NLNG Will Create 120,000 Jobs in Five Years, Says Omotowa
The Nigeria Liquefied Natural Gas (NLNG) project is a synergy between the Federal Government of Nigeria (represented by NNPC) and some oil majors (Shell, Total and Eni). It is a multi-billion dollar project which has not only helped to mitigate gas flaring in Nigeria but also raked in good money into the nation’s coffers. In real business sense, the Nigeria LNG has turned waste to wealth. Recently, it was in the news when it paid its statutory tax and dividend to the Federal Government at the most auspicious moment; at a time the government was almost heading to a financial shutdown. The money served as bailout for states to pay salaries and address their insolvency issue. But the gas company has done more than tax and dividends. Recently, it held a breakfast session with the media during which its Managing Director/Chief Executive Officer, Mr. Babs Omotowa, highlighted the triumphs and roadmap of this organisation that has shown in practical sense that good can come out of Nigeria and more tellingly, that Nigerians can successfully manage an enterprise in a manner that its management model can serve as a benchmark for managers in the advanced world. We bring you excerpts from his presentation
In the Beginning…
We have been in operation since 1999, but the company’s existence can be traced back to the 1960s when they had two projects going on at that time, unfortunately we wasted time and it took close to 31 years before the right market situation and the right arrangement in terms of structure to enable this project was put in place; but I think that has been worth the while. It has shown that in Nigeria it is possible to achieve great things; as we have grown to be more than a group but a corporation.
Vision and Objectives
We have a ship that is the biggest in the country. We’re moving towards aviation; I think the two objectives that the company set for itself when it was created was to help in mitigating gas flaring, to diversify the gas that is flared in the country. On flaring, when we came on board the country was flaring about 65 per cent but today we’re down to about 20 per cent.
The vision of the company is to operate on global best standards that you can find anywhere else in the world. Secondly we also want to help build a better Nigeria. We’re very proud that today LNG is a pacesetter in any part of the world. Many of the African countries come here to learn from what we do and use that to operate their own business. We have continued to build a better Nigeria not just in the financials as we have contributed a lot to the economy.
We pride ourselves with the fact than more than 70 per cent of the cooking gas used in Nigeria today is supplied by the NLNG. We intervened in 2007 when the refineries could no longer produce and at that time the price of cooking gas shot up. We’re determined to work with others to see that more people use the cooking gas.
In terms of our global footprint, we’re seen all over the world. When we started we had two areas; one in the America, US (35%) and Europe (65%). As of today, with the discovery of the Shale gas America is no longer a buyer of the product. For about 5/6 years ago we’ve moved strongly to the Far East; Japan today is one of our biggest customers and more than half of our products now move to the far and Middle East. The good thing about gas is that the market is now moving from oil to gas because it is cleaner and much more efficient; gas is the fastest growing of all the energy sources across the world. We now have more of diversions from the US to the Far East. Financially, our revenues have grown since 1999 to a peak in 2012 to about $11.6bn; so, to really monetise gas is one of the key reasons we were set up, but there has been changes overtime.
Growing Revenue Profile
In our company government owns 45 per cent but in the upstream government owns about 55-60 per cent. Our revenue over the years has been over $87bn and for all our shareholders the returns have been quite significant. When the project was built, the construction started from 1995, the shareholders then brought a total of about $8bn of which Nigeria brought in about $2.5bn but directly we’ve already paid $33bn back to government.
We have also spent about $10bn locally that will attract us with goods and services that we want to procure; paid over $320bn taxes to states and local governments (Rivers and Lagos). We have spent over $180bn for community development in our host community. We have been passionate in our University support scheme, where we’ve been able to build engineering laboratories in six universities; and the six universities are selected based on the Nigerian University Commission, NUC, evaluation.
Aside our literature prize, the biggest in Africa at $100,000 we are also looking at helping to develop the sciences. We may have been successful in the arts but in the sciences we know the challenges with electricity in Nigeria, and to be able to carry out research it requires quite a lot of infrastructure to be put in place and that has hampered the quality of research. Part of our investment package in our universities is to see if we can help in that infrastructure challenge; and help to improve research across the universities.
One thing we’re really proud of is that overtime we have grown our Nigerian Management and staff that are now more than 85 per cent. Technology has really brought us this far; a lot has gone into the training and development of our staff.
We have been successful in running our facilities which are not too far from refineries. The Nigerians that work in NLNG are not different from the Nigerians that work in the refineries; the operating environment is slightly different. We’re able to operate to world standard because we’re protected against a lot of political nuances; we don’t have interference that you see in refineries. We have an independent board which means that we can get all our approvals at that board; our governance is quite strong. The growing number of cargoes is a reflection of the growing numbers of shares. In 2013 we had a huge bunkering problem. We do our turnaround maintenance two or three times in a year.
National Gas Reserve
Gas supply remains an issue; one is in terms of gas availability and usage, also the issue around domestic export. Another part of it is the challenge around our operating environment. Even in terms of gas supply we’ve said it that Nigeria is such a blessed country from the gas perspective. Frankly, the amount of gas that we’ve declared today is about 7tcf (trillion cubic feet) and if we’re looking for oil we have to quickly solve that. Gas does not draw that attraction but we’ve not really as an industry gone to extract enough of gas but we do have about 7tcf that we have to improve on. The total amount of gas that LNG will use in about 25 years will be about 30tcf and we have 187tcf, and that leaves us wih157tcf reserve which is massive.
Funding as a Challenge
Our problem is what we call surface problem and not the sub-surface problem. Of course when the gas is there it won’t come out on its own, you need to put a number of investments; first you need to do exploration; you need to get rigs to explore and once you’re able to confirm the volume then you need to now produce and then begin the process; all these cost money depending on whether you’re offshore or onshore. It’s not a cheap business so of course you’ll need funding.
In Nigeria there’s enough interest for those who want to fund. But we have a situation in Nigeria today that the upstream are 55-60 per cent owned by the government which means that the government has to bring equivalent amount of money to the funding. The industry needs about $20bn yearly to really be at its peak.
Because of the uncertainty, people don’t know the rules of the game and without clarity of the rules nobody wants to invest. The operating environment also weakens the process. So funding, uncertainty and project/contract approval are three things that affect us in being able to bring down the gas and make it available to users. You can now ask the question of where we have been getting gas since we don’t produce gas ourselves. We’ve been successful because we pay the right price. There’s a price you have to pay to enable those investors invest; those are the kinds of things that will affect the availability of gas in the domestic side of it.
Sabotage of Pipelines
The second part of it is the channel and operation of pipelines in the Delta area; are we still seeing the amount of bunkering and sabotage of the pipelines? The answer is still yes. In the upstream we still have a lot of bunkering and sabotage going on. And of course maybe because the gas we use is associated gas, the gas is also affected by such sabotage. So what that means is that we’re now trying to incur more cost not just to try to produce the pipeline but we now have to build redundancies; still the problem of bunkering continues till today. The fact that we know that gas is not a problem in the country makes it clear to us that we need to grow more; we need to keep on investing because this demand delivers a lot of financial value as a country, which we can now use to build infrastructure.
Synergy with FG
We’re receiving a lot of support from the government on our project which we’re very confident that in the near future we’ll be able to take decisions on that, because when our construction starts we’ll be able to create 120,000 jobs for Nigerians in the next 5 years. On our shipping side we’ll continue to grow; we have 23 ships which is the biggest in the country and the 4th largest fleet in the world. We have replaced about four of them that have aged. Before now our ship used to be managed by Shell, STACCO and some other companies outside the country. But we’ve been able to develop a local subsidiary, so now we’re able to manage our own ships.
For our host community, since 1998 we have been growing their infrastructure; the basics of the society and then education side of it. We’ve been able to provide pipe borne water to the community, power and construct a number of roads in the community. Those are some of the basic infrastructure that we’re spending time on. We have the Bonny Vocation Centre which I think as of today is the best in the country.
A lot of people go to the universities but a lot of the jobs available are more of vocational jobs but we don’t train enough people. We’ve been able to train some Nigerians yearly with vocation skills. We’re expanding it, so we’re committing another $5bn to build more and then have people come from outside to be a part of this. We are now building a model school in Rivers State and we’ve signed a contract for that and we’re waiting for the contractor to execute the project. We’ve had a lot of delays due to land issues and I think this is one of the problems we’re having in Nigeria, where even when you want to help a community you find individuals from that same community coming to clog the process sometimes even in concert with the judiciary. We have committed the funds but the government is seeing to it that the matter is resolved. Warri is still a problem; we’re also working on the roads, one of which has been in the master plan since 1975.