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The Game Changers Are Not Always the Most Expensive

Toyin Akinosho

The cost of Jubilee field development, Ghana’s first sizeable oilfield project, is $4billion. From sometime around November 2010, as the plan goes, this elephant sized deepwater field will deliver a hundred and twenty thousand barrels of crude oil every day into a floating production storage and offloading (FPSO) facility. By February 2011, Ghana will be exporting over one million barrels of crude every 10 days into the world market.

The country will come from nowhere to become Africa’s 11th largest producer of crude oil, after Nigeria, Algeria, Angola, Libya, Egypt, Sudan, Equatorial Guinea, Congo, Gabon and Chad, in that order.

A project of Jubilee’s size, which creates a full, world class industry almost entirely on its own, provides the kind of scale that excites my cousin, Yemisi, a commercial lawyer with a going practice in Lagos, Nigeria.

Over lunch recently, she expressed deep disappointment about an interview on the CNN programme Marketplace Middle East. in which the CEO of Gulf Keystone. an American independent, was gushing with pride about the ability to source some $l2OMillion to prosecute a number of projects in the Kurdistan region of Iraq. “That’s peanuts!”, my cousin complained. I believe I could almost hear her murmur: “My God, what could you possibly do with $l2OMillion”. What she said loudly, though. was this: “This is not the kind of money I am used to hearing about, regarding oil and gas projects, at least here in Nigeria”.

I clearly understand where Yemisi, a keen observer of her surroundings, is coming from.

In the last 10 years, a lengthy list of awesomely expensive oil and gas projects have come on stream in the Gulf of Guinea area; in Angola, at least five field development projects of a scale equal, or bigger than the Jubilee field, have been commissioned.

In Nigeria alone, for specifics: The Nigerian LNG project was commissioned in 1999 after $3.8Billion had been spent; the Bonga field project (on stream date 2005) has officially been reported to cost about $3.6 Billion, and there is controversy as to whether the cost wasn’t far more. The total cost of Erha field development(2006) is in excess of $3.5Billion. Agbami deepwater development weighed in at over $4.2billion. In construction, as we speak, is the Bonga expansion, otherwise known as Bonga North West project, for which a $200Million contract had been awarded for subsea  development alone( provision of pipeline engineering, procurement, fabrication, installation and pre-commissioning services for pipe-in-pipe flowlines, water injection flowlines, umbilicals, as well as related production facilities on the seafloor and the deep marine environment).The cost of the entire Bonga NW work will not be less than $600Million, conservatively speaking.

In Equatorial Guinea, the Aseng condensate field development, granted official sanction in late 2009, will get into construction phase late in 2010. The bill for the project, aimed at producing 50,000Barrels of condensates per day at peak, is $1.3 billion.

The point, however, is that whereas these mammoth projects are headline grabbers, many of the game changing kind of projects are much smaller and, in the perspective of people like Yemisi, “inexpensive”.

Let me provide a shortlist of some of these projects-for they are projects too, whether they are just a wildcat exploration programme, a seismic acquisition shoot or a short distance gas pipeline construction- which are either going to be in construction, or in commissioning stage in 2010.

Construction of the proposed 56km natural gas pipeline from Uquo to IkotAbasi, both in Nigeria’s deep south is likely to start in 2010. At $120 million, it would be too cheap to excite my cousin, but it’s a trail blazing kind of project. As the Nigerian government talks about a gas masterplan to direct more natural gas to power plants and other intermediate, domestic uses, in place of a growing appetite for export as LNG, it is projects like Uquo-Ikot Abasi line that will become an integral part of the basic gas infrastructure.

At $65million the Agbami 4D seismic acquisition programme, which got underway in November 2009, is expensive by the standard cost of seismic acquisitions. The bill is double the cost of comparable acquisitions on similar, large sized deepwater fields. It will take four months for Seabird’s Hugin Explorer, to complete the acquisition. The cost of Agbami 4D lies in its uniqueness; the efficacy of the acquisition is not so much dependent on the vessel capability as it is about the cable reaching the seabed and capturing data that the best seismic vessel architecture cannot achieve. Operator Chevron wants to properly image a reservoir that is much deeper than the deepest known hydrocarbon reservoir and Seabird will help them do it through nodal analysis.

In Egypt, the combined solar and gas thermal project in Kureimat, located south of Cairo. is expected to be commissioned in 2010. This hybrid project will produce about 150 MW of power, 45 percent of which will be from solar parabolic troughs and steam turbines, the rest coming from natural gas turbines. The entire cost is $327 Million, of which the World Bank is providing $49 Million soft loan from its Global Environmental Facility. The Japan Bank For International Cooperation contributes $151 .29Million. The Egyptian government itself comes up with the balance of $126.48Million. If my cousin had seen Hassan Younis, the Egyptian minister of Energy and Electricity, explaining that the country was spending “only” $126.48 Million on an “important” energy infrastructure, she might have dismissed it. But this is a game changing kind of project; the largest solar energy project in the middle east and, for the record, in all of Africa. The South Africans, who have been so fixated on burning tonnes after millions of tonnes of coal in order to expand their power generation, don’t have such a project in sight in the short term. As important for me as anything else about the Kureimat plant is this: the project contractor is Orascom Construction; an Egyptian company listed on the Cairo and Alexander Stock Exchange.

Indeed, the large sized, money guzzling projects we read about every day in newspapers start, quite often. as modest efforts. When the American minnow. Triton, was about to drill its first well in Rio Muni basin, off Eq Guinea, in 1999, it could barely afford the money. The company was practically begging everybody to farm in. It was almost at the last minute that Energy Africa, the South African independent, bought 15°o. Now we all know that the discover-c of the Ceiba field opened the basin to the world, Today, nine years after first oil, the field and its satellite, Okoume, are doing 60,000 BOPD. On account of the project’s cash flow, Triton was bought over by a larger operator, Amerada Hess. The field is also the major reason why Tullow swallowed Energy Africa in 2003. As my friend, Emeka Ene, managing director of Oildata, the Oilfield Service Company, would say:  “Do not despise the days of small beginning.


Yar’Adura’s Team Of Rivals

By Toyin Akinosho

Rilwanu Lukman, Nigeria’s newest minister for petroleum, is the public face of the group, within the government of President Umaru Yar’Adua, that re-instated the Power Holding Company of Nigeria, as the country’s monopoly power generation and distribution entity.

Rilwan Lanre Babalola, the newly appointed minister for power, was the Team Leader for Power Sector Reform at the Bureau for Public Enterprises (BPE), driving the privatization of the entire utility, during the last government headed by Olusegun Obasanjo.

The two personalities have diametrically opposite perspectives on improvement of the power sector in Nigeria. So, what are they doing together in the same cabinet?

Was the idea to bring Babalola in to join Lukman, in what used to be Ministry of Energy, to create a team of rivals? If so, to what end?

Lukman’s idea of the continuation of power sector reform is to have the PHCN run as government funded entity until 2011.

That is a sharp reversal of the policy that Babalola and others championed through the BPE, a framework which provided the grounding for the country’s power sector reform act that was signed into law in March 2005. That act supercedes any law on electricity generation, transmission and distribution in the country.

Babalola cut the image of the spokesperson for privatization of the power sector between 2002 and 2005, during which the power reform bill crawled its way through the bureaucracies of the state house and the national assembly. His statements vilified the running of the PHCN and he was quoted as saying that tariffs could not have been higher than the loss Nigerians suffered from the inefficiency of the PHCN, which he said was understaffed in the technical and marketing departments and over staffed in administration. At a public forum in 2004, Babalola disclosed that he had been asked, in private, even by people in the legislature, why he was so passionate about selling off

PHCN.

As of May 2007, the BPE had put up for sale three of the seven electricity generation companies (power stations) and all the 11 distribution companies carved out of the PHCN. As the Obasanjo government wound up, private investors had submitted a total of 102 expressions of interest (EOI) for the three generating companies on offer and 302 EOIS for the distribution companies.

Yar’adua’s arrival at the state house put all that effort on the back burner.

Lukman’s committee declared that much of the implementation of the reform programme, midwifed by the BPE under Obasanjo, was hasty and that the targets set out in the programme were not met. It noted the pending issues of staff pension, the failure to define the workings of the Rural Electrification Fund and the establishment of the Consumer Protection Fund, among other regulatory shortcomings. To Mr Lukman, it didn’t matter that these issues he listed did not grapple with the argument that the nature of graft, in Nigeria, guaranteed that a government owned power utility could not work. South Africa and Egypt, the biggest economies on the continent, are powered by utilities that are owned by government. But these countries are not Nigeria, simple.

A small digression here. The national consensus in Nigeria, as of May 29, 1999, when civil rule was ushered in after 15 years of military dispensation, was that the electricity utility and the telecommunications monopoly should be disposed off. Nigerian intellectual, commercial and political elite couldn’t guarantee that, like France’s EdF, or South Africa’s Eskom, electricity could be sustainably supplied by a state run entity in Nigeria. The rot in government parastatals, especially those of the commercial variety, was and is still so deep that even officials do not trust their own instincts.

Yet in July 2008, Lukman’s committee called for a halt to the sale of PHCN. Against the run of play, and a subsisting law which provides guidance for the end of the monopoly, the committee decreed “a strengthening of the utility through the establishment of a coordinating body at its headquarters to provide leadership.” That leadership mandate was to run for three years. That was how PHCN returned to run things.

The question, then, is, if PHCN would not be privatised until 2011, the terminal date of the Yar’adua administration, why hire a minister who is ideologically opposed to a PHCN monopoly?

Some have called on Babalola to return the country swiftly to the Obasanjo era reform agenda and finalise the process. They ask him to quickly complete the National Integrated Power Projects, involving the construction of 11 generating stations and an overhaul of old radial transmission and distribution system, with state money and then hand over their operations to those private companies who win in a competitive, transparent sale process. That way, they say, government would not have to spend any single cent more to provide electricity, going forward.

But what’s crucial here is what the president wants.

Is he prepared to allow the forty something year old Babalola push his own initiatives, or is he just having him in the cabinet, to suggest that there are young people in his court, while he implements the initiatives of the elderly Lukman?

With Babalola and Lukman in the same cabinet, are we going to have a bruising fight between those who want the status quo of Africa’s largest country lavishing money on a chronically ill power utility and those who want a choice to a more competitive environment, with a strong regulatory oversight that ensures equitable prices and businesses that don’t take advantage?

President Yar’adua has shown so far to be on the side of those who prefer government ownership of energy companies, no matter how inefficient. In September 2008, Mr. Yaradua’s spokesmen publicly disowned, in a very gruff manner, an announcement by the BPE to privatise the Petroleum Products Marketing Company. The government statement essentially reversed proposals that the BPE, itself an arm of the Nigerian presidency, had put forward after deliberations with members of Mr Yaradua’s cabinet. In the move against the PPMC sale, there were echoes of Mr Yar’adua’s first symbolic act in office; the re-nationalisation of two refineries (with total capacity in excess of 300,000BOPD)from a private enterprise that bought them, returning cheques with value in excess of half a billion dollars. Mr Yar’adua had stated then, that the state hydrocarbon company NNPC had only 12 months to restore the refineries to health.  As of the time of writing this, 19 months after, the refineries are still short of that target.

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