Kachikwu’s Board Effectively Redundant -NNPC

KachikwuEmmanuel Ibe Kachikwu arrives at the OPEC Secretariat in Vienna, Austria, on Sept. 22, 2017
  • Kachikwu’s Board Effectively Redundant -NNPC

One week after a memo written by the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, to President Muhammadu Buhari, accusing the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Dr. Maikanti Baru, of not adhering to due process in the award of contracts by the corporation and insubordination was made public, NNPC in its response Monday to the issues raised in Kachikwu’s letter effectively rendered the corporation’s board chaired by the minister of state redundant.

In a statement issued by NNPC spokesman, Mr. Ndu Ughamadu, Monday, the corporation said Buhari had directed Baru and NNPC to respond to the allegations raised by Kachikwu, hence its response.
The response was however silent on other pertinent issues raised by Kachikwu, chiefly the appointment of senior executives of NNPC without the knowledge of the board.

This is just as oil workers under the aegis of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) and Nigerian Union of Petroleum and Natural Gas Workers (NUPENG) pledged their support for Baru over recent claims made by Kachikwu in his memo to the president.

However, reacting to the response of the NNPC and its GMD Monday, past and serving corporate titans in the public and private sectors stated that it had in effect rendered the board headed by Kachikwu redundant.

Speaking on the development, a former board member of NNPC who wanted to remain anonymous, said the excuse provided by the corporation for sidetracking Kachikwu and the board was untenable and amounted to choosing what laws to obey and what laws to ignore.

According to him, “The NNPC may be a government corporation, however, its Establishment Act and the Companies and Allied Matters Act (CAMA) both provide for a board of directors which has a say and must approve key decisions taken by the management of the corporation.

“I have just read NNPC’s response to Kachikwu’s letter and what is clear is that the corporation is choosing what laws to obey and what laws to ignore.

“By its response, they have effectively rendered the board of NNPC redundant which should not be the case, as it is expected to provide oversight functions to the management of NNPC.

“Even if NNPC’s management goes to its tenders board and the Bureau of Public Procurement (BPP) to get approvals for its contracts over a certain threshold, the board should know and give its own approval before this is sent to the president as the Minister of Petroleum Resources for presentation to the Federal Executive Council (FEC) for final ratification.

“Besides, with what is happening now, should the president present any memos to FEC, his minister of state will be in the dark because he was not privy to the decisions taken by NNPC which he chairs, so what impression is the GMD trying to create.

“You cannot circumvent the board and walk straight to the president just because he is the petroleum minister, as he has already assigned his position of chairman of the board of NNPC to his minister of state.

“So the GMD and his management should go through the same chain of command or hierarchy to get his contracts, memos and appointments approved.

“This goes to heart of the issues raised by Kachikwu. Contrary to the general perception out there, it is not about corruption but about governance issues which must be adhered to for the sake of due process if we must be taken seriously.”

Similarly, the managing director of one of the international oil companies (IOCs), who preferred not to be named, said the response by NNPC and Baru missed the mark.

He said it was unheard of that a managing director would ignore his board just because he had access to a higher authority.

“For instance, we need the approval of the Nigerian government for several of our contracts. But before it gets to the president’s desk, our board must have been informed and given us the clearance.

“Even in the financial services sector, a managing director of say a bank cannot circumvent his board and deal directly with the governor of the Central Bank of Nigeria (CBN) for certain things. He must get the approval of his board, for example, to present his audited accounts to the CBN for final approval before they can be published.

“The same is applicable in other sectors, so what is happening in NNPC is an anomaly,” he said.

NNPC, however, maintained in it statement Monday that so far, only about $3 billion in project financing had been signed off by it since the government of President Muhammadu Buhari took office, of which $1.2 billion was a financing loan that was signed off by Kachikwu, while the balance was handled by Baru.

Providing details of its project executions and contracts so far, the corporation stated that Kachikwu’s allegations against Baru were baseless because due process was adhered to in all of its procurement and contract executions.

“Following the publication of alleged lack of adherence to due process in the award of NNPC contracts, the president ordered the Group Managing Director and management of NNPC to consider and respond expeditiously to the allegations.

“It is important to note from the outset that the law and the rules do not require a review or discussion with the minister of state or the NNPC board on contractual matters. What is required is the processing and approval of contracts by the NNPC Tenders Board (NTB), the president in his executive capacity or as minister of petroleum, or the Federal Executive Council (FEC), as the case may be,” said the corporation.

It further explained: “There are therefore situations where all that is required is the approval of the NNPC Tenders Board while in other cases, based on the threshold, the award must be submitted for presidential approval. Likewise, in some instances it is FEC approval that is required.”

On some of the allegations raised by Kachikwu, it added: “It should be noted that for both the crude term contract and the Direct Sale and Direct Purchase (DSDP) agreements, there are no specific values attached to each transaction to warrant the values of $10 billion and $5 billion respectively placed on them in the claim of Dr. Kachikwu.

“It is therefore inappropriate to attach arbitrary values to the shortlists with the aim of classifying the transactions as contracts above the NNPC Tenders Board limit. They are merely the shortlisting of prospective off-takers of crude oil and suppliers of petroleum products under agreed terms.

“These transactions were not required to be presented as contracts to the board of NNPC and, of course, the monetary value of any crude oil eventually lifted by any of the companies goes straight into the federation account and not to the company.”

NNPC further held that Kachikwu’s claim that he was never involved in the 2017/2018 contracting process for the crude oil term contracts was untrue because he was “in fact expressly consulted by the GMD and his recommendations were taken into account in following through the laid down procedure”.

NNPC noted that its contracting processes are governed by the provisions of its Establishment Act, the Public Procurement Act, procurement method and thresholds of application, the composition of the tenders board as provided by the Secretary to the Government of the Federation’s (SGF) circular reference no. SGF/OP/1/S.3/VIII/57, dated 11th March, 2009, NNPC’s Delegation of Authority Guide, the supply chain management policy and procedure documents, as well as the corporation’s Ethics Guide.

It went on to state that the SGF’s circular on procurement threshold provided the following authority limits for NNPC transactions as well as the composition of the NNPC Tenders Board: Financial Authority Threshold – BPP issues ‘No Objection’ to award or FEC approves N2.7 billion ($20 million) and above, while the NNPC Tenders Board approves up to N2.7 billion ($20 million).

Based on the SGF’s circular, NNPC said the composition of the tender’s board shall comprise, in the case of a ministry, its chairman shall be the permanent secretary while its members will be the heads of departments; in the case of parastatals, the chairman will be the chief executive while the members will be the heads of departments of the agencies.

It added that it had also clarified from the Bureau of Public Procurement (BPP) as to the composition of its tenders board and the role of the NNPC board, stating that the BPP had responded that the NTB was not the same as its board.

“The governing board (NNPC board) is responsible for the approval of work programmes, corporate plans and budgets, while the NTB is responsible for the approval of day-to-day procurement implementation.

“BPP referred to the SGF circular for the composition of the NTB to compose of the Accounting Officer (GMD NNPC) as the chairman, with Heads of Department (GEDs) as members, with the head of procurement (GGM SCM) serving as the secretary of the NNPC Tenders Board.

“The above clarifications of the provisions of the procurement process show that approvals reside within the NTB and where thresholds are exceeded, the NNPC refers to FEC for approval. Therefore, the NNPC board has no role in the contracts approval process as advised by BPP,” it explained.
It further stated: “As can be seen, all these clarifications were sought and obtained prior to August 2015 and were implemented by Dr. Kachikwu as the GMD of NNPC.

“Dr. Kachikwu also constituted the first NNPC Tenders Board on 8th September, 2015 and continued to chair it until his exit in June, 2016.”

The NNPC went into details listing the typical contracting process as follows:
• Approval of project proposal and contracting strategy by NTB.
• Placement of adverts for expression of interest in electronic and print media.
• Soliciting for tenders (technical and commercial).
• Tender evaluation.
• Tender approval by NTB for contracts within its threshold; otherwise
• Obtain BPP Certificate of No Objection before presentation to FEC.
• Present to FEC for approval.

The statement from NNPC further said all contracts in the corporation followed the above procedure.

Referencing the specific contracts mentioned by Kachikwu, NNPC, starting with the Crude Oil Term Contract (COTC) valued at over $10 billion, said: “It is important to state that the COTC is not a contract for procurement of goods, works or services; rather it is simply a list of approved off-takers of Nigerian crude oil of all grades. This list does not carry any value, but simply states the terms and conditions for the lifting. It is therefore inappropriate to attach a value to it with the aim of classifying it as a contract above management limit.

About the Author

Samed Olukoya
Samed Olukoya is the CEO/Founder of investorsking.com, a digital business media, with over 10 years' experience as a foreign exchange research analyst and trader. A graduate of University of East London, U.K. and a vivid financial markets analyst.

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