NIGERIA NEEZ : Towards A Credible Future Licensing Round
“The business of oil exploration and production is not for all comers. That is the essence of technical pre-qualification. Where there is political will to face up to those more powerful than you, to tell them to their faces that they cannot go on commercial bid because they are not technically pre-qualified, then throwing every bidder together to throw in figures is bound to create problems.
“Transparency is about having a clear basis for evaluation that is open and known to everybody, and the result opened and declared to everybody. Transparency is not about playing to the gallery. Transparency is not about a winner being declared on the basis of its offering the highest bid.
“In the end, it may well be that we have carried transparency too far that some of the babies would have been thrown away with the bath water. If the whole idea was to get people to throw around high figures, then the purpose of the 2005 bid round may have been defeated.”
Austin Avuru, Managing Director, Platform Petroleum Limited, was giving a critical appraisal of the Nigeria 2005 oil and gas licensing round during a two-day capacity building workshop in Lagos by the Nigerian Extractive Industries Transparency Initiative (NEITI) last December.
This was almost two weeks before the deadline for the payment of signature bonuses offered by winners of 44 of the 77 oil blocs offered by the Federal Government under the Nigeria 2005 bid round.
Since the conclusion of the commercial bids conference last August, controversy has dogged its path, resulting in the Production Sharing Contract (PSC) signing ceremony being postponed a record three times.
Even when it held last week, how the manifest contradictions affected the credibility of the entire process was palpable, with only two of the 19 that met the December 15, 2005 deadline for the payment of the signature bonuses, concluded the deal, out of 23 that met the October 14, 2005 deadline for the submission of the mandatory performance bonds.
Though not a few agreed the open electronic bidding process adopted during the bid was a marked departure from the on discretionary awards of the past, the poor turn out of events could not have exonerated Avuru’s appraisal more - that it lacked the basic ingredients of a credible bid.
Last week, as stakeholders in the industry met to review the exercise ahead of the fresh awards planned for later in the year, it was clear a lot of things went wrong with most critical aspects of the bid process.
Said one top industry operator, who pleaded anonymity, “If one is to run a transparent process, it means one must have set rules that are understood by all participants -the umpire and the players. It does not matter who sets the rules, but once the rules are set, all parties must abide to the letter,” he said.
To him, transparency does not mean beaming an aspect of the process on national television for the whole world to see (like the commercial bidding), while the other aspects are subjected to political manipulations.
Under the rules of any credible bidding process, he argued that there should be a technical pre-qualification of all prospective bidders, to evaluate their technical and commercial capacity to operate an oil bloc, from where a shortlist of all those qualified to bid would be drawn up, to help run away from those that, even if they are given the bloc, would not be able to pay the signature bonus.
“The purpose of pre-qualification is to ensure that those that advance to the commercial bidding stage are credible enough to assure everyone that if they win they will perform,” he explained, saying during the last bid exercise, after the credible bidders went through the rigorous process of compiling materials for technical pre-qualification, managers of the process, for lack of the political will to resist pressures from powerful political figures, abandoned the rest of the process. “What happened was that everybody who applied was practically given a chance to submit a commercial bid. The same thing happened with the selection of the Local Content Vehicles (LCVs), which is not supposed to be an all-comers affair.
“When they threw the bid open and every Tom, Dick and Harry walked in there, especially in the deepwater bidding round, what one finds today is that 80 percent of the credible bidders, including multi-national companies that have proven capacity and resources to do the work, stayed away from the bid. Some of these blocs that people were posting $150 million bids for, were up for $2-5 million in 2000 bid round five years earlier, and people did not even take them up. When you allow people who do not understand the business to submit such ridiculous bids, you end up wasting the country and everybody’s time and resources. Once you lump serious and unserious bidders together you are just trying to pollute the environment, and you wont even know who the unserious ones are,” he pointed out.
To discourage bidders posting unrealistic signature bonuses, he said government should impose a demand for a non-refundable deposit of at least 10 percent of the bid price offer to be paid within say five working days of the offer, such that if at the expiration of the deadline for the payment of the full amount he fails, the deposit would be forfeited as penalty.
He faulted the inclusion of the right-of-first-refusal in the bid process, saying the clause, which he claimed was engineered by some powerful people in government, adversely affected the transparency of the entire process.
His observations were not significantly different from those of industry stakeholders, who during their meeting in Lagos identified the controversial granting of the right of first refusal to some bidders and incessant adjustments to the bid rules as some of the fundamental flaws that infringed the integrity of the entire bid process.
Recommending that there should not be room for modifications to rules post announcement, the stakeholders demanded for information on short-listed local companies after their assessment by the relevant government agencies, while LCVs should be encouraged to meet international industry standards..
Other modifications they demanded in future bids included that bidding companies be given 90 days prior to bid round to select a LCV from a list of government pre-qualified local companies that would be made to also give financial undertakings that they will contribute their own equity in the licenses, failing which the award could be withdrawn.
While also recommending that signature bonuses be made to be market/driven, they advocated signature bonus to be made a biddable item with no requirements for minimum amount, and bidders compelled to attach certified cheques or deposits in bank drafts to their bids in the amount equivalent to at least between 20 and 50 percent of the signature bonus offered for the bloc. Winners who do not pay their offered signature bonuses within the deadline set for the PSC signing, they said, should automatically be made to lose their deposit and rights, while the Minister of Petroleum should be made to exercise his prerogative to accept or reject lone bids.
AI
