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Multi-billion dollar spending on the power sector by former President Olusegun Obasanjo involved allocations of millions of barrels of crude oil to potential power plant builders under terms that were unfavorable to the Federal Government, Sunday Trust can reveal.

As the House of Representatives Public Hearing on the power sector was drawing to a close at the weekend, industry sources have revealed a 2004 approval for ExxonMobil to lift 30,000 barrels of the Nigerian crude oil per day for two years in exchange for building the Bonny Independent Power Project in River State.

Also, Agip Oil Company got a job of building a power plant but on the condition that all assets of NEPA (now PHCN) in Abuja would serve as collateral so that in the event of payment default, such assets would be forfeited to Agip.

ExxonMobil was brought into the project by Obasanjo to produce 350 megawatts of electricity for the National Grid in 2000, but on the condition that a back-to-back arrangement to guarantee repayment of the expenditure be made. Under this arrangement, the former Nigerian National Petroleum Corporation (NNPC) Group Managing Director, Chief Funsho Kupolokun agreed that the oil company should lift 30,000 barrels of crude oil per day for two years, to cover the cost of building the power plant.

Some oil companies involved in the IPP projects are Shell Petroleum (930 MW), Total (500 MW), and ChevronTexaco (400 MW). A copy of the Terms of Reference of the agreement obtained by Sunday Trust said:

"To enable Mobil Producing Nigeria Unlimited (MPN) effectively implement the project, MPN requires a suitable Payment Guaranty Agreement (PGA), pursuant to which NEPA's payment obligations, under a 20-year Power Purchase Agreement to be negotiated and executed between NEPA and MPN (PPA), will be guaranteed. In furtherance of this PGA, the Nigerian National Petroleum Corporation (NNPC) has indicated its willingness to grant, or cause to be granted to MPN, the right to lift 30,000 barrels per day (TBD) of NNPC's crude entitlement every month (lifting right) for two (2) years..."

Though this term of reference was produced in 2000, the signing of the agreement to carry out the Bonny IPP did not take place until February 2004. As at 2000 when the term of reference was drafted, the total cost of the Bonny IPP was put at $285 million, but in 2004 when the agreement was revised, it had risen to $635 million.

In a letter to former President Obasanjo, the former NNPC boss gave the reason for the increase thus: "NNPC invited ExxonMobil to discuss possibility of resuscitating this project. ExxonMobil posits that, at current fiscal terms, the project would not be unviable if executed on a stand-alone basis. They noted that the project location was quite remote from their gas sources. Moreover, it would require development of non-associated gas sources (NAG), as there is no available associated gas (AG) for this purpose. All these have put the cost at about $635 million, which is far higher than the cost of higher-output power plants, and may not be recovered from normal consumer tariffs."

The cost of the project was still considered exorbitant by industry operatives. For instance, as at 2000, the cost of one barrel of crude oil was $40. If 30,000 barrels of crude oil is to be lifted daily for 365 days for two years, it meant ExxonMobil would be entitled to 21.9 million barrels of crude for that period. If the total number of crude, i.e. 21.9 million is multiplied by $40, then the oil company would rake in $876 million. If the agreement was not reviewed, it meant that ExxonMobil would have earned much higher than this estimated income, as oil prices hovered between $60pb and $70pb between 2004 and 2005.

Commenting on this, ExxonMobil spokesman, Mr Yemi Fakayejo, said the IPP being handled by ExxonMobil was still in the early stage and that discussion was still on going on the modalities of implementation. However, Fakayejo said he had no information regarding the allocation of crude oil and was therefore not in a position to comment on that.

A senior NNPC official confirmed the agreement but said ExxonMobil has not lifted the crude oil allocated to it under this pact and that the project was yet to take off.

The official said no Memorandum of Understanding was signed yet and that only an environmental impact assessment and other preliminaries were done on the project.

Apart from the 30,000bpd allocation for two years to ExxonMobil, Sunday Trust learnt that the NNPC was supposed to provide 49% of the cost of the power plant as its share capital contribution to the project, while at the same time giving a cash backing to NEPA (Now Power Holding Company of Nigeria) worth $145 million, which is to be kept in an account to pay ExxonMobil for power to be given to NEPA. Though this was supposed to be a partnership project, the power generated from the IPP is to be sold to NEPA, which would in turn sell to its customers on the National Grid.

Sunday Trust gathered from the PHCN at the weekend that the project was at the instance of the Federal Government, which directed that all oil companies should be involved in IPPs, but that they deal directly with the NNPC, and not PHCN.

The General Manager, Public Affairs of PHCN, Mrs Efuru Igbo said, "We buy power from Agip for Okpai power station, and that is connected to the National Grid already. But I cannot confirm if the Bonny IPP being built by ExxonMobil has been completed. I think all these are based on Obasanjo’s directive that all oil companies should build at least one power generating plant and contribute to the National Grid. PHCN is not directly involved in the projects. They all report to NNPC."

The General Manager, Public Affairs of NNPC, Dr. Levi Ajuonoma, could not be reached last night to explain the status of the Bonny IPP.

During the seven-day public hearing by the House of Representatives, emphasis was on the contracts awarded to assorted companies to execute IPP projects, most of which were never executed. The estimated sum that went into the projects was put at $16 billion. This was excluding the amount paid to oil companies dragged into the IPP projects by the Obasanjo administration. It is not clear at what stages these projects are, and whether they were executed in line with agreed specifications.

Written by Theophilus Abbah, Hamisu Mohammed, Abuja & Kayode Okundayo, Lago
Link to original article at news.dailytrust.com/ on Sunday, March 23, 2008