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Part II -My Take on Liberia’s Scheduled April 2020 Oil Blocks Bid Round

PART 2

Christopher Z. Neyor, International Energy Expert, former CEO NOCAL

Other Issues of Concern in the Liberia Oil & Gas Sector

1. Citizens Participation

Let me now address other areas my compatriots often ask me about. A key area of concern to many is that of citizens’ participation in the oil sector. I mentioned this in Part 1 of this paper when discussing local content in the oil business. The Liberian constitution clearly states that all the natural resources belong to the people collectively but it makes a very pragmatic provision that administrations past and present have never paid much attention to. The constitution says that in the extraction of the natural resources of the country, “the government must ensure the participation of the people”.

In the reform of the oil and gas sector which I initiated during my tenure at NOCAL and which got distorted when I left, the issue of citizens’ participation was key.  This became critical to me being fully cognizant that one of the many ills of our country was where billions of dollars of natural resources were extracted from our land creating many millionaires out of other countries’ citizens but not one Liberian millionaire. Moreover and sadly, when it all came to an end, our infrastructure-electricity, water, road, education, and health facilities-had nothing to show and places like Bomi Hill where tons of iron ores were extracted became referred to as Bomi Hole. The only other people who benefited were the noncitizen resident businessmen and traders and the few decision-making government officials who sold their country and their people for crumbs under the table. Those cheap kickbacks are what I call stupid corruption when government negotiators give away concessions for few dollars and foreign contractors walk away with hundreds of millions of dollars laughing all the way to the bank.

We had one such case in the oil and gas sector even before commercial oil discovery in making a Nigerian richer. The Nigerian was awarded three oil blocks in 2005 for very little and in 2010 sold 70% of his asset to the American oil giant Chevron for $150 million (windfall of $50 million per block). That transaction was concluded before I got in at NOCAL and on my arrival at the oil company, we formulated regulation for transaction fee of 20% on windfall made by a PSC contractor on any of our assets. We sent an invoice of $30 million to the gentleman but we couldn’t collect the money due to technicality.

When it came a time in 2011 to dispose Broadway/Pepper Coast from Block 13 and bring in ExxonMobil, I learned from that Nigerian-Chevron transaction and set my sight on a minimum of $50 million from the block for our government. We worked this firmly into the initial transaction negotiations when there were doubts that we could receive such a huge amount when we didn’t have any discovery. I was out of NOCAL when the final contract was signed but, at the end of the day, the government of Liberia received the targeted $50 million from ExxonMobil to acquire the block.

I am recapping these transactions to highlight the tremendous wealth oil and gas can create either in a positive way to benefit all citizens or in a corrupt way to benefit a few. The citizen participation provision in our constitution must be employed to create Liberian millionaires in the oil and gas sector in a transparent way.  I often wonder what if the 3 blocks the Nigerian made $150 million from were given to 15 Liberian (one from each county) in a legitimate way. We would have 15 Liberian millionaires with worth of $10 million each. Can you imagine what good that would do for our country?

Mr. Neyor left, Mr. Robert Sirleaf center each headed NOCAL during the administration of President Ellen Johnson Sirleaf

That is why I am passionate about the indigenous allocation of oil block(s) to citizens; however, it must be designed and executed in a thoughtful and transparent manner. I do hope President Weah will transform into action his assertion that Liberians can no longer be spectators in their own economy.

2. The Role of NOCAL

The Liberia oil and gas sector has been restructured and the National Oil Company of Liberia has been stripped of much of its multiple functions and power. The regulatory function (it can no longer launch and supervise bid rounds, evaluate them and award contracts) has been stored in the Liberia Petroleum Regulatory Authority (LPRA), the policy mandate returned to the Ministry of Lands, Mines, and Energy and revenue collection to the Liberia Revenue Authority. NOCAL’s sole purpose now is to stand on its own as an oil and gas company. With virtually no asset and no income, where does it go from here? Here are some suggestions:

Technical Advisory Services to LPRA

A professionally staffed NOCAL could play an effective role as a technical adviser to the LPRA.

Represent Equity of the GOL in PSCs

Representing the equity of the Government of Liberia in petroleum sharing contracts with various oil companies would provide an opportunity for NOCAL to build capacity and grow into a real oil and gas company.

Complete Merger of LPRC and NOCAL

This was one of the mandates I had when I was sent to NOCAL as spelled out in the Liberia National Energy Plan. The objective was to bring the downstream (NOCAL) and the upstream (LPRC) together into a vertically integrated oil company. We had a merger plan where the LPRC, not being a statutory entity, would have its article of incorporation dissolved and its asset infused into NOCAL as additional equity from the GOL. That dissolved LPRC would then become the upstream division of NOCAL headed by an executive vice president and general manager. Economic analysis of the merger showed that the value of the combined companies would have been greater than the sum of the value of the individual entity when left alone. Regrettably, that merger plan didn’t go as planned.

It is recommended that the merger of NOCAL and LPRC be pursued vigorously for the economic and strategic benefits to be derived. A merger would provide a tremendous opportunity to attract investment to build an export-oriented oil refinery. We had initiated discussions with Kuwait and the UAE for partnership in building a refinery in Buchanan for both domestic consumption and export. Had that happened years ago, we wouldn’t have had the prolonged and severe shortage of petroleum products in Liberia a few weeks ago. Truly, where there is no vision the people suffer.

Allocation of Oil Block(s) to NOCAL

Under normal circumstances, the allocation of one or two oil blocks to NOCAL by the LPRA would enable the company to partner with a reputable oil company and build capacity as a joint operator. For such allocation to derive optimal benefits NOCAL must build an acceptable level of oil and gas professionals in its employ and the government ensures the allocation is effected in a transparent manner. Oil and gas transactions are often awash in cash and anyone who was a pauper yesterday or has a pauper mentality will go crazy seeing such money floating around and would make deals inimical to the country for a few dollars. We do not want the oil block allocation to NOCAL to be used to front for unscrupulous individuals and companies.

Let me clarify that the foregoing are general observations of what usually happens in oil and gas transactions and not aspersions on any of the current officials of NOCAL or the LPRA. I do not know them and therefore will not impugn their reputation. Let us all know that it can happen so as to guide ourselves accordingly especially with transparency. Individual citizens and civil society must demand it and the government must ensure it. This is the essence of a democratic country that is open to correcting the missteps of the past.

3. The Liberia Petroleum Regulatory Authority (LPRA)

In 2009 the Liberia National Energy Plan (LNEP) for which I was the lead consultant for the government met Cabinet endorsement as the official GOL blueprint for advancing the energy sector. The LNEP had a legislative component, which called for the establishment of relevant entities through enactment by lawmakers. One of those was the Energy Regulatory Board (ERB).  The ERB was to have two divisions, the division of electricity regulation and the division of petroleum regulation. This was thoughtfully accepted by all stakeholders for its economy of scale and cost-saving consolidation through validation workshops of the policy document around the country.

Contrary to the GOL’s own endorsed policy validated by nationwide stakeholders, the government submitted to the Legislature an Electricity Regulatory Authority and later a separate Petroleum Regulatory Authority.  Policies are not engraved in stone and can be changed but that change must be accompanied by valid reasons. For this change, there was no reasonable explanation except ignorance or shortsightedness. It is interesting to note that the LPRA was enacted into law more than two years before the end of the Sirleaf administration but they never implemented it.

The Weah administration decided to effectuate the LPRA. The agency brought over some of the better-trained and experienced NOCAL technical staff but it is still hollow and its overall operational capacity needs to be enhanced. I doubt, however, if the LPRA as constituted now has the required capacity to effectively and efficiently preside over an international bid round. It may have to resort to very expensive consulting services.

4. Human Capacity

The building of capacity is very vital in the nascent oil and gas industry in Liberia. Unfortunately, this key area has faltered due to corruption and mismanagement in the past. NOCAL took some of the money allocated for human development and decided to sponsor football teams buying sporting gears at inflated prices one of which became public when a vendor they had cut a deal with decided not to play the ball as they had agreed behind closed doors. No one was ever investigated or persecuted for such economic crimes until NOCAL went bankrupt.

We had launched a 15/12 scholarship scheme where we were to recruit 12 students from each of our 15 counties for five years, 10 of them given nonbinding local scholarships in any field and 2 of them overseas binding scholarships in various areas relevant to the operation and management of the oil and gas industry in Liberia. We did this because we wanted the future operation and management of the oil and gas industry in Liberia to reflect the diversity of our country. In its first year, almost 30 students were sent to various universities in the UK, the US and other countries for graduate studies in petroleum law, energy economics, oil and gas accounting, environmental science, geophysics, etc. Those students graduated, returned and many of them were let go when NOCAL collapsed.

We need a well-formulated and effectively executed manpower development plan to build the essential human capacity for NOCAL, the LPRA, operating oil companies and contractors. It begins with people with vision and integrity to make a difference for their country.

Conclusion

It is highly recommended that focus should be placed on consolidating the capacity of NOCAL and the LPRA by resurrecting some of the bilateral assistance that was active before or in progress. There are creative ways to generate operating revenue and build interest and value again in the Liberia offshore basin before the next bid round is launched.

About the Author:

Mr. Christopher Z. Neyor
Chief Executive Officer, ZDH International, Inc. Email:: chrisneyor@zdh-inc.com  or chrisneyor@alumni.gsb.stanford.edu

Chris Neyor has extensive background and experience in energy policy & planning, business strategy, and project finance. He is a master Strategist and is a pragmatic interpreter of Sun Tzu’s Act of War for execution in business and public policy. Prof Neyor was Advisor on Energy, Environment and Climate Change to former Liberia President Ellen Johnson Sirleaf and later served as President & CEO of the National Oil Company of Liberia. He was Managing Director of the Liberia Electricity Corporation in the 1980s and was a Visiting Scholar at the Center for Energy and the Environment at the University of Pennsylvania in the 1990’s. He is a product of Stanford University Graduate School of Business and is currently a private consultant.

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