Avuru: Those Who Cut Corners Find It Easier to Get Regulatory Approval in Oil Industry

* Alleges judiciary tool in the hands of lawbreakers 

* Insists Nigeria’s regulatory environment steeped in corruption, nepotism
Emmanuel Addeh in Abuja

Pioneer Chief Executive Officer of Seplat Energy, Mr. Austin Avuru, has alleged that those who cut corners find it easier to get regulatory approval than those who obey the country’s laws in the oil and gas industry.

Releasing excerpts from his book, “My Entrepreneurship Journey,” scheduled to be launched in August, Avuru who reflected on his over 40 years in the industry, noted that while regulatory effectiveness was critical, in Nigeria, operators get punished for doing the right thing.

He explained that a fair industry regulator encourages a free-market economy as it supports fair competition, rewards efficiency, punishes bad and illegal practices and generally promotes value creation.

“But in Nigeria, and in our industry, sometimes you get punished for doing the right thing and too often your competitors smile home with higher rewards because they are allowed to cut corners,” he alleged.

In twisting the rules to suit certain interests, the Chairman AA Holdings noted that assets that although licence renewal was a discretionary nominal sum imposed by the Minister of Petroleum Resources, in 2019, the regulator decided to calculate the fee based on reserves.

“When Seplat Energy bought our assets in 2010, the working interest 2P reserves was 71MMBO. By 2018, after spending some $3 billion, we had increased operated production from 14,000BOPD to 65,000BOPD and quadrupled reserves to 283 MMBO.

“Our competitors who acquired assets with three times our reserves size, but who had done nothing to increase production or add to their reserves ended up paying the same renewal fee as us! We were punished for our exemplary investment drive and efficient operation of our asset, leading to substantial value addition,” he alleged.
He noted that while the company was expecting some rewards for its efforts, and as incentive to motivate others, which would have made its renewal practically free, it was literally extorted.

He said while Seplat Energy would pay all its statutory dues promptly, including royalty, taxes, lease rentals, flare penalty and even debt servicing obligations, it benefitted nothing while its competitors got away with failure to make the payments, sometimes for years.

“While you are struggling to balance your books, your less efficient competitors are awash with cash,” he alleged.
 Stressing that the industry regulator was selective in dealing with operators in the sector, he explained that due to extremely high operating and capital costs the some operating companies were perpetually in the red.

“All the financial rewards are taken up at the level of rendering services and executing contracts. The efficient company like ours becomes the ultimate loser,” he stated
Avuru alleged that all of these anomalies happened and were in fact prevalent, because of a business and regulatory environment that was steeped in corruption, nepotism and sometimes just sheer incompetence.

“In almost all cases, those who cut corners find it easier to obtain regulatory approvals,” he pointed out.
The geologist stressed that even in cases of asset divestments by international oil companies (IOCs), the company had been involved in transactions where it ticked all the boxes, particularly in demonstrating ability and readiness to pay, whereas another party is chosen which is unable to pay.

“Between 2014 and 2016, we had over $750 million tied down on two assets that we paid for but could not secure regulatory approval for. Eventually we had portions of these monies refunded to us, but over $200 million remains unrecovered till date.

“But, perhaps the most injurious government segment to productive entrepreneurship and the entrenchment of good corporate governance in Nigeria is the judiciary.
“Too often, the judiciary has become a valuable tool in the hands of those who cut corners to hunt, harass, or simply torpedo the activities of genuine entrepreneurs working to create lasting value.

“After we won OML 53 in a bid conducted by Chevron in 2013, a bidder who did not win sued the sellers and held all of us to ransom for two years way to the Supreme Court just to vacate the injunction! It took another three years to finally extinguish the case.

 “Usually, the suing party has very little to lose, other than legal costs, while you have hundreds of millions of dollars tied down in an asset you cannot take possession of because of the court’s injunctive orders.
“Even a simple trade dispute could result in a court shutting down your offices or blocking all your bank account,” he added.

According to him, the sheer knowledge that one’s investments could be totally destroyed by some treacherous judicial pronouncements with a party that was perceived to have the backing of those who will give the approvals, was simply discouraging.

Avuru noted that in geographies where regulations are firm and effective, it would take no more than five years for such businesses to unravel, whereas in Nigeria, it takes as long as 30 years because of the weaknesses within the system.

He observed that in the next 10 to 15  years, although their promoters might amass a lot of wealth, the businesses that fail to build a culture of proper corporate governance would drop off the race while the businesses themselves could collapse.

He also lamented a situation where the chairmen of some oil companies turn out to be the “big man” with a large ego who perceives himself as the big boss to whom the management team, led by the CEO, reports.
“The board is responsible for the strategic direction of the company and supervises management performance using the appropriate governance structures in place.

“But very often the chairman assumes the clothing of the board, with the CEO reporting to him, as he takes on several executive decision-making roles. This has often led to unproductive tensions and power plays between the CEO and chairman,” he said.

According to Avuru, 20 per cent of his productive time in the industry was spent managing his relationship with the chairman of his company and in some cases by extension, his relationship with the board.