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Court stops $3.5bn Egina FPSO Contract

14 July 2015   |   11:59 pm
Concerned oil and gas industry stakeholders are urging President Muhammadu Buhari to probe and revoke the $3.5 billion Egina FPSO contract award to the Korean company, Samsung Heavy Industries, citing fraud in the award.

lawConcerned oil and gas industry stakeholders are urging President Muhammadu Buhari to probe and revoke the $3.5 billion Egina FPSO contract award to the Korean company, Samsung Heavy Industries, citing fraud in the award.

The call is coming on the heels of a recent High Court ruling, ordering an immediate suspension of any action towards the execution of the award of the FPSO project.

In the matter of FHC/L/CS/1768/2014 holden at the Lagos High Court between Mr. John Iyene Owubokiri on the one hand and Attorney General of the Federation, National Petroleum Investment Management Services, Nigerian Content Development Monitoring Board, Samsung Heavy Industries and Total Upstream Nigeria Limited, the Court ordered as follows:

“That the 1st, 2nd, 3rd, 4th and 5th Defendants either by themselves or through any of their agents, privies, proxies, affiliates or subsidiaries are hereby restrained from continuing or taking any further action or step towards the execution of the award of the contract for engineering, procurement, construction and commissioning of a Floating Production Storage and Offloading Unit FPSO in the Egina Field within OML 130 (Egina FPSO Contract) pending the determination of the substantive suit.

“That the 1st, 2nd, 3rd, 4th and 5th Defendants either by themselves or through any of their agents, privies, proxies, affiliates or subsidiaries are hereby restrained from giving effect to and/or implementing the award of the aforesaid Egina FPSO contract either by way of operating/executing same, or dealing in any way whatsoever and howsoever with the aforesaid Egina FPSO contract pending the determination of the substantive suit”.

According to one official, close to the action, and who wanted to remain anonymous to speak freely on the matter, the Egina FPSO scam will test the resolve of President Muhammadu Buhari’s administration to root out all forms of corruption in the oil and gas industry.

The administration will be rated on how it is able to handle the matter and bring some sanity and transparency in the process, the official said.

Noting that, “in an environment where there is ‘shame”, the Egina FPSO scandal should make every member of the Board of Directors of the NNPC (Nigerian National Petroleum Corporation) feel very embarrassed to their bone marrows,” the source said he was shocked that “Total Upstream Nigeria Limited with all its claims to transparency is involved in the scam.”

Contract for the building of the Floating Production Storage and Offloading, FPSO, essential for the tapping of crude from the Total Nigeria-operated Egina offshore field, was awarded to Samsung in 2012 under controversial circumstances instead of fellow Korean company, Hyundai Heavy Industries which had been adjudged winner in the bidding process supervised by the relevant regulatory authorities, namely the NNPC subsidiary, NAPIMS, and the Nigerian Content Development Monitoring Board, NCDMB.

At the end of the bidding, which went through the three-tiered NNPC approved tendering process of pre-qualification, technical and commercial evaluation from 2008 and March, 30, 2012 – a period of 4 years – a memo signed by the Manager PSC Facilities, the General Manager, Production Sharing Contracts, and the Group General Manager, NAPIMS, was, in accordance with the laid down procedure, presented to Mr. Abiye Membere, then Group Executive Director, GED, Exploration & Production at the NNPC, recommending Hyundai for the award of the contract. Total also recommended the award with number EGI/C115 to Hyundai.

At the commercial stage of the tender, the initial bid of Samsung was US$3,545,678,824 while that of Hyundai was US$3,522,321,198. Between 17th and 24th February, 2012, commercial clarification meetings were held with NAPIMS to enable both Samsung and Hyundai clarify their bids. Following these meetings, Total requested for revised commercial proposal. Samsung submitted a revised bid of US3,308,946,840 while Hyundai submitted a revised bid in the sum of US$3,140,199,986. It was at the conclusion of this commercial evaluation process that Hyundai emerged the most responsive technically qualified lowest bidder.

But rumours began to make the rounds that then NNPC Group Managing Director, Mr. Andrew Yakubu and GED Membere were planning to tinker with the process at the instigation of Petroleum Minister, Mrs. Diezani Alison-Madueke, by jettisoning the NAPIMS/NCDMC/Total recommendation of Hyundai for the job in favour of Samsung, in contravention of due process.

Many observers believe that in the Egina FPSO saga, GED Membere subverted due process. He (Mr. Membere) allegedly unilaterally invited Samsung and negotiated a discount of 5% which resulted in Samsung’s bid being reduced to the sum of US$3,143,499,498.

In breach of basic rules of fairness and transparency, he did not remember to invite Hyundai for similar negotiation. Even at that, the final figure of Samsung (US$3,143,499,498) was still higher than Hyundai’s US$3,140,199,986.

One source noted that in order to discredit the recommendation made by NAPIMS, GED Membere manufactured a story for the NNPC Group Executive Committee. “He claimed that NAPIMS added US$238 million to Samsung’s tender and that no amount was added to Hyundai’s tender. Probably, what he needed was somebody to have reminded him that the said amount that was added represented taxes, Value Added Tax and contribution to Nigerian Content Development Fund which Samsung did not include in its tender, but, which Hyundai incorporated in its tender. Samsung was fully aware of this,” the source said.

GED Membere, according to the source, further informed the Group Executive Committee that in the “risk with bidders” assessment, the sum of US$525,000,000 that was added to Samsung’s bid was much higher than the sum of US$336,000,000 that was added to Hyundai’s tender.

“Membere knew that these additions that were made pursuant to post-bid clarification meetings with both Samsung and Hyundai were assessed based on the fact that Hyundai has executed several projects in Nigeria in the last 23 years, and has a track record of successful completion, while Samsung was relatively coming in-country with no track record,” the source observed.

In an attempt to justify to the public the above referred backroom manoeuvring and total disregard of extant contracting strategy and due process, NNPC asserted that it was re-aligning the tender evaluation process in order to award the Egina FPSO Contract to the actual lowest, most competitive bidder. Of course nothing was further from the truth. “My arithmetic may be wobbly, but, certainly not to the extent that one will confuse Samsung’s re-aligned figure of US$3,143,499,498 as a lower and more competitive figure than Hyundai’s original figure of US$3,140,199,986,” he said.

The source, who called for the abrogation of the contract award, reminded President Buhari of his promise in his inaugural speech that he will “…ensure that there is responsible and accountable governance at all levels of government in the country. For I will not have kept my own trust with the Nigerian people if I allow others abuse theirs under my watch”.

According to another source, who equally pleaded anonymity, the Egina FPSO scam was neither a mistake nor a blunder, but, a well planned deliberate conspiracy that undermined and totally sabotaged national interest.

“Selfish personal interests and corruption are usually the motivation for sidelining due process.

“For all the puffing and huffing of Total and its claims to transparency and anti-corruption, why would it be a part of this rape of Nigeria?

“Why would it allow itself to be enmeshed in a fraudulent transaction. Total disappointed Nigeria and Nigerians, and failed to stand to be counted when it mattered most,” the source said, alleging that the French company had buckled under pressure after initially aligning with NAPIMS/NCDMC in favouring Hyundai for the job.