of inauguration of the LNG Working Committee in March 1985, David West invited Onosode to his office and said: “Well I am sorry I didn’t tell you before, but I deliberately didn’t want you to know because I feared that you might turn down the request. We want you to be the chairman of LNG Working Committee.”

Onosode had protested that he was not the right person for the job, not being a technical man or an oil and gas man. But the minister didn’t budge. Members of the maiden LNG Working Committee were: Mr. G. O. Onosode (Chairman), Dr. E. I. Onyia (Coordinator), Mrs. V. E. Ihonde (Petroleum Ministry), Mrs. F. N. Onyeabo (Industries Ministry), Mr. M.A. B Akpobasah (Planning & Budget, Presidency), Mrs. Y. O. Fasade (Jusce Ministry), Mr. L. E. Egware (CBN), Prof. Chi. U. Ikoku (UNIPORT), Mr. S.A.K. Junaid (Finance Ministry) and Mr. U. U. Udoma (Legal Practitioner). Representatives of the prospective partners were Mr. B. A. Lavers (MD, SPDC, Lagos), Mr. M. Rolieu (MD, ELF, Lagos), and Mr. G. Pedaci (Agip, Milan), The committee was given powers to co-opt members as it considered necessary and the numbers grew with time.

At the inaugural meeting, Onosode did something unusual. To everyone’s surprise, he proposed, without explaining why it was desirable, modification of the government’s terms of reference.

Years later, he explained why he took the action. “I was not happy with the logical sequence of the issues set out. We reorganized the terms of reference so that we will not incorporate the company until we were satisfied that the project was viable. 

Having reshuffled the cards, Onosode requested Shell, Agip and Elf to state clearly the conditions under which they would go ahead with the project. Mr. B. A. Lavers, MD of Shell who spoke on behalf of foreign shareholders gave three conditions – market availability, execution of the shareholders agreement and an agreeable fiscal regime.

Despite stiff opposition from members of his team and petroleum ministry officials, Onosode reengineered the fiscal environment to make it conducive for LNG project. This is the origin of the NLNG Act, the superstructure on which NLNG rests today.

Without Onosode’s intervention, NLNG would have remained a pipe dream. Not a man to pilfer funds or leave them idle, Onosode bought four LNG carriers and leased them to LNG projects, making money even before the company was registered in 1989.

By June 1992, the ministerial roulette soon brought Dr. Chu S. P. Okongwu, a selfless technocrat and believer in the republic who speaks and acts with a daunting energy and sureness to the Petroleum Ministry. Okongwu who received degrees in Economics from Boston University and the Massachusetts Institute of Technology and a Ph.D. from Harvard University had been President Babangida’s ally since 1985. From Finance to National Planning and later Petroleum, Okongwu was widely seen as incorruptible – the guardian of the straight and narrow.

He saw the country through a painful structural adjustment programme, he privatised the banks and saved money for major projects through a dedicated escrow account for Nigeria LNG Project (20, 000 barrels of crude daily) and other national projects. Pastor Benson Omomukuye, Okongwu’s aide and chairman of the NLNG Financing team, said Okongwu raised about USD$800 million for NLNG.

Okongwu arrived at the Petroleum Ministry when the bidding for LNG project had seized the country’s imagination. Politicians and crooks of all hues were busy peddling influence and making bogus claims about their ability to influence the on-going bid. There were rumours of sell-out by officials, wrong technology, dereliction by NNPC and government officials; leaks concerning the ongoing bids and of bribery scandal that many years later is still under investigation.

This was the ethical climate when Okongwu assumed duties and that coloured his relationship with NNPC. Okongwu recalled that he was alarmed that he could not get detailed and accurate information from NNPC or government representatives on the project especially the worrisome issue of alleged wrong technology.

The final tender report prepared by the Technical Adviser recommending the LNG project for final investment decision was received on September 21, 1992 and was presented to the Technical Advisory Committee (TAC) meeting held September 24 to 25, 1992.

The report considered the technical quality of the bids and concluded that both of them were competent and acceptable; that the tenderers demonstrated complete understanding of contract requirements. It then recommended one of the two bidders for the job.

But NNPC’s representatives disagreed. NNPC’s Board policy supported the selection of the lowest and most competitive bid, the winning bid was not the lower of the two. Their memo on the subject surprised and alarmed Okongwu, who invited the Chairman and Managing Director of NLNG to brief him on the outcome of the exercise and after their meeting went to Abuja to brief President Babangida.

The NNPC GMD also went to Joda’s house to inform him of NNPC’s position. Joda told them that what they proposed was tantamount to a shareholder rejecting the recommendations of three technical organs set up by the shareholders. NNPC, he said, did not have enough affirmative votes to approve their recommendations. He urged them to meet with other stakeholders. Joda informally reached out to members of the NLNG Board of Directors. Nine out of 10 declined to support NNPC’s recommendations.

The NLNG Board meeting of Tuesday, October 6, 1992 to consider the report of the Tender Evaluation Report and take a final investment decision began amidst this confusion. The Board proceedings had barely started when they were summoned by Okongwu to his house. The meeting was adjourned and all the Board members were driven to the minister’s residence in Ikoyi, Lagos.

The meeting with the minister started at 11:15a.m. In attendance were Engr. Hamman Tukur, Mrs. E. A. Akomolafe, Mr. E.C. Nwakamah (Ministry of Petroleum); Dr. E. Daukoru, Mrs. J.O. Maduka, Mr. S. Bello (NNPC); Alhaji Ahmed Joda, Chief Ekeuku Wokocha, Mrs O. Olakunri, Mr. G. S. Ihetu, Engr. I.K. Inuwa (NLNG); Mr. Andrea Bressani (Agip Milan Italy); Mr. Jean-Michael Laupretre (Elf); Mr. D. H. Pearce (Shell London) and Mr. P. B. Watts (SPDC).

Okongwu is a man with a sense of drama. He apologised for taking them away from their deliberations and for the crowded nature of the meeting venue which he explained was due to the family nature of the meeting. He promised not to keep them for more than five minutes so that they could continue with their deliberations.

Okongwu said there was a ‘distinct difficulty’ with one of the items that they would be considering during their Board meeting and he thought that he should indicate to them the type of difficulty and some solutions. He noted that “somehow or the other, by omission or commission, the TA to the NLNG project, the Boards of the NLNG and NNPC did not fully brief him on the EPC valuation process and details of its documentation” to enable him do his job of counselling the Nigerian Government, the principal shareholder.

He said it was necessary for him to be fully briefed at all times so that he could formulate his views and advise the republic accordingly. He said no matter how illiterate he might be considered to be, as an econometrician and as a former Minister of Finance, as well as that of Budget and Planning, and one-time Chairman of Federal Tenders Board, and Finance and General Purposes Committee, he was familiar with tender processes and would have made some useful contributions if they had kept him fully advised on the EPC process.

After a long winding prologue in which he repeatedly suggested that his intervention would be constructive and positive, Okongwu hinged his intervention on two contracting principles: that the client was not bound to accept the lowest or any tender; and that the client was not bound to accept the opinion of the consultant – in this case the TA. He recalled that he was briefed on Friday and Saturday by NLNG and NNPC Board representatives, but insisted that these were no substitute for the detailed information to enable him to do his job and properly advise the republic.

The minister said the two proposals placed before him to advise the government upon contained three options, adding that he would like the board to consider a fourth. He was motivated by the following considerations:

The Nigerian Government, in his judgement, should strive for the best technical quality, technological performance and standards of excellence; the partners should also strive for the best technical quality and excellence; Nigeria should strive for the best price, considering the republic’s cash-strapped state, adding that every dollar or naira was very important; and most importantly, the republic must strive for technology capture in this very large LNG project with respect to which Nigeria had already put in place a technology interface mechanism (NETCO).

To him, those three elements would give Nigeria something enduring. Okongwu said he would like to be in a position to appropriately counsel the Nigerian government on the project such that it could stand the test of time and have the best technological quality.

President Ibrahim Babangida and his oil minister, Dr. Chu Okongwu, cancelled a final investment decision and forced the shareholders to drop the unpopular TEALARC process for the APCI which was widely adopted in the industry. They also cancelled the contracting process which was mismanaged. 

Asiodu who managed the petroleum ministry and LNG project in the 60s and 70s as permanent secretary returned to the ministry at a time of great uncertainty in 1993. Babangida’s transition to civil rule had derailed, the economy in turmoil and the LNG project was gasping for air.

The government had earlier set up an escrow account for dedicated 20,000 barrels of crude oil daily to finance the LNG project. But on assumption of office in 1993, Asiodu said there was no kobo left in the kitty.
• Ifeanyi Igwebike Mbanefo, former spokesman for NLNG and author of The Story of Nigeria LNG Limited, currently lives in Canada.