NNPC ordered to change attitudes: In response to sustained requests from our readers, african business is pleased to launch this new regular column, oil and gas. Neil Ford is a UK-based writer and business consultant. (Oil and gas).
Environmental, health and safety standards associated with the Nigerian oil industry are notoriously bad. Thousands have died in pipeline explosions, pollution has destroyed farmland in the Niger Delta and fish stocks are falling at the coast. Although oil profiteers are partly to blame for the pipeline explosions, the industry's attitudes to HSE have been far too lax.
There were 13 reported oil spills in the second week of October alone. Nigeria Agip Oil Company (NAOC) reported seven separate spills, while five were attributed to Shell Petroleum Development Company (SPDC) and one to Petroleum Products Marketing Company (PPMC).
Over the past year, the Warn area has been particularly badly affected. There was an explosion at the Warn jetty pipeline and a fire at the Warn Refinery and Petrochemical Company (WRPC) steam turbine. Several fires have also broken out in residential areas around oil installations.
While Obaseki talked of 'sustaining the high standards expected of the company', he conceded that employees must be prepared to come forward to report incidents. 'Corporation staff must watch over each other as members of one family to discontinue all unsafe practices and acts that are capable of bringing physical injury and adversely affect the working environment,' he said.
Harriman Oyofo, manager of the SPDC government and public affairs department, blamed the poor HSE standards on badly trained staff and inadequate equipment. Speaking at an HSE conference, he said that because of the hazardous nature of the industry 'there are no half measures. Substandard work methods and behaviour are a formula for disaster.' He continued: 'Standards simply indicate how to proceed. There is little room for ambiguity.'
HSE standards are also challenged by local communities in the oil-rich Niger Delta. Some groups protest against environmental degradation and the lack of economic development by attacking oil installations. According to SPDC, an explosion on September 27 at the Olomoro pumping station, north-east of Warri, has caused at least $20m of damage and will cut production by 40,000 bpd for between one and two years. The pumping station had only become operational a few weeks before the incident.
The company claims that the explosion was caused by an attempt by local people to shut a flow station, which caused surge tanks to become over-pressurised. As a result, SPDC has filed a lawsuit against the Olomoro and Oleh ethnic groups collectively and seven individuals in particular. The $25m suit has been postponed because of Shell's failure to comply with a court order to advertise the court processes in three national daily newspapers. In the meantime, all seven individual defendants have been warned not to disrupt Shell's operations in the area and have been advised to stay away from all Shell personnel.
Strike action can also have a major impact upon production levels. The latest Department of Petroleum Resources (DPR) figures show federal government oil revenues for July markedly up on the previous month. Total revenue from oil producing companies rose from N13.16bn in June to N22.63bn in July. According to the DPR, the rise results from an increase in royalty levels, particularly from SPDC. Strike action by SPDC workers severely affected production in June.
The World Bank's involvement in the Chad-Cameroon pipeline project continues to be questioned. The first report of the International Advisory Group (IAG) has criticised the 'glaring disequilibrium' between industrial progress and the implementation of financial and social checks and balances. The IAG was set up to advise on the social and environmental projects that were developed in a bid to ensure World Bank backing for the project.
The report also decried the failure to reach an agreement over the distribution of oil revenues between central and local government in Chad. It is vital that the distribution of monies is determined and agreed upon at this stage. Any ambiguity could result in a Nigeria-style situation, where the different tiers of government are in almost constant dispute over revenues.
Other problems highlighted in the report are the failure to impose the social and financial safeguards on the development of the unrelated Sedigui oil field and the lack of a government body to oversee financial propriety.
World Bank approval was a vital component in getting the project off the ground. Bank loans provided equity shares for the Cameroon and Chad governments, and it was also able to insist upon safeguards to minimise environmental damage, ensure compensation for people affected by the pipeline and encourage best practice in the distribution of oil revenues.
The $3.7bn pipeline will enable the export of Chad's oil reserves through the Cameroon port of Kribi. As one of the poorest countries in Africa, Chad is desperate for the foreign exchange that oil wealth can bring.
In a separate development, the Inspection Panel, an independent subsidiary of the World Bank, is to investigate the project to determine whether the Bank's guidelines in providing funding have been followed. This looks like a story that will run and run.
FUNDING FOR SONGO SONGO
The Songo Songo gas project finally looks set to go ahead, with the news that the World Bank has reached a funding agreement with the Tanzanian government. Under the terms of the development credit agreement, the International Development Association (IDA) will provide $183m for the project. All of the financing for Songo Songo is now in place.
The plan to develop the estimated one trillion cubic feet of natural gas offshore Tanzania includes a gas gathering and processing centre. A 25km pipeline will transport the gas to the installation on the coast, from where it will be piped to the Ubungo power plant in Dar es Salaam. All the electricity generated will be sold to Tanzania Electricity Supply Company (Tanesco) through a 20-year power purchase agreement. It is hoped that excess gas production can be marketed internationally.
The World Bank announcement follows the European Investment Bank's decision to invest $40m. The main private investor in the project is the US firm AES Corporation, which has supplied $50m. The other partners are British company CDC Capital Ventures, which is investing $18m, Songas Ltd, Tanesco, Tanzania Development Finance Company and Tanzania Petroleum Development Corporation (TPDC).
Bids from contractors hoping to work on Songo Songo will be invited in mid-November and are expected to be awarded in March 2002.
Plans to develop gas reserves off the east coast of Africa have been discussed for many years, but for the first time Tanzania looks like developing a gas industry. The Ubungo plant will provide a massive boost for the power generation industry in the country. Tanzania is currently highly dependent on its hydro-electric power plants and the new development will provide some much needed diversification.
SYNTHETIC FUEL PRODUCERS LOOK TO BRANCH OUT
The South African government has announced that it may enter the country's already crowded fuel retailing sector. The move comes as the merger of two of the energy sector's leading parastatals nears completion. Synthetic fuel producer Mossgas and oil E&P company Soekor will finally combine in March next year to create a new state-owned company, Petro SA. The new company's chairman, Sipho Mkhize, has revealed that the government is examining ways of revamping service station licensing, and that he hoped this would allow Petro SA to enter the market.
Meanwhile, private synthetic fuel producer Sasol is seeking to expand its operations outside South Africa. The company has formed an alliance with ChevronTexaco to promote synthetic technology internationally, and a joint gas-to-liquids project in Nigeria has already been agreed. Sasol chief executive, Pieter Cox, has also indicated that the company may expand its interests in Mozambique.
CABINDA CHANGES HANDS
The Angolan government has approved a change in control of the Cabinda South onshore block. TotalFinaElf transferred its 45% stake in the block to Australian independent Roc Oil. No cash was involved in the transaction, but Roc will pay $0.7m once production begins. TotalFinaElf has much bigger fish to fry, with the 1bn barrel Girassol offshore field, due to come on stream by the end of the year.