How NNPC officials waste billions on failed electronic management contract

NNPC Towers
NNPC Towers

An enterprise resource solution that would have deepened accountability in the Nigerian National Petroleum Corporation’s business processes has turned a spin project for some crooked top officials to mismanage billions of naira, an internal review report has indicated.

The project, which had 86 weeks completion timeline, has dragged for more than three years, after gulping almost double the contract sum originally approved by the Nigerian presidency, with little to show in terms of output, those familiar with the matter said.

The resource solution, which has worked perfectly elsewhere, is called SAP Enterprise Resources Planning (ERP).

It is an electronic management solution deployed by most global organisations to monitor real-time operations of a network of subsidiaries and affiliates irrespective of their locations.

All-in-one solution

The solution is an all-in-one package, comprising different modules for standard business, financial, contracts management and personnel information, data and processes in the business value chain.

The automated tool is usually deployed once and run globally through an integrated network that links all the organisation’s operational units and affiliates seamlessly, irrespective of location.

Some notable multi-national oil companies, like Royal Dutch Shell Group, ExxonMobil Corporation, Chevron Corporation and Total operate such integrated global systems that allow seamless monitoring of business processes with partners and government agencies from any location.

In 2013, Royal Dutch Shell Corporation, the world’s fourth largest oil producer, with about 3.1 million barrels of oil equivalent per day, and almost 40,000 staff, spent only $32million to deploy a similar solution within 18 months.

With the tool, Shell monitors real-time operational processes involving thousands of subsidiaries and affiliates in over 90 countries around the world, including Nigeria.

But its implementation at the NNPC hasn’t worked that well.

An implementation review report in February 2015 by the corporate audit department of the NNPC, exclusively obtained by PREMIUM TIMES , showed how the deployment of a similar platform by the NNPC has been ineffective.

By January 2015, the report said the SAP ERP implementation gulped almost double the total amount approved for the deployment of the solution in all NNPC’s 13 subsidiaries, affiliates and strategic business units (SBUs).

The report, titled “Review of SAP Implementation Project” from Assignment No. HPA/1/2015/02, stated: “a major risk that hindered the completion time-line of the project was connectivity required to support SAP to go-live was not fully available.

“There seems to be a disconnect between the business units (users of different SAP solutions) and the SAP PMO as per the completeness of deployment and usability of the solution.

“While SAP PMO considers SAP program as having been completed and closed, most business units are still grappling with challenges, ranging from incomplete deployment, lack of integration amongst modules and usability.”

NNPC enterprise solution conceived

The SAP ERP was first approved by the board of the corporation on May 15, 2007 as a plank for the then Olusegun Obasanjo administration’s reform agenda in the country’s oil and gas industry.

But PREMIUM TIMES investigations suggest that successive NNPC managements exploited loopholes in the project’s execution to milk the system of billions.

Findings showed that Accenture, a management consulting and technology services firm, was originally expected to run the project for $67million.

The company was paid about $3million in 2007 to carry out the “blueprinting”, a road-map for implementing the solution.

However, another bid for $24million was received from SAP of Germany through its Nigerian subsidiary, SAP Nigeria.

This compelled Accenture to bring down its price to $25million.

Provisional Board approval favoured the bid by SAP Nigeria, with majority of members persuaded with the argument that as patent owner of the SAP solution, the company would provide after sales service where necessary at no extra cost.

The Board decision to choose SAP Nigeria angered some key members, who were strongly rooting for Accenture.

Regardless, the then Special Adviser to the President on Petroleum, Edmund Daukoru, stood up to the pressures by some powerful Board members to overturn the Board’s decision for Accenture.

Members of the Board were still abroad in Harvard for a training programme when their dissolution was announced by then President Obasanjo.

Days later, Mr. Kupolokun wrote to Mr. Obasanjo requesting the reversal of the dissolved Board’s decision on the contract to SAP Nigeria.

But, the president could do nothing on the request without a reconstituted NNPC Board till Mr. Obasanjo’s tenure ended in May 2007.

When Umaru Yar’adua took over and the NNPC Board was reconstituted, Mr. Kupolokun also approached him with a similar memo. But nothing was done until the then NNPC GMD left office.

SAP ERP approved

Underground scheming on the project continued till February 16, 2009 when then President Yar’adua finally approved about $25.57million for the entire project.

That did not include the cost of critical related infrastructure, $4.038 million; project team cost, $1.74 million, project implementation in Kaduna, Warri and Port Harcourt refineries, $5.4 million, totalling about $36.75million.

Shortly after the presidential approval of the contract,  Surajdeen Afolabi, then a supply chain manager with Shell Petroleum Development Company of Nigeria was recruited to take charge of a newly created department to coordinate the SAP project.

Mr. Afolabi was assured strong management support to work independently of the existing ICT Department, this newspaper understands.

Indeed, successive managements in the NNPC made good the assurances.

On assumption of office, Mr. Afolabi’s first proposal was for $3million to conduct another “blueprinting”, done earlier by Accenture. Despite opposition from the IT department, approval was given and funds released, insiders say.

Almost double bill

Details of the expenditure on the project exclusively obtained by PREMIUM TIMES revealed that as at January 2015, the NNPC had spent about $70.66 million and €6.06 million as well as N820.089 million.

The amount is almost double the  $36.75 million approved by the Federal Government for the completion of the entire project.

Yet, the solution is partially functional in only five SBUs, namely: the Nigerian Petroleum Development Company, NPDC; Pipelines and Products Marketing Company, PPMC; Integrated Data Services Limited, IDSL; NNPC Retail Limited and Crude Oil Marketing departments, COMD, and Warri Refinery and Petrochemical Company, WRPC.

Deployment in each SBU costs a minimum of $5million.

Project completion timeline was 86 weeks. But the review report showed that more than 36 months later, implementation seemed to be leading nowhere.

“As at March 2012, over two years after the take-off of the project, connectivity required to support SAP (to) go live was not fully established,” the report said.

Experts fault deployment

A Lagos-based IT consultant, Fred Umahi, criticized the deployment of stand-alone SAP solutions by NNPC, saying as an enterprise solution, it should have been deployed once and run globally through an integrated network linking all SBUs, irrespective of location.

Mr. Umahi faulted the duplication of the SAP solution in all NNPC subsidiaries without integration, describing the absence of inter-connectivity between the SBUs so far deployed as the main reason the solution had not been functional.

“Every organisation deploys one SAP solution and integrate it to all its business units globally,” Mr. Umahi explained. “Deploying stand-alone SAP hardware, data baseline and operational system in silos by NNPC without integration is wrong.”

Those familiar with the implementation of the contract said project managers did not reckon with its scope, in terms of the modules suitable for the business requirements and peculiarities of each SBU.

For instance, workers in the Human Resources, Crude Oil Marketing and Finance departments said the SAP module deployed to them was not what they needed, because they were serviced with different business modules and licenses.

Insiders also said despite opposition by the IT department that Microsoft Business Intelligence Suite had already been deployed, the NNPC management went ahead to approve €4 million for Business Intelligence solution using Business Object.

But the Business Intelligence module, a management reporting tool for decision making, deployed at NPDC, failed to work, because it does not run on Service Pack Zero, considered an obsolete model that does not allow upgrade.

As a temporary solution, an upgrade from Service Pack Zero to Service Pack 7 cost about $5million, apart from additional charge of $2million per SBU for “stabilisation”; $1.9 million for “corridor support” (training for prospective users) and €4 million as annual SAP maintenance fee. “Customization” and “optimization” attract similar fees.

Equally, approval was given for the department to license all SAP solutions end-to-end at €4 million each, irrespective of the fact that NNPC already had similar subsisting licenses.

Despite the huge expenditure on the deployment of the Business Intelligence that has failed to work, a source at the NNPC, who asked not to be named, as he had no permission to speak on the issue, said Mr. Afolabi already announced plans to scrap the system.

In its place, our source said, he wants to introduce an Enterprise Project Management, EPM system after NNPC had spent about $1.9 million for in-house personnel training.

Approval has also been given for another contract to run a Project Sanctioning and Approval Procedure, P-SAP.

Hawking the solution

To capture more SBUs and affiliates to buy in, the IT department has continued to hawk the solution to all NNPC subsidiaries and affiliates.

The audit report noted that Mr. Afolabi made presentations proposing the solution to 18 SBUs and several affiliates, like Brass LNG, Petroleum Products Pricing Regulatory Agency (PPPRA) and Department of Petroleum Resources (DPR).

“The problem with the SAP project is a fundamental one,” one top NNPC official said.

“For the system to work, President Muhammadu Buhari has unfinished business at NNPC. If his dream of sanitizing the NNPC and bring it to international reckoning is to be realized, cleaning the Aegean stable has to begin with the SAP project.

“Those who committed the fraud that has cost government billions must be cleared from the system and the contract reviewed. Otherwise, the NNPC is doomed.”

NNPC says SAP is working

The spokesperson for the NNPC, Ohi Alegbe, has however dismissed claims that the project was not working, saying those complaining were those finding it difficult to adapt to the change since the introduction of the solution in NNPC.

“Please, don’t get sucked in to the false claims that SAP is not working. SAP is working very well. In fact, the implementation of SAP is one of the success stories of the ongoing transformation process at the NNPC,” Mr. Alegbe said.

Mr. Afolabi, who was in charge of the SAP Department since 2007 as General Manager and recently appointed Group General Manager, SAP/IT Department, by the new NNPC management, dismissed as “laughable and mischievous” claims that SAP in NNPC was not working.

He provided commendation letters and framed awards on the walls of his office received from previous NNPC managements as testimonials for the performance of the SAP solution in the corporation’s operational processes, particularly contract awards and payments.

“SAP is working perfectly in NNPC,” Mr. Afolabi told PREMIUM TIMES in his office a fortnight ago in Abuja.

“Since the introduction of SAP in NNPC, all aspects of our operations are working seamlessly. We have received several awards and recognitions from NNPC management and outside because of the SAP success story. The only challenge we have has been how to get everybody to buy in.”

He refused to give further details.

Although Mr. Afolabi promised to provide “vigorous and robust responses” if PREMIUM TIMES submitted a formal request for clarification on issues relating to SAP in NNPC, he failed on three occasions, over two weeks, to provide answers to questions sent to him.

Despite claims that SAP was working well, the newly appointed Group Managing Director of NNPC, Ibe Kachikwu, recently expressed frustration and disappointment over the project, officials there told PREMIUM TIMES.

Mr. Kachikwu reportedly told a meeting of NNPC’s top management officials that despite the huge investment in the project, it remained more of a drainpipe than a solution, particularly in helping curb corruption in its business processes.

The General Manager, ITD/SAP of NNPC, Inuwa Danladi, recently recruited to head the seven-member SAP Team, was said to have recommended that based on the implementation review report, the SAP project cannot function effectively except it was dismantled and deployed afresh.

Mr. Danladi is said to have told the NNPC management that the deployment of SAP in the corporation was deliberately designed to fail, so as to serve as a conduit for some unnamed officials to siphon money.

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