Namcor oil storage report exposes shortcomings
04 October 2021 | Energy
A due diligence report sanctioned by the National Petroleum Corporation of Namibia (Namcor) as well as sensitive ministerial correspondence into the state of the National Oil Storage Facility have given insight into how government scrambled to rectify botched designs and poor workmanship at the facility.
Documents seen by Namibian Sun indicate that the initial project design lacked key structural components such as an internal firefighting system, dedicated jet fuel line, municipal sewage and water reroute, substation at tank farm as well as other critical components to enable the facility to operate optimally.
These, amongst others, ended pushing up the project price from N$3.7 billion to N$5.6 billion.
Government mainly blamed the price escalation on currency fluctuations, initially projected at over N$955 million, but other factors such as the design flaws hardly saw the light of day.
The leaked 2020 report titled ‘Technical Due Diligence and Risk Assessment Report for the Takeover of the Management of the National Oil Storage Facility’ was sanctioned by Namcor to ensure that the facility indeed met global standards to prevent any possible issues that might place the company at risk once it takes over the facility.
The mines and energy ministry, however, said it will not take the blame for the ‘botched’ oil storage designs that were picked up at a later stage, despite prior explicit warnings from industry players that the designs were not in line with international standards.
Bending over backwards
Correspondences seen by Namibian Sun also indicate that the mines ministry lobbied the Central Procurement Board of Namibia (CPBN) to increase the project cost.
The leadership of the board allegedly had to bend over backwards to approve the N$1.9 billion increase.
Mines ministry executive director Simeon Negumbo on 24 July 2017 wrote to CPBN head Patrick Swartz requesting approval to increase the project cost to cater for variation costs, currency fluctuations as well as delayed claims and interest charges.
The increment was to cater for an internal firefighting system (N$115 million), dedicated jet fuel A1 line (N$105 million), municipal sewage and water reroute (N$4.5 million), substation at tank farm (N$4.1 million), substation at onshore station (N$2.8 million), purchase of 5 187 square metres of land (N$24 million) and currency exchange fluctuations (N$687 million).
Negumbo said the contractor had to be paid N$199 million because “government was unable to pay the contractor for six months” during 2016.
A further N$24 million in interest payments had to be paid due to the delay.
Swartz responded to Negumbo three days later granting the request.
He also approved the projected foreign fluctuation of over N$955 million.
An incorporated joint venture between China Harbour Engineering Company, the Roads Contractor Company and Babyface Civils was the contractor.
Om’kumoh AIJ was the consultant representing government.
As expected, Namcor’s fears were confirmed when investigators discovered design flaws and poor workmanship.
The report also found electrical equipment installation flaws, poor installation of cables, no back-up generator at the terminal, corrosion of sensitive equipment as well as lack of essential amenities, amongst others.
Changes explained away
Negumbo last week defended the cost escalations, saying decisions were not taken in isolation and that key stakeholders such as Namcor and the CPBN were consulted.
“The project fell under the authority of an inter-ministerial steering committee under which an inter-ministerial technical committee falls and under which an internal steering committee also fell. Decisions relating to additional cost or related items are then cascaded through the legal systems, processes and institutions for final decision-making through the CPBN,” he said.
“The terms of reference in the tender were primarily provided by the end-users. Namcor and the Namibia Ports Authority, as the end-users, conducted the feasibility studies for each of their respective sections,” he added.
Regarding the internal firefighting system, Negumbo said it had to be altered from a fresh water firefighting system to a seawater firefighting system as the municipality was unable to meet the demand for fresh water in the event of a fire.
As for the alteration of the A1 fuel pipeline, Negumbo said Namcor had indicated that they would use a combined line for diesel and jet fuel.
“However, during construction, the end-user expressed a preference for a dedicated line in accordance with international best practices and to mitigate any risk with such a sensitive product such as jet fuel. This necessitated the variation,” he said.
Meanwhile, explaining the need to acquire more land, Negumbo said the ministry opted to purchase additional land to enhance the functionality and user-friendliness of the facility - particularly with respect to the turning of large trucks.
With regard to the planned rerouting of municipal services, he said: “Some services that were present underground were not shown on the municipal plans and therefore the rerouting of services had to be done and was an unforeseen event that the contractor had to be compensated for.”
Government earlier this year handed the facility over to Namcor to operate and maintain it.