PREMIUM TIMES has uncovered one of the most fraudulent crude oil deals carried out by the administration of Goodluck Jonathan, which saw cronies of the president pocket billions of naira through a domestic crude oil transportation contract that violated Nigeria’s procurement and economic regulations.
Our estimates indicate that the contracts, which the Nigerian National Petroleum Corporation has now admitted were unnecessarily exorbitant and inappropriately awarded, cost Nigeria N509.3 billion.
How much service the companies offered to pocket that amount remains unclear even to the state oil company, insiders say.
The deal, later disguised as security contract and channeled through the NNPC, saw two companies belonging to Idahosa Okunbor and Tunde Ayeni illegally rack up billions of naira to purportedly transport crude oil from Escravos to Warri refinery, and Bonny Island to Port Harcourt refinery, by ship, since 2011.
The deal involved the transportation of five million barrels of crude oil, monthly, from drilling terminals to the refineries using ships, and circumventing direct linking pipelines, at the cost of N3, 063.00 ($15.4 USD) per barrel of crude.
The cost of this contract is several times higher than it takes to transport crude oil through the more efficient pipelines which PPMC, a subsidiary of the NNPC operates. The cost of transporting a barrel of crude through the pipeline is as low as N5.97.
Although, awarding the firms the job to transport crude oil by ships was a very expensive alternative, the administration pressed on, ignoring the fact that it increased the cost of transporting only a fraction of locally refined crude oil by several billions of naira monthly and was economically unjustifiable.
While the contract lasted, the NNPC, at the same time, transported crude through a national pipeline that originated from Escravos and landed in Warri Refinery before proceeding to Kaduna Refinery.
The Escravos-Warri Refinery arm of the project was conceived in 2010, shortly after Goodluck Jonathan became president. The contract kicked off properly in January 2011 and NNPC insiders say it was explained to the few who knew about it back then as a way of circumventing vandalized pipelines to keep Nigeria’s refineries amply fed with crude oil.
The contract was never advertised and no competitive bidding was done, a clear violation of Nigeria’s procurement law. Cheaper options were neglected. Two companies, PPP Fluid Mechanics and Ocean Marine Securities, OMS, were awarded the job by presidential and ministerial discretion.
The two companies initially got N1.1 billion monthly payment each by NNPC, for a three-month trial, documents sighted by PREMIUM TIMES show.
PPP Fluid Mechanics got the contract after offering to transport the crude using Very Large Crude Carriers – super tankers – used in transporting crude oil. OMS got the contract to provide security for the 22.2km (12 nautical miles) journey, despite every other waterways security arrangement that existed at the time, including the Nigerian navy which patrols the country’s waterways.
“This brazen case of impropriety has, till date, been sustained by a tight web of secrecy,” one of our sources said.
“I do not have details” of the contract, NNPC spokesman, Ohi Alegbe, told PREMIUM TIMES more than one month after receiving our inquiries, and weeks after he later announced the corporation was canceling the contract.
Paying the cabal
This contract was conceptualized and executed in a classical mafioso style.
After the then Petroleum Minister, Deziani Alison-Madueke, in 2010, got the then President Jonathan to approve the deal, the NNPC secretly invited bids from international shipping contractors. PPP FM, managed by two Israelis at the time, was handpicked for the logistics part of the job. OMS, managed by Messrs. Okunbor and Ayeni, was invited to handle the security aspect.
There are no records of OMS ever bidding for the contract. Insiders, who spoke to PREMIUM TIMES, also claim OMS never bidded.
They were selected by a board led by Mrs. Madueke, which also had NNPC Group Managing Director at the time, Austin Oniwon, and eight others, including Yinka Omorogbe, the legal adviser to the corporation.
The contract was initially explained as a three-month trial to circumvent crude theft from pipelines that were believed to be under serious threat from militants and oil thieves in the Niger Delta. It, however, lasted till August 2015, almost five years later.
How it escaped public scrutiny for the period it lasted is what is likely to shock many Nigerians.
Contract documents indicating the contract was supposed to last only three months were issued on December 2, 2010. Shipping began the following month – January 2011 – after PPP FM provided one mother vessel and three smaller shuttle vessels.
Contract documents seen by PREMIUM TIMES showed the each arm of the contract for the trial period was to cost NNPC N1.1 billion ($5.82 million USD) monthly. This is at the rate of N900 per barrel ($5.2 USD per barrel) split equally between shipping and security.
But the cost of the deal quickly skyrocketed after the three-month trial period.
Shortly after the project began, Messrs. Okunbor and Ayeni sought to own the entire project, and initiated a hostile takeover of PPP FM.
Eight months later, they completed the takeover and PPP FM’s founders, the Israelis, were kicked out.It is not clear how much the Israelis were paid to give up their company. It is also unclear whether they were merely used as fronts in the beginning.
The exit of the Israelis paved the way for one of the bloodiest financial hemorrhages Nigeria suffered during the Jonathan administration, and was perhaps still suffering till July 2015 when NNPC called it off after becoming aware this newspaper was investigating the deal.
With the Israelis out of the way, and believing the deal was now secret, the NNPC jacked up the cost of the deal to N1,496.10 ($7.52 USD) per barrel for transportation and the same amount for security.
This increase raised the cost of the contract to N6.7 billion monthly.
In August 2014, the former petroleum minister admitted to an oil and gas audience in the U.S. that NNPC was spending an average of $7.52 per barrel to transport crude oil locally to refineries by ship.
She was silent on the security costs. But multiple sources confirmed to PREMIUM TIMES the security cost was just as much as the shipping.
In four years, the NNPC shelled out at least N303 billion to the two companies owned by Messrs. Okunbor and Ayeni for the Escravos-Warri arm of the deal alone.
Thus, at the times the price of crude oil hovered around $50 per barrel, the NNPC paid these firms about a third of the cost of each barrel ($15.04) as shipment cost – in addition to all other cost of handling crude that existed before the contract.
These sums were paid despite the oil corporation reporting that it kept pumping crude oil from Escravos to Warri refinery through the pipeline, concurrently with the shipping deal.
Recently, during the opening of the renovated Port Harcourt Refinery, Mr. Okunbor confirmed to Thisday that his company did not even ship the total amount projected by the contract. But they got paid even while not shipping crude.
“Currently, we lift 950,000 barrels to the Warri refinery twice a month,” Mr. Okunbor told Thisday. The projected amount was 2.2 million barrels, apparently 300 thousand barrels higher than total actual shipment admitted by Mr. Okunbor and his partners.
While the deal was expected to supply Warri Refinery with 105.6 million barrels of crude, NNPC records show that the refinery only received 61.2 million barrels, combined. At least half of what was expected by ship alone was not delivered.
The Port Harcourt Refinery Deal
After running the Escravos-Warri Refinery deal successfully and secretly for two years, the NNPC opened the Bonny Island – Port Harcourt refinery route under the same covers. The Bonny Island – Port Harcourt refinery route was to transport 2.8 million barrels of crude oil monthly at the same cost with the same contractors, PPP FM and OMS.
Again, there were no competitive bidding before Mr. Ayeni and his partners were handed the contracts.
With the Bonny – Port Harcourt Refinery route added to the portfolio, Messrs. Okunbor and Ayeni were charged with transporting five million barrels of crude oil to the two refineries, via ships, monthly.
At that rate, NNPC was paying both companies N15.3 billion ($77 million USD) monthly on both fronts.
Like in the Warri refinery’s case, Messrs. Okunbor and Ayeni did not deliver the full amount of crude expected of the illegal contract.
“Currently, we lift… approximately 1.6 million barrels twice a month to the Port Harcourt refinery using our VLCC,” Mr. Okunbor told Thisday in July.[Premium Times]