Achieving reasonable contracting circle still a nightmare


By now it is thought that Nigeria’s oil and gas would have gone past the issue of long contracting circle thereby creating an enabling environment for investment in the oil and gas industry to thrive.

By now, despite the fact that the Petroleum Industry Bill (PIB) has not been passed, a situation which the oil and gas companies have used as alibi for not making the necessary investments in the country, the approval for even the routine maintenance works or upgrades of facilities within the industry is still a nightmare for most of the companies, especially the joint venture companies because of the long gestation of the contracting circles in oil and gas industry.

In the recent past, the Nigerian National Petroleum Corporation (NNPC) has said that shortening of the contract circle which would also limit the possibility of cost variation of the contracts, is a positive signal that should encourage investment in the industry. But some industry operators have said that there is no difference between when the contracting circle was three years and 12 months because things are bogged down by bureaucratic processes.

The shortening of the contracting circle would have been a huge relief on the country’s lean resources which is being frittered away through unpatriotic decisions embedded in unnecessary bureaucratic logjam. Several billions of dollars have been lost to contracts variation. Many of the contracts awarded would have cost less than half of their original cost if they had not been bogged down within the system.

This action is also impacting negatively on the successful implementation of the local content policy. Industry operators believe that for the local content policy to be successful the contract circle must be shortened.

The thinking in the industry is that the process of awarding contracts should not be more than eight months as against a situation where contract processes take over 24 months to be concluded.

Due to this long delay, contracts cost grow astronomically to more than 100 percent while the Nigerian National Petroleum Corporation (NNPC) would still want to insist that the job be executed based on the old price. Consequently, the jobs suffer setbacks and it could take more than three years to be executed and at very ridiculously high costs.

The long contract circle has become a major issue in the industry to the extent that major oil investors have been forced to relocate to Angola where they claim has provided a more conducive investment environment.

Eddy Wikina, a former external affairs manager with Shell Petroleum Development Company, said it would be good if the contracting circle can be shortened because it would be to the benefit of the industry. The Nigeria Liquefied Natural Gas company projects contract circle does not go beyond six months and they are awarded.

He said if the contract circle is shortened, investors would be able to plan their investment programmes just as it would reduce the level of corruption.

But an operator of one of the major oil service companies who spoke to BusinessDay said that the NNPC has severally promised to do something about the situation but there has not been any difference.

He said, “I don’t know if it is a lack of resources that has made the NNPC to be delaying award of contracts in some cases and at the end of the day the contracts would end up not being awarded because the price would have been so high that there would be no alternative but for the contract to be abandoned.”

He said that the NNPC and the international oil companies have the experience and the needed expertise to execute the contracts within six or eight months but for reasons known to NNPC the award process would take more than two years in most cases.


Information from Business Day was used in this report.



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