‘Strategic alliance contracts critical to gas development’

Against the backdrop of the review of the contracts between the Nigerian National Petroleum Corporation, its subsidiaries and private oil companies, the Strategic Alliance Contracts model has been described as critical to the development of the country’s natural gas.

A public affairs analyst, Mr. Ladapo Kolade, who stated this, said the news that the Group Managing Director, NNPC, Dr. Ibe Kachikwu, had signed on an international audit company to review the contracts was a good omen for the nation’s troubled oil sector.

He said the auditing of the contracts should be aimed at ensuring that there were no sacred cows and under-the-table deals in the contracts signed to date.

He noted that the Strategic Alliance Agreement, by its definition, was a distress call from the Nigerian Petroleum Development Company, a subsidiary of the NNPC, to private companies for assistance.

“Under its terms, there is a clear admission that the NPDC devised the SAA because it lacked the required funds to fund the petroleum operation costs and provide the technical and professional skills needed to produce oil and gas in contract areas,” Kolade said.

According to him, a regular clause in the agreements states that the “government, in considering the huge capital outlay and other resources required for petroleum operations, has approved the NPDC to enter into strategic alliance for the provision of funding and technical expertise.”

He said considering the fact that many of the companies had paid entry fees running into millions of dollars, “it is important that the on-going audit recognises the risk of time and value of the operations, and the need to ensure that a level playing field is achieved in favour of indigenous companies.”

He said NNPC officials disclosed that the exercise was not a witch-hunt of any company, but to ascertain the state of the agreements, fine-tune where necessary, and ensure that there was value for money, performance and excellent benchmarking.

The analyst said, “This also means partners in the SAA must be ready to meet their obligations and ensure that the country does not lose money due to lack of diligence in enforcing the contract terms.

“Considering the challenges of benchmarking, it is obvious that many indigenous oil companies do not have the same years of experience as their foreign competitors and a benchmark that refuses to recognise this fact may work against the President’s obvious determination to grow the indigenous petroleum sector to international stature.”

Kolade said the current crude oil price regime and the dynamics of the financial market indicated that the expectations, which underscored the negotiations, had headed downwards, adding that this raised the possibility of reviewing the entry fee to suit the current climate of the market and ensure that crude oil and gas production serviced the refineries and the local industry.

On the need to encourage more participation of indigenous firms in the industry, Kolade said, “Industry sources believe the cleansing of the oil sector should position the indigenous oil companies to play greater role in determining how the oil sector would help in ending the years of misery of the millions of Nigerians who seek jobs and dream of setting up their own small scale industries.”

While noting that President Muhammadu Buhari had pledged his support for the growth of indigenous firms, he noted that the firms must respond positively to the pledge by investing in the vision of the administration to make the petroleum sector serve the citizenry.

“In this regard, the utilisation of our 187 trillion feet gas reserves, not only for export, but to be piped to gas stations so that more cars can run on Liquefied Natural Gas must come under the Strategic Alliance Agreement model.”

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