Yellowe – Nigeria Awards Oil Blocks to Create Instant Billionaires [interview] (

Mr. Kenneth Yellowe is the Chairman of Houston-based Global Energy Group, an international oil and gas holding company that comprises Global Energy Inc., Global Gas and Refining Limited, and Global Energy USA Inc. He spoke with Ejiofor Alike on the Petroleum Industry Bill, crude oil price slump, and his 20-year experience in Nigeria’s oil and gas sector. Excerpts:
What is your position on the Petroleum Industry Bill (PIB) currently before the National Assembly?
Quite frankly, the PIB like any other policy for Nigerians should be a reflection of the will of the people and our readiness to climb the ladder of development. Based on where we are right now in terms of our development as a people, I personally do not think that Nigerians are ready for the PIB in its currently drafted form at this point. Policy which strengthens the foundation of free-market enterprise is what we need. We are in a situation where individuals with no experience in the oil and gas industry are awarded huge oil blocks, with huge reserves, and shockingly don’t even know where these oil blocks are located, and someone with the stroke of a pen awards an oil block; creating instant billionaires, something is wrong. These instant billionaires go around telling people that they are so rich and don’t know what to do with money in a poor country like Nigeria? Something is definitely wrong! They don’t know what it takes to become rich, and they don’t know what it takes to grow wealth in this country or in any economy for that matter. This wealth comes from assets that belong to the commonwealth and the people, and for it to be privatized and or given away to an individual without a formal transparent, competitive bid process is just plain wrong in the sight of God and man. The PIB in its current draft will lead to more of this type of corruption, and there will be more public assets which people in government may likely give to their influential friends. These people will not reinvest in the country of Nigeria; instead they will buy private jets, large villas abroad and relocate their families abroad and send their children to the most expensive schools abroad, meanwhile our institutions of learning here are in such deplorable condition. A person who never even owned a business selling candy to children will now walk around as if he is a sheik from Saudi Arabia. With the low prices of crude, these persons will go right back to the IOCs again – the same IOCs which found the oil blocks – and ask them to invest or partner with them. No real wealth is gained or created in this process; it actually is destroyed, and the resulting cash does not enrich Lagos or Abuja or the North or the South, East or West of Nigeria. It enriches London and New York, Lamborghini, Ferrari, and consumption items which do not build a sustainable middle class in Nigeria. In the end the government and people loses, because that middle class worker would have paid taxes from the increased economic activity; whereas the “Nigerian sheik” actually pays consumption and VAT taxes in Europe and elsewhere. As a sovereign nation, the Nigerian government is in a much better and stronger position to negotiate with the IOCs, but the government has to want better than what exists right now. The resources must benefit the people and build the country, not a well-connected individual.
Is there any way out now that the price of crude oil is declining in the international market?
The low cost of oil is not viable right now, I would rather PIB be put on a shelf somewhere and just stay there, because Nigerians are not ready for it. When Obasanjo came into office in 1999, he awarded 17 licenses for Nigeria to build private refineries. Not one of them came to life, and I promise you, if they could flip and sell those licenses, they would. These people are given these oil blocks, and suddenly, one individual Nigerian has become a billionaire, and they suddenly think they are on the same league with Oprah Winfrey, Bill Gates or Warren Buffett. Show me one private refinery that these billionaires have built. They have used our natural resources to buy properties in Dubai and Europe, buy private jets, and send their kids to high-cost schools abroad. Their kids finish schools and come back to Nigeria, to the same blocks! All they know how to do is just flip papers and high priced influence peddlers. There are no practical assets that people can see and touch. These people are just awarded blocks, flip papers, and give assets which once belonged to the public to the Chinese or whoever is ready to pay for it. Tell me one thing they do, outside of cheap charity to clean their conscience, what do they do for the country? Then they say they are rich, when in fact they are impoverishing the people of Nigeria. I am 52 years old, and I have never come back to Nigeria and not seen a long queue of people waiting to buy petroleum products during holiday seasons or abject poverty at every turn you make. Look, I just want to share with you some of the challenges and frustrations I and other foreign investors’ experience when doing business in Nigeria. Global partnered with a company called Argos Oil based in Rotterdam. Argos oil is probably one of the largest independent oil companies in North West Europe. The chairman of this company, Peter Goedvolk, invested a whopping $16 million dollars in our gas project with Shell, and before the investment, he did his due diligence by meeting with Shell both in the Hague and the MD of Shell in Nigeria to be sure everything would go smoothly. We even visited President Goodluck Jonathan in 2010, when he was the acting President, for government support. But for the arbitration proceeding Global instituted against Shell at the ICC in Paris, our investments made by over two dozen Nigerians through a NAL Merchant Bank Private Placement, in 1998, along with other foreign investors would have been lost! Goedvolk is a man that came to Nigeria with so much hope and aspiration to properly and respectfully invest. He has been burned. The American company called Hanover, which built our gas plant, invested tens of millions of dollars, left frustrated. Our sister company, Global Energy USA, invested tens of millions of dollars and have become disillusioned and frustrated. These are the companies which were supposed to spread the gospel of the benefits of doing business in Nigeria the right way. They came with so much promise, and their dreams dashed prematurely. Some of our Nigerian government officials come abroad and they make so much promises at international business conferences. They’ll say” we are here to help you”, but once they jump on the plane back to Nigeria, they won’t even take your phone call or even talk to you.
What actually motivated you to invest in Nigeria?
I am a Nigerian who believes in the potential and promise of this country. In a free-market economy, the government should not be the driver for the energy and power businesses. The role of government is to establish enabling environments, policies, and institutions whereby an entrepreneur such as me can create an indigenous natural gas business which serves the needs of the people in Nigeria. There is tremendous power when a normal individual such as me can create a company from the ground up, approach a major energy company such as Shell, Chevron, or Exxon, or a Nigerian indigenous upstream energy company and conduct business through transporting, liquefying, barging, piping, and trucking gas which will serve as power for other Nigerian businesses and consumers. The desire for the Nigerian entrepreneur to conduct business successfully should not be dependent upon which political party is in power, or what individual occupies a certain office. What they need is the support and cooperation of government, not an individual or party in power, but rather need the support of the institution itself. The most successful businesses, governments, and organizations are institutions which survive whether or not their founder is alive or belongs to the ages. The best businesses will operate successfully as long as they satisfy the needs of their customers, and they manage their resources well, and the shareholders of the business enjoy the generation of wealth that results from the ability of the business to deliver value to its customers. Everyone involved, the business, shareholders, external stakeholders, and the government enjoys the benefits of this social contract between businesses involved in free enterprise and the people they serve as customers. This social contract however, becomes distorted when the government becomes the primary driver behind business generation. The main focus of business is to grow the pie of opportunity, whereas the main focus of government should be to create the conditions which facilitate this growth. In any society, when the line for businesses is longer at federal offices for government largesse than it is at banks in order to get loans, the growth is not real or sustainable. At that point, these so-called companies focus more on a $2 billion contract from the government rather than creating $2 billion of wealth generated from free enterprise. There’s no need to name any names, because Nigerians see these companies live off of the government, and they lose faith in not just the government as an institution, but also in the notion of free-market capitalism itself. A business which has to approach the government for a contract rather than a bank to borrowing money, and execute plans working with a producer or gas aggregator to serve customers is not a bona fide business. These businesses are ill-equipped to function as businesses in the truest sense of capitalism, so they surely cannot address Nigeria’s power issues and deliver power to consumers at affordable prices. These individuals and business are paraded as success stories as a result; consumers suffer tremendously because spending more on inflated utilities means little room for savings, survival, and discretionary spending. To correct some of the assumptions that Nigerians cannot do these things right is the major reason why I decided to invest here in my country of birth, Nigeria.
Is it true that Shell reneged in their agreement with your company?
I will not get into too much detail on the Shell situation since we are currently in arbitration at the International Chamber of Commercial Court (ICC) in Paris which is going very well for Global, because the gas agreement is very clear about obligation of the parties. The agreement was between Global Gas and Refining Ltd and Shell Petroleum Development Company of Nigeria Ltd, in a joint-venture comprised of Shell and the government where Global would process Shell-supplied gas for domestic consumption benefitting the people of Nigeria. The assets in this case are close to shore; meaning it is an immediate low-hanging opportunity for the Nigerian governments and Nigerian states to deliver gas from these assets as fuel for power plants and other domestic consumers. Instead of honoring their agreement, Shell deliberately did not supply gas to Global’s gas processing facility at Cawthorne Channel. Shell attempted to sell the block and revenue-producing assets, not honoring their agreement. I remain optimistic that this government will intervene and resolve the matter, but it should have never happened in the first place. If the government allows the International Oil Companies (IOCs) such as Shell and the others to continue to sell off blocks that are close to land while Shell is under contract and obligated to supply gas for Global to process for the benefit of the people of Nigeria, then the government is effectively enabling Shell to illegally step away from a contractual obligation both to Global and the government of Nigeria; and just as importantly, the government is allowing Shell to disrespect and disregard a clear mandated government policy of supplying domestic fuel for the domestic market of Nigeria. Shell has a contractual commitment to supply Global gas for the people of Nigeria. However, Shell is trying to wriggle out of its commitment, because regardless of the contract they have signed, they see quicker money in exporting this gas overseas. They seem not to care about their partners who have taken the risk, borrowed money to build oil and gas infrastructure, or the committed government agencies who truly care about using gas to feed a domestic power initiative, developing a market of 170 million customers which is not yet fully matured. You asked me earlier why I decided to invest in Nigeria? It’s because I grew up here, and I believe in energising the potential of each and every one of the 170 million people who call Nigeria home, and Global applies gas-to-power solutions to enable Nigerians to keep the light lit for that young student staying up late reading medical textbooks with dreams of being a future doctor. Global also believes in that young tech entrepreneur that needs power for his computer while he transforms his dreams into reality.
What is happens to your huge investment in the Niger Delta right now that you are not producing gas?
My brother this is the most horrible experience. This is really a very sad situation for Global or any business venture to find themselves in, because we have investors, shareholders, banks, hundreds of employees, host communities and other stakeholders who have invested time, money and efforts in a project of this magnitude only to have their investment frustrated in this manner. It is hoped that the Nigerian government can intervene in the interest of the public, because Global was directly impacting the lives of everyday Nigerians. The government should protect the business interests of Global, because we are truly committed to making a difference in this country. We need the government to make sure investors who summon the interest and courage to build Nigeria are protected and rewarded.
How much did you invest?
Our investment in the project is in excess of $300 million of capital invested in real infrastructure and capital expenditures. Actually, our FPSO the “MS Symphony” named after my youngest daughter, valued at about $68 million, was retrofitted in Singapore and sailed to Nigeria for our gas project. Due to the insecurity in the region, on July 25th, 2008, the vessel was attacked by hoodlums, claiming to be militants. They went aboard our vessel, took eight of our expatriates hostage, and even shot some of the experts in the process. Completely looted everything of value on the vessel and vandalized the entire FPSO. The incident was reported on CNN when it happened. Global’s situation was further compounded after we invested additional $25 million to refurbish and restart our operations in 2009, after receiving numerous assurances from Shell of reliable gas supply to our plant, which they never kept. We were then left with no other choice but to finally shut down operations and eventually abandoned the facilities in December of 2010. Their lack of humanity is beyond me. This project which was established by one of their own, a Niger Delta son, who decided to return home with a passion and a promise to help empower people and bring economic development to the region. These people now walk about as nouveau riche in society, even participating in politics and enjoying direct access to the corridors of power in the government. This is shameful! This vessel was one of the largest LPG carriers and the only FPSO of its kind in the world with a fractionation plant onboard to refine natural gas liquids. Global was left with no other choice but to scrap the vessel. However, the militants are not the only ones stripping the wealth of the country. The militants are merely a violent reaction to the export-only exploitation perpetrated by Shell. It is convenient of them to use these so-called militants as an excuse to not honor their obligation of supplying domestic gas to the people of Nigeria through a contractual agreement they signed with Global. My company did everything to assist Shell’s operations. I was directly responsible in persuading and gave security assurances and protection to GE and Novo Pigneone, the EPC contractors so they would send technical crew for the restart of SPDC’s gas gathering and processing facilities at Cawthorne Channel. I gave and provided them security guarantee, not Shell or the government. I went personally to the creeks on many occasions to plead with the militants to please stop the hostilities and vandalism and help to get some of Shell’s employees released when they were taken hostage by the militants. I assisted in the GMoU negotiations between Shell and the local communities and I have letters and communications from both the Shell Managing Director, Mutiu Sunmonu, and his colleagues to support my claim, and did not ask them for a cent. Global had the purchase option to buy out both the gas plant and vessel from our then project partners, Bergesen and Exterran, (formerly Hanover Compression Company), when they decided to exit the project, because of lack of gas supply from Shell. For all of the corporate social responsibility the company claims to have, Shell’s integrity has been found lacking. They get away with things in Nigeria they would never dream of in the Western world. It’s utterly amazing to me how one company can subvert, ignore, and totally disrespect the laws of an entire country and show little respect and regard for international rules and regulations when operating in this country. However, I still have faith that everything will work out just fine at the end for Global, because natural gas is truly the fuel of Nigeria’s economic renaissance.
We understand that you also signed an agreement with the Ministry of Petroleum, which is not being implemented?
Global currently has another gas agreement and this one is with the Ministry of Petroleum Resources, duly signed by Mrs. Deizani Allison-Madueke the current Minister of Petroleum Resources, in which Global has expended several millions of dollars in project development cost, but the government has yet to honor their obligation under the agreement. Global is to be supplied and process about 220mmscf of gas per day for the Eastern Gas Grid, enough to produce about 1000MW of power.
It is really very discouraging for any business promoter, when after years of great effort and expense negotiating an agreement with the government or a major international oil company, like Shell, Chevron and others, the other party can arbitrarily renege on agreements and not honor an obligation. Companies are often left with nowhere to turn to for redress. We spent over 3 years negotiating a Gas Sale and Purchase Agreement with Chevron, from their OML 55, to build a methanol plant in the country, and a draft agreement was reached and initialed by the parties, only for Chevron to turn around and sell off the asset in a most egregious manner without consideration for the years of effort and huge expense Global and her project partners undertook in negotiating the GSPA and project development with them. This sort of reckless disregard for agreements is only possible in Nigeria, because of corruption and lack of government support.